By: Rajan Kashyap | Delivery, Manufacturing
As manufacturing companies move relentlessly towards being service organizations than pure product sales organizations - Yes - Warranty solutions for any manufacturing company can give money back to business. This goes direct to the bottom-line and shareholder value. To understand how, let's understand a key process in Warranty Lifecycle i.e. Warranty Provisioning.
Warranty Provisioning a process where a pot of money is set aside in books of manufacturers to take care of warranty costs coming in the next month/quarter. More often than not, the process of how much money to set aside is calculated either manually or a simple average of last few months is applied or simply through someone's gut feel. This results in either lower pot resulting in claim processing delays and eventually customer dissatisfaction or higher pot resulting in taking money away from business which could have led to next innovation or increased shareholder value.
So how do we solve this problem?
Before we get into solving the problem, let's take a quick look at the factors that affect warranty provisioning i.e. the sales done till date, months in service of the equipment, re-calls, extended warranties, factory liability vs importer liability etc.
We had one of our customer who came to us with the problem of how to calculate warranty provisioning effectively. As the customer was used to manually calculating (read using excel) with rolling monthly data – the process was reactive and prone to seasonal errors of significant magnitude. And to safeguard against these errors, the customer tended towards over provisioning to ensure customer satisfaction.
We developed an algorithm to use Linear Regression formulae to different kind of warranty claims on every model of every brand that the customer produced to calculate the warranty pot each month. Types of warranties included service, spare parts, accessories, goodwill, extended warranties and campaigns. The algorithm was developed to automatically calculate the warranty provision based on current sales, claims data, seasonal variations and any manual corrections that needed to be done. A simple and intuitive user-interface was given to customer to run the calculations at the beginning of the month.
This system reduced the calculation time cycle from almost 30 days to about 3 hours. But most importantly, the customer was able to reduce the warranty pot by £2mn per month for just one brand and customer had a total of 12 brands. A straight addition to the customer’s bottom-line and shareholder value.