The data and analysis contained in this report are based on the results of Strategies For GrowthSM‘s (SFGSM) 2019 Warranty Chain Management Benchmark Survey, conducted in November/December, 2018.
A. Putting Things in Perspective
The 2019 global respondent base is comprised of 105 warranty management professionals.
Overall, survey respondents appear to be focused on a “cluster” of customer-centric market factors that are driving their respective organizations to improve existing levels of warranty management performance.
The top drivers cited are:
• 60% Post-sale customer satisfaction issues
• 43% Desire to improve customer retention
• 40 Customer demand for improved warranty management services
In order to effectively address these challenges – and strive to attain best practices – respondents then cite the following as the most needed strategic actions to be taken:
• 46% Improve Warranty Management–related planning and forecasting activities
• 43% Develop/improve metrics, or KPIs, for advanced warranty chain analytics
• 34% Restructure for improved Warranty Management oversight & accountability
The remainder of this Analysts Take paper provides additional insight into each of these and other related areas that may be impacting an organization’s drive to attain warranty chain management best practices.
B. Survey Respondent Disposition
An overview of the survey respondent disposition reflects a microcosmic representation of the global
Warranty Chain Management services community, as follows:
• 59% Manufacturer/OEMs or Third Party Maintenance (TPM) providers; 16% Professional Services; 10% Dealer/Distributors; 5% In-house/Self-Maintenance; and 10% Authorized Services Providers
• 80% North America, 12% EMEA, and 8% Asia-Pacific
• 48% C-Level/VP/GM; 20% Director; 24% Manager; and 8% Technician and Other
• 50% Small Enterprises (i.e., less than US$100 million); 27% Medium Enterprises (i.e., between US$100 and US$999 million); and 23% Large Enterprises (i.e., US$1 billion or larger)
• 28% High-Tech/IT Services; 16% Medical/Healthcare; 16% Industrial/ Manufacturing; 12% Consumer/Retail; and 28% Other (including 12% Construction, etc.)
As such, we believe the survey results to represent a realistic reflection of the global warranty chain management community.
C. The Movement Toward Universally Automated Warranty Management Processes
Despite the benefits that a formal, automated, warranty management solution may bring to the services organization, there are still at least a majority (56%) that currently perform their warranty management activities via an at least partially manual process. In fact, one-in-six organizations (16%) have no formal warranty management process in place at all, and another one-in-five (20%) rely entirely on manual processes! However, a somewhat higher percent, approaching two-thirds of the respondent organizations (63%), are currently performing their warranty management activities through at least partially automated systems. Of that amount, more than one-quarter (27%) report that their warranty management processes are now “fully automated” (Figure1).
Presently, nearly half (46%) of respondents report that their warranty-related services are being performed directly by the manufacturer or OEM, while an identical percent (46%) rely on a dealer/service center, or thirdparty service organization, as the primary services provider. Only 7% report that they perform warrantyrelated services internally, or in-house, and another 4% report that customers typically return the failed equipment to the depot themselves.
In a majority of warranty-related cases, a service technician repairs the equipment or unit directly at the customer site (56%). However, in just over one-third of these incidences (34%) a replacement unit for the failed equipment or part is used in the following distribution:
• 16% Service technician replaces the failed equipment/part at the customer site
• 11% A replacement is sent to the customer site before the failed unit is returned to the depot
• 7% A replacement is sent to the customer site following return of the failed unit from the depot
D. Annual Warranty Budgets Are Expected to Continue to Increase
Overall, there appears to be a significant uptick in the percent of services organizations that expect to increase their warranty management budgets over the next 12 months. In fact, nearly two-thirds of respondent services organizations (62%) expect their annual budgets to increase in 2019, with more than one-in-five (21%) anticipating increases of 10% or more.
Another 21% expect no changes to their annual budgets over the course of the next 12 months, and only 18% anticipate a decline during the period. However, most of the anticipated declines (i.e., 10%) are expected to be less than 5%, with only 8% anticipating a decline of more than 10%.
As such, with more than three times as many respondent organizations expecting to increase their annual warranty budgets over those planning to decrease, the warranty chain management segment appears poised to deal with a growing market – and a commensurately increasing budget – to manage their respective warranty activities in the coming year (Figure 2).
Incidentally, these anticipated percent increases reflect the highest levels of warranty budget growth derived from any of the annual Warranty Chain Management (WCM) Benchmark Survey Updates conducted by SFG℠ in the past 5 years, thereby portending for a more expansive WCM market in the coming 12 months.
