This post is the second in a series of four addressing best practices in warranty and contract management. The best practices highlighted in the series, we believe, are core to better warranty and contract management, happier customers, and fatter profit margins.
In this installment, we’ll look at how to break down silos that divide warranty and contract processes.
Manufacturers generally recognize the immense opportunity that better warranty and contract management represents. They see the “chain of gain” it promises to deliver:
- Better warranties and contracts generate better product knowledge.
- Better product knowledge leads to better warranty, service and product performance.
- Better warranty, service and product performance leads to happier customers.
- Happier customers are likelier to remain customers. And when customers see the increased value they’re getting from their products, they tend to buy more–and they refer more new prospective customers to the manufacturer.
- Retaining and growing of current customers, combined with finding and nurturing new customers, increases the manufacturer’s revenue, profits, and market share.
- A better bottom line means a better company– and increased shareholder value.
Of course, there’s the threat of the opposite effect–the “chain of pain” that can occur when a manufacturer fails to obtain better product knowledge through smarter warranties and contracts. They may miss the chance to add value and delight customers with their intelligence-driven service and product improvements. Revenue, profits, and market share may strain to keep up. The manufacturer may fall behind competitively.
The bullets below chart challenges and opportunities in warranty and contract management. None of the pains described here are insignificant. Yet, of all the difficulties they face, functional silos are typically their biggest barriers to success.
Silos not only divide warranty and contract processes, they separate service teams from each other and from the design, engineering, and manufacturing organizations that can benefit from their product insights.
With disconnected departments and processes, the manufacturer’s opportunities for cross-enterprise efficiencies and synergies are lost. Breaking down the silos is crucial for ditching the pain and grabbing the gain. A product-centric approach to warranty and contract management can be just the silo-buster needed.
Challenges from traditional methods of warranty and contract management:
- Manufacturers spend up to 7% of product revenue on warranty claims annually, according to an IDC Manufacturing Insights report.
- Up to 70% of product components are sourced from the manufacturer’s suppliers, yet suppliers now pay less than 15% of warranty costs.
- According to BearingPoint Management & Technology Consultants, manufacturers typically need nine to 12 months to make a significant change in the product when a quality problem occurs in the field.
- Fewer customers are choosing to attach warranties and service contracts to their new product purchases.
- Warranty and contract management processes are disconnected and inefficient.
Opportunities using a product-centric approach:
- A better-performing product minimizes warranty claims, resulting in lower service costs that significantly improve profitability.
- Supplier recovery improves. Manufacturers can significantly recover costs when they hold suppliers accountable for their share of warranty entitlements related to supplier-specific parts that are returned under warranty.
- The cycle time for design changes can be cut in half when warranty analytics provide timely, accurate product information for assessment.
- Better warranty and contract management increases customers’ trust and confidence – both in the quality of the product and the quality of service they receive. They tend to buy service contracts and warranties more readily. This increases service revenue.
- The product-centric approach helps the manufacturer integrate and streamline processes. They do more with less and can reinvest savings. Profits rise. And customers get more value from their use of the product.
How is your organization breaking down silos that divide warranty and contract processes?
Stay tuned for next week’s installment of the Warranty and Contract Management Best Practice Series to learn how to increase warranty and contract performance knowledge.