Chapter#19 Product warranties and liabilities

1. COURSE INSTRUCTOR : PROF. DR. SHAHAB KHUSHNOOD Chapter#19Product warranties and liabilities Lecture No. 16 Course: Engineering Management MED DEPARTMENT, U.E.T TAXILA

2. Warranties Warranties Primary Obligations • Replace the defective product • Replace the faulty components in the product • Make payments for the service labor to rectify defective components • Make payments for the replacement of defective parts and the installation

3. b) Reasons For The Warranty Needs • It makes the producer of the product responsible for rectifying faults in the product • It helps in prompt acceptance of the produced product • It helps to enhance the manufactured product marketability • It encourages better monitoring of the performance of the product • It helps to expedite payment from the customer for the sold product • It encourages the manufacturer to produce better product

4. c) Variation in Warranty Practices For Export Products • The companies have cited the following reasons for developing different terms • The product warranty duration period may depend on factors such as service quality, reliability and maintenance availability in local environments. • Availability of information on the usage of product may be in the foreign market • Different legal jurisdictions of the outside countries may demand changes in the warranty terms • Different legal jurisdictions of the outside countries may demand changes in the warranty terms

5. Warranty Management • Firms may assign responsibility for warranty administration to • Customer service or sales unit when the claims are relatively simple and their number is low • Product service or technical service function when the claims require a certain technical knowledge to process • A sole separate warranty administration unit when the cost or number of claims is high

6. Trends in Warranty Claims • Fifty-one percent of the companies reported that there was no change in the number of warranty related requests • Thirty-eight percent of the manufacturers agreed that the requests had increased • Only eleven percent of the participating organizations indicated that warranty repair requests had decreased

7. Trends in Warranty Claims (Cont.…) • The following are the common reasons given for the growth in warranty claims • Product misuse by the customer • Inflationary pressures • Deterioration on the quality of manufactured products • More complex and service-sensitive products

8. Trends in Warranty Claims (Cont.…) • The manufacturer service executives forecasted the following warranty problems in the future • Government regulations • Rapid increase in the cost of material, labor, etc • Increasing trend in user expectations • Warranty starting dates records-keeping • Rising litigation activity • Rising product liability • Shortage of qualified product service manpower

9. Reliability Improvement Warranty Components Of A Warranty

10. Factors Concerning Warranty Elements • The factors which must be considered by the buyer when specifying elements of warranty are • Product producibility • Product line • Product line planned longevity • Maturity with manufacturer • Technical support capability of the manufacturer • Overall support availability of the manufacturer

11. Manufacturer’s Reliability Improvement Warranty Risks • Sudden increase in the inflation rate • Covering a high technology product • Unforeseen operational stresses under which the manufactured product has to function • Product exposure to failure will increase due to increase in its usage • Due to maintenance manpower, product mishandling or tampering may induce failures

12. Criteria For selecting equipment For Warranty Coverage • Ready transportability of the equipment • Self-containability of the equipment • Field-testability of the product • Initial support cost of the product is moderate to high

13. Incentives Of Warranty To Both Manufacturer And Customer • The primary incentives to manufacturer and user are as follows Manufacturer: • Improvement in changes for more business in the future • Expanded market for the product • Improvement in changes for repeat business • Cost controls establishment through design, production and field support

14. Incentives Of Warranty To Both Manufacturer And Customer (Cont…) User: • Decreased risk • Low initial and operational costs mean better cost versus profit ratio • Calculate risk • State-of-the-art advancement: reliability, maintainability, accuracy, operation and function

15. Warranty Cost Model • A model to estimate contractor warranty cost, as follows where

16. Product For Liabilities Causes For Liability: • Failure to keep suitable records of user complaints and product failure • Design defect in the manufactured product • Due to inadequate testing and quality control, the product has manufacturing defects • The packaged product is prone to handling and safety-related damage

17. Areas Examined in Building A Product Liability Suit • Incorrectness of the product safety procedure • Test procedures • Inadequacy in design • Faults in design • False claims made in product advertisements

18. Defenses Used Against Consumers By The Suppliers