E. Benefits of Establishing – and Effectively Managing – an Extended Warranty Program
The survey results reveal that nearly two-thirds (63%) of respondents currently offer an extended warranty agreement or service contract to their respective customers (Figure 3). This percent would actually increase to near three-quarters (i.e., ±73%) when reallocating the “don’t know/unsure” responses into the “yes/no” categories.
Further, while ±one-quarter report that they do not currently offer extended warranties of any type, the remaining respondents estimate that between 9.0% (median) and 16.7% (mean) of their total annual services revenues come from the sale of extended warranties.
Overall, 38% of respondents report that the percent of total revenues coming from the sale of extended warranties have increased over the previous 12 months, with 9% saying the increase has been by greater than 25%. Half of respondents (50%) report that this percent has remained unchanged during the period, and only one-in-eight (12%) report a modest decrease of less than 25%, leading to an “increased-overdecreased” ratio of more than 2:1.
F. Principal Drivers Impacting the Warranty Management Market
The respondents to the survey have also clearly identified the specific drivers that are pushing them to aspire to the attainment of higher levels of performance. In fact, they have provided responses that suggest that there are essentially three main “clusters” of factors that drive their respective warranty management initiatives: (1) Customer-focused, (2) Product Quality-focused and (3) Profit-focused – and in that order (Figure 4).
For example, among the Customer-focused drivers, post-sale customer satisfaction issues (60% – up from 58% just a year earlier, and only 42% in 2016!), the desire to improve customer retention (43%) and customer demand for improved warranty services (40%) are the top three drivers cited with respect to optimizing overall service performance. No other drivers are cited by more than 28% of respondents.
The next “cluster” of drivers is Product Quality-focused, and is represented by (1) dealing with product defect-related costs (28%), and (2) inferior/deficient product quality (23%). The third “cluster”, Profitfocused, is comprised of a single driver: internal mandate to drive increased service profitability (23%).
As such, the warranty chain management community has made it clear that it is squarely focused on, first, satisfying – and retaining – its customers; second, dedicated to improving product quality-related issues; and third, mandated to drive increased services profitability – thereby improving all key aspects of warranty management activities.
G. Greatest Challenges Currently Facing Warranty Managers
Aside from the top clusters of customer-, product quality- and revenue-focused drivers, warranty services managers are also faced with myriad additional challenges that come from many different areas. The top challenge, as cited by nearly two-thirds (63%) of the survey respondents, is the ability to identify the root cause of product failures. However, nearly half (45%) also cite cost recovery from suppliers as one of their top three challenges.
Further, between 28% and 30% of respondents also cite repair management (30%), claims processing time and accuracy (30%), and sale of extended warranties (28%) as significant challenges as well (Figure 5).
Among the other key challenges faced by warranty managers today are:
• 25% High levels of No Fault Founds (NFFs)
• 23% Managing administration costs for warranty fulfillment
• 20%Warranty reserve accrual management
• 16% Reverse logistics management
• 5% Fraudulent claims management
Accordingly, warranty managers may often find themselves deluged with many challenges, some of which relate directly to the bottom line, such as supplier cost recovery, cost management, sales of extended warranties and the management of their repair and reverse logistics operations, among others.
H. Current and Planned Strategic Actions Taken by Warranty Management Organizations
Based both on the survey findings and SFGSM’s ongoing research, it is not surprising to find that the global warranty management community recognizes that it will need to continue to improve warranty management-related planning and forecasting activities (46%); develop/improve metrics, or Key Performance Indicators (KPIs) for advanced warranty chain analytics (43%); and restructure for improved warranty management oversight and accountability (34%). In fact, these represent the top three strategic actions presently being taken by the global warranty management community (Figure 6).
Planned strategic actions over the next 12-month period also reflect a strong focus on warranty management operations improvement. For example, 34% of respondents plan to restructure, or update, their existing warranty pricing schedules; and 31%, each, plan to develop/improve metrics, or Key Performance Indicators (KPIs) for advanced warranty chain analytics, institute/enforce process workflow improvements for supplier cost recovery, and purchase and/or upgrade an automated Warranty Chain Management (WCM) solution. And so, these trends are expected to continue!
All told, these current and planned strategic actions reflect a global warranty management community that already has a good understanding of the importance of planning, forecasting, and performance measurement – and recognizes that they will still need to improve these, and other, key processes in order to both bolster the bottom line and keep up with customer expectations.
