Warranty Containment and Reduction

1. WarrantyContainment and Reduction 4 August, 1998

2. The warranty landscape • OEMs overwhelmed by warranty costs • Supplier sharing of warranty seen as logical extension of engineering and design responsibility

3. The warranty landscape • Suppliers captive to dysfunctions of OEMs’ warranty systems • Suppliers need tools to address increasing responsibility to contain warranty costs

4. “Business as usual”: Rising, unidentifiable,  warranty costs • Warranty “accounting” as a percentage of manufacturing costs • Failure to account for catastrophic chargebacks beyond their control

5. Cost of conflict • 5% of the price of everything you purchase can be attributed to the cost of conflict • We believe that it’s higher in automotive

6. What do customers want? • New product features • No service (event) • Decreased Frequency • Less Time • Lower Cost

7. What causes warranty claims? • Failures in designed functions • Customers’ wrong expectation of function • Logistics or process weaken function • Different stakeholders agendas

8. How much could we save? • 50% of total warranty cost is labor • Improved serviceability process reduces warranty costs • Extended Service Plan (ESP) warranty costs are often twice the basic vehicle warranty

9. Warranty “triage” • Reduce warranty costs beyond Robust Design tools at component level • Define warranty exposure of systems and component suppliers

10. Once the patient is stable • Define warranty exposure of next generation products • Design better systems via better holistic needs definition

11. The payoff • Supply chain partnering without animosity over misconstrued data • Reinforce OEM partnering with its Tier Ones • Reinforce Tier One partnering with its Sub-tiers

12. Solutions require “holistic” view of component life cycle • Data tells you only “how you spent the money” • Data is misinterpreted or insufficient, or both • Input needed from all stakeholders • Predicting exposure requires “warranty process FMEA”

13. “If it’s so costly, why haven’t we solved the problem?” • Business Systems are the invisible “fourth leg” of the solution tripod of Design, Materials, and Manufacturing

14. “If it’s so costly, why haven’t we solved the problem?” • Open loops in Business Systems drive intractable warranty costs in the face of “zero defects” • Business Systems solutions generate effective, often immediate, cost savings

15. Impinging Variability Input Shipping Trans- Dealer Process Yard portation Changes in: Output Component Design Customer Service Mfg. Process Assy. Process Business Process Measure Customer Warranty Service System Division The scope of warranty analysis

16. AT WHAT POINT IS DATA COLLECTED?WHERE IS DATA MAINTAINED? EXTERNAL SUPPLIER 1. Trim cover inspection - Site 1 2. Marriage inspection - Site 2 3. Post-oven inspection - Site 2 4. Final inspection prior to shipping to Assembly. INTERNAL SUPPLIER 1. Raw stock inspection 2. Operator inspection 3. Finish process inspection No inspection in shipping. No inspection in shipping. ASSEMBLY 1. Random incoming inspection (spotty). No official inspection - DISCRETIONARY 2. Installation Final Area Inspection - 100% 3. Random daily inspection 4. Special Audit. TRANSPORTATION RAIL - Eastbound 1. Origin Inspection on location prior to load. Vehicle Loss and Damage passes to database. 2. Destination inspection: “walk through” prior to unload RAIL - Westbound 1. Destination inspection prior to unload 2. Off-rail inspection (full inspection) (No Origin Inspection prior to load!) SHIPPING YARD TRUCK HAULER 1. Trucker “Walk around” pre-loading 50% 50% DEALER 1.Dealer Final Delivery (95% on spot; 5% night deliveries, 24 hrs. to inspect. 2. 48-hour rule to find further defects. 3. Dealer Standard Inspection Stand-alone reports to OEM 4. Dealer Prep (100%) 1st Corp. database input; Dealer information 5. Customer Delivery Inspection (100%) Corp. database 6. Dealer Standard Report (90-Day Service Fix) List of priorities for Plant, Supplier and Engineering. CUSTOMER 1. Customer Delivery Inspection (100%) 2. 30-Day Customer Survey (100%) Corp. database 3. Warranty Claims 4. Customer New Vehicle Quality

17. Product family planningAn Integrative Model of Product and Process Market Applications Best Better Market Tiers Good Economy Technical and Commercial Leverage of Platforms in the Form of Derivative Products Quickly Made and Successfully Introduced Product Platforms Successive Generations of the Product Platform Discover and Integration Common Building Blocks Consumer Insights Product Technologies Manufacturing Processes Organizational Capabilities adapted from Meyer and Lehnerd, The Power of Product Platforms, Simon & Schuster, 1997

18. Stakeholder identification • Identify all stakeholders affecting you, especially those you detest • Gravitate to “likeable” stakeholders at your peril

19. Data identification & characteristics • Data tells you only “how you spent the money” • Data is an indirect pointer to quality • Data is insufficient, misinterpreted, or mistakenly filtered

20. Observed results • OEMs believe they see spectacular, assignable cause in their warranty systems • Verbatim interpretation often reveals a different causal condition

21. Unexpected root cause • Warranty systems are broad, complex, and have many variables

23. Failure “What function failed?” Policy Common circumstances Process Design/ Material Cause “What caused the failure?” Policy Special circumstances Process Design/ Material Detection “What was our detection method for catching it?” Control Measures “Why wasn’t it detected in our system?” Recommended Actions “What controls can we put in place to prevent the failure?”

24. Warranty process successes • Reduce current, intractable warranty costs • Predict next generation warranty costs • Design better, lower cost lifecycle designs • Constructively define warranty sharing

25. Surprise, surprise • Trust in the supplier-OEM relationship is the influencing factor • Warranty is a tricky, balancing act that may have to be outsourced to specialists

26. Overriding reasons for failure • Failure to set and reset mutual expectations • Failure to build and maintain a sustaining relationship • Floundering on the “rocks of convenience”

27. OEM expectations • Supplier-led systems integration • Sequenced modular assembly • Improved vehicle durability & retained value • Minimal product liability risk • Increased customer satisfaction • Reduced warranty costs

28. Suppliers’ expectations OEMs and 2nd Tier Suppliers: • Fully inform • Collaboratively team • Actively listen • Rapidly respond

29. OEMs and Suppliers should: • Hear Voice of the Customer, not “Voice of Engineering” • Employ simultaneous engineering • Perform warranty process “FMEA” focused on policy execution to predict exposure

30. Suppliers should: • Know the OEM’s warranty policy • Understand policy implementation • Examine service time labor standards • Understand the OEM-dealer and OEM-enduser relationships

31. Suppliers should: • Proactively approach OEMs with regard to warranty implementation and cost sharing • Get in early to guide policy guidelines, standards, and implementation

32. Dealing with suppliers • Maturity of sub-suppliers? • Relationship with your sub-suppliers? • Track-record of successful long-term relationships? • Share warranty costs, drive supplier restructuring, or both? • Defray costs or partner?

33. Proactively approach suppliers • Proactive implementation and cost sharing • Pilot supplier selection? • Will the process break? • Why? • Sharing implementation? • Structure of pilots? • View from the supply base?

34. How do the Japanese do it? • Demanding domestic customers • Bureaucracy, with Trade Associations, set standards and licensing • OEMs are platform-centric, not part-centric

35. Now it’s your turn • What’s your experience? • What can you do to reduce your warranty costs and exposure? • How can you involve your suppliers in warranty responsibility?