In addition to the total number of claims and warranty costs, these five key warranty metrics help warranty managers to drive performance and product quality.
- CPU - Warranty Cost Per Unit: Total warranty cost / # of units.
CPU is the average cost during the warranty coverage period. CPU is a key metric to determine the warranty budget and accruals as well as help with product and extended warranty pricing to customers.
- Warranty Cost as % of sales: Annual warranty cost / Annual sales
Warranty as a percentage of sales may vary from 0.5% to 5% of sales for different industries. This metric will help companies easily define the impact of warranty on company’s bottom line.
- % Supplier recovery: Supplier recovery / total warranty cost
As companies source most of the components from suppliers, percentages of the warranty recovered from suppliers is a very important part of managing warranty costs and supplier quality. Supplier warranty and recovery amounts can help measure the supplier performance and help with discussions on parts pricing and warranty terms & conditions with suppliers.
- Warranty contribution rate: Warranty cost for specific area / Total warranty cost
Warranty contribution can be applied in any area of focus. This metric can be used to determine the warranty cost contribution for product categories, models, regions, parts, labor and dealers. Creating Pareto charts or Top n reports by warranty contribution will help determine the priorities for improvement.
- Claim frequency: # of Claims / # of units
While other metrics are based on amounts, this is based on number of claims or failures. Some companies with large number of products use a variation of this metric like Repairs per thousand or per million if using a Six Sigma model. The frequency of failures and mean time between those failures can help identify areas of concerns, if those failures are for small dollar amounts.
Tracking changes in these metrics over time will help track the progress the company is making. It identifies specific areas to focus on for improvements.
Michael (Mike) Stroffolino
Senior Product Manager at Mize, Inc. Mike has over 20+ years’ experience in the warranty industry with companies such as Configit, PTC, 4CS, and Snap-on. He has worked closely with many global companies to provide warranty and field service systems.