I. Top Uses of Collected Warranty Management Data
The key to success for most warranty management organizations – and the other organizations within the enterprise with which they interact – is not so much related specifically to what data they are collecting, but, rather, on how they use that data to improve their overall performance. For the global warranty management community, the main uses of the data they collect through warranty-related events are mainly associated with improving field service processes (79%), and improving warranty management performance (68%).
Making product design changes (61%), improving equipment/part return processes (57%), making manufacturing changes (50%), and improving depot repair processes (50%) are also cited by ay least half (50%) of respondents as among the top uses of the collected data (Figure 7). Overall, most of these cited uses are related to effecting change in the way services processes are designed, or where changes are required with respect to existing products and/or manufacturing processes.
Other key uses of data/information collected from warranty-related events, as cited by at least one-quarter (25%) of respondents, include:
• 39% For inclusion in regular corporate financial performance reporting
• 39% Making changes to product documentation
• 36% Making supplier selection
• 29% Making purchasing decisions
J. Primary KPIs Used to Measure Warranty Management Performance
The survey findings reveal that there are basically five warranty management service performance metrics, or KPIs, presently being used by a majority (or near majority) of the respondent organizations that participated in SFG℠’s 2019 Warranty Chain Management Benchmark Survey (Figure 8). They include:
• 72% Customer Satisfaction (cited by 56% as their number one KPI)
• 72% Total Warranty Costs (cited by 17% as their number one KPI)
• 72% Analysis Cycle Time (cited by 11% as their number one KPI)
• 56% Claims Processing Time (not cited as a number one KPI)
• 48% Warranty Costs, per Product (cited by 6% as their number one KPI)
However, there are also an additional seven KPIs that are used by at least one-quarter (25%) or more of respondents. These include:
• 44% Warranty Incidents, Per Product
• 44% In-Warranty Product Return Rate
• 40% Claims Processing Costs
• 36%Total Revenues from Extended Warranty Sales
• 32% Analysis Cycle Time
• 28% Time from Defect Detection to Correction
• 28% Warranty Reserve Variation
Thus, from the survey data, the most commonly used warranty management KPIs tend to focus primarily on customer satisfaction and the costs of performing warranty management operations.
However, using specific KPIs to measure warranty analytics is only half the battle – the other half, of course, is to attain high levels of performance when those metrics are applied to the organization’s performance. This is where the survey results seemingly portray a somewhat mixed level of performance across all warranty management segments. Further, many of the principal KPIs have experienced declines from the previous annual period. In addition, there are many – in fact, too many – individual organizations that are still not performing anywhere near as well as they should be.
The mean values currently being derived through the measurement of two key metrics both reflect declines from the previous year’s survey results. For example, customer satisfaction has declined modestly to 81%, down from 82% in 2018 and 2017 (i.e., although down even more from 85% in 2016). An 81% rating is not bad, although it does fall below the typically desired 85% performance line. However, mean warranty claims processing time has declined by roughly two (2) days year-over-year, decreasing from 7.6 days in 2018, to 9.6 days in 2019 (i.e., and substantially down from only 5.6 days in 2016) (Figure 9).
However, looking at the distribution of warranty management organizations that fall below the mean averages, we find high percentages of organizations that are still not attaining even sub-par performance levels. For, example, nearly half (45%) are not attaining at least 80% customer satisfaction, and almost onethird (30%) are not attaining at least 70% satisfaction! We find these percents to be somewhat shocking! In addition, the roughly one-third (33%) taking 15 days or more for warranty claims processing time puts many organizations well behind their competitors in terms of customer satisfaction and other key metrics.
K. Satisfaction with Their Organization’s Current KPI Measurements
Despite significant declines in warranty claims processing time from 2018 to 2019, a majority of respondent organizations (57%) still report that they are at least “somewhat satisfied” with their company’s warranty claims processing time performance. However, 22% are at least “somewhat dissatisfied”, leading to a ratio of greater than 2.5:1 of “satisfieds-over-dissatisfieds” (Figure 10).
However, the results prove otherwise with respect to Reimbursement Cycle Time where just over one-third (34%) claim to be at least “somewhat satisfied” , with a more than half (52%) claiming to be at least “somewhat dissatisfied” – this time leading to a negative ratio of greater than 1.5:1 of “dissatisfieds-oversatisfieds” (Figure 11).
