In addition to the total number of claims and warranty costs, these five key warranty metrics help warranty managers drive performance and product quality.
1. CPU – warranty cost per unit: Total warranty cost/number of units
CPU is the average cost during the warranty coverage period. CPU is a key metric to determine the warranty budget and accruals and help with product and extended warranty pricing to customers.
2. Warranty cost as percent 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 the company’s bottom line.
3. Percentage supplier recovery: Supplier recovery/total warranty cost
As companies source most components from suppliers, percentages of the warranty recovered from suppliers are 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.
4. 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.
5 Claim frequency: Number of claims/number of units
While other metrics are based on amounts, this is based on the number of claims or failures. Some companies with large numbers 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 the mean time between those failures can help identify areas of concern if those failures are for small dollar amounts.
Track changes in these metrics over time to help track the progress your company is making.