K. Cloud vs. Premise-Based WCM Solutions
Presently, only one-quarter (24%) of respondents report that they are using a formal, Warranty Chain Management (WCM) solution to manage their warranty-related activities. However, another 28% are either planning to implement a WCM solution in the next 12 months (8%) or considering an implementation in the next 12 to 24 months, or beyond (20%). Still, just under half (44%) report they are neither using nor planning to implement a formal WCM solution at this time (Figure 12).
For those organizations either currently using, planning or considering implementing a formal WCM solution, nearly two-thirds (62%) prefer the use of a Cloud-based solution, either exclusively (31%), or in combination with a Premise-based capability (also, 31%).
However, even among those who are using, or would prefer to use, a Premise-based WCM solution (14%), an additional 31% would still prefer using such a WCM solution in combination with Cloud-based capabilities, as well.
As such, while those respondents who prefer one type of solution over another (i.e., Cloud-based at 31%; Premise-based at only 14%), the ratio of “Cloud-over-Premise” currently stands at a ratio more than 2.2:1. However, the overall survey results reflect that there remains a strong desire among the global warranty management community for both Cloud- and Premise-based solutions to meet their existing needs and requirements from the selected WCM solution.
L. Summary and Key Takeaways
Based on the results of SFG℠’s 2019 Warranty Chain Management Benchmark Survey, the key takeaways are:
• Nearly two-thirds (63%) of current warranty management processes are at least partially automated; however, one-in-five (20%) are still entirely manual
• Annual warranty budgets are expected to increase in the next 12 months, leading to a somewhat more expansive segment in the coming year
• Warranty management organizations are being driven, first, by Customer-focused factors; second, by Product Quality-focused factors; and third, by Profit-focused factors
• The most significant challenges currently faced by warranty services managers are identifying the root causes of product failures, followed by cost recovery from suppliers
• Currently, as well as in the next 12 months, warranty services managers are focusing primarily on improving Warranty Management-related planning and forecasting activities, developing and/or improving their KPIs and warranty analytics programs, and restructuring for improved warranty management oversight & accountability
• The top uses of data/information collected from warranty-related events are basically to improve existing processes (i.e., field service, part returns, depot repair, etc.), improve overall performance (i.e., warranty management performance), and effect changes (i.e., product design and manufacturing)
• Customer satisfaction, product failure rate, and total warranty costs are the top three categories of KPIs used by warranty services management organizations, followed by claims processing time
• The 2019 warranty management survey results reflect slight-to-modest declines in year-over-year performance, particularly for customer satisfaction and warranty claims processing time
• While the mean and median average survey results for 2019 seemingly portray an acceptable level of warranty management performance across all respondent segments, there are many – in fact, too many – individual organizations that are not performing anywhere near as well as they should be in at least two key measurement categories: customer satisfaction and warranty claims processing time (i.e., 30% to 60% of survey respondent organizations)
Historically, the primary factors cited as driving the warranty management community to improve its operational efficiencies and overall performance have essentially been customer-driven; that is, with a focus primarily on meeting – and exceeding – customer expectations for overall warranty management performance, returns processing, claims processing time, replacement units and the like. However, the economic bust of the past decade changed the way warranty management organizations think by also placing increased emphasis on other key factors, such as total warranty costs and various other cost-, revenue- and profit-related issues. Still, the number one factor, overall, is to meet their obligations with respect to keeping their customers satisfied.
There is no getting around it – if your organization finds itself behind the curve with respect to (1) the automation of its existing warranty management processes (or lack thereof); (2) its ability to meet (if not exceed) its customers’ key demands, requirements and expectations; (3) its ability to recover costs from its suppliers/vendors; or (4) dealing with the costs associated with running its warranty management operations; these gaps will likely only get larger over time – unless it considers implementing a new, or upgrading its existing, Warranty Chain Management (WCM) solution.
The leading warranty management organizations (i.e., those that have already attained, or are poised to attain, best practices status) are doing so mainly by taking the appropriate steps to:
• Improve their Warranty Management-related planning and forecasting activities
• Develop and/or improve the KPIs they use to measure their performance over time
• Restructure for improved warranty management oversight and accountability
• Streamline parts return processes to improve overall efficiency
• Institute/enforce process workflow improvements for supplier recovery
• Purchase and/or upgrade to an fully automated Warranty Chain Management (WCM) solution
As an independent Research Analyst and Consultant to the global Services Community, Bill Pollock has conducted more then 300 market surveys on topical service issues.