Accenture Parts Optimization:

Warranty Services Gaining Control Over Warranty Costs

Accenture Warranty Optimization Services: Gaining Control Over Warranty Costs

The numbers are compelling: On average, an automobile OEM will spend from two to three percent of their annual revenues on warranty services. For some companies, thats the equivalent of millions or billions of US dollars. Thats only one reason why gaining control over costs is so crucial.
Beyond that, improvements around warranty can raise a brands value, ensuring customer loyalty and a direct impact on the bottom line. Figures vary, but companies can improve warranty costs by as much as 25 percent while boosting overall profit by up to 1 percent thanks to improvements. Despite a compelling business case, warranty services receive scant management attention. The challenges manufacturers face are manifold, but mostly center on inefficient processing caused by: Warranty teams focused on claims processing, not validation and analysis Too few claims automatically submitted by dealers Rejected claims because of incomplete or inaccurate data Long claims processing cycle Low accuracy of warranty reserves A host of other issues involve high repair costs prompted by: A high incidence of invalid claims Poor diagnosis(unnecessary and repeated repairs) High share of no-fault-found (NFF) claims Few repaired parts inspected and low supplier recovery And there are product quality symptoms issues like: A long cycle of issue identification and resolution Long identification cycles leading to large recall campaigns Backlog of unaddressed product issues One common theme for many of these problems is the lack of robust data consolidation and analysis that would allow manufacturers to regain control of their warranty costs. To build these advanced data collection and analysis capabilities, manufacturers must first have the right governance and processes in placeone that ensures the crisp coordination of all the parties involved along the warranty chain, from the repair network to the after sales service desk, the part supplier, and so on. An entire warranty data ecosystem must be established so that parties can collect and share data readily and with minimal margin for error.

Accenture Warranty Optimization Services

The proliferation of data and ever more powerful computing technologies to process it are propelling analytics to a more prominent role in warranty management. But technology is just part of the story. Data becomes valuable only when it is validated and consolidated and after its shaped into insights, which then inform the decisions and processes that lead to better outcomes.

Warranty Operations Services:

Transform and Operate warranty chain at speed to enable close collaboration of all involved parties Effective warranty management requires collaboration among different functions inside the manufacturers organization as well as between its repair network and parts suppliers. Ultimately, the greatest efficiencies come from having the entire warranty chain collaborate closely. Manufacturers can leverage Accentures warranty chain operation capabilities to quickly and costs efficiently centralize and standardize warranty operations; increasing consistency, transparency, and control through standardized processes and analytics.

Figure 1: Accenture Warranty Optimization High Level Framework

Dealer Network Dealer Performance Services Manufacturer Early Detection Services Warranty Operations Services Tier-1 supplier Tier-n supplier Supplier Performance Services

Accentures operations excellence and analytical services help manufacturers transform and continuously improve warranty processes and gain insights on many key warranty operations performance indicators: Warranty Process efficiency: Claim automated validation rate, claim process time, claim rejection rate

Quality: Repair/incident rate, warranty cost per unit, number of issues resolved, time to detect, detection to correction time Financial: Actual claims cost vs. budget, goodwill amounts vs. budget, percentage of goodwill on overall warranty costs, supplier recovery amount, percentage of warranty costs recovered from suppliers, extended warranty revenue, warranty administration costs, warranty/revenue ratio 5

Figure 2: Accenture Dealer Performance Improvement Services

Collected Inputs Warranty claims Repair information Social media data Customer surveys Audit history Industry benchmarks

Accenture Dealer Analytics Turnkey industry analytical models Industry expertise Standard KPIs

Outcomes Regional and local dealer trainings Improved claim validation rules Targeted dealer audits Continuous and granular dealer benchmarks

Dealer Performance Services:

Improving the performance of the dealer and repair network An estimated 10 to 15 percent of warranty payments result from invalid claims or fraud, thus eroding profits. Lowering these costs is a challenge to manufacturers since optimization initiatives must often involve numerous, independent and geographically dispersed dealers and repair agents. Manufacturers can leverage Accentures experience and global reach to collect and consolidate key dealer performance indicators leveraging heterogeneous sources of information to gain sufficient insight to benchmark dealer and repair agents in order to launch targeted improvement programs.

Accentures dealer performance analytical services help manufacturers create a dealer control center tracking the following KPIs: Dealer Process efficiency: Claim submission time, claim accuracy, claims validated/rejected ratio, parts return time Service Quality: Satisfaction with quality of work performed, fix-it-right-the-first-time percentage for warranty repairs, promise date adherence Policy Adherence: Warranty repair cost per vehicle vs. peers, repair effectiveness vs. peers, warranty repair types vs. peers, percentage of No Fault Found (NFF) vs. peers, percentage of out of warranty repairs and goodwill. Financial: Goodwill amount and percentage

Dealer performance improvement programs can typically generate warranty costs savings of 5 to 10 percent.

Figure 3: Accenture Supplier Performance Services

Collected Inputs Warranty claims Replaced parts information NFF reports Supplier audit history Parts family benchmarks

Accenture Parts Supplier Analytics Parts expertise Supplier performance analytical models Standard Supplier KPIs Parts analysis labs

Outcomes Dealer diagnostics and NFF improvements Targeted supplier audits Continuous and granular parts suppliers benchmarks

Supplier Performance Services:

Improving parts suppliers performance and supplier recovery While finished goods are often assembled from parts purchased from third party suppliers, manufacturers typically only recover 15 to 25 percent of their warranty repair costs from parts suppliers. Improving supplier recovery is often a challenge since it requires collecting and analyzing repair and parts defects information from a disparity of repair agents before costs can be claimed back from parts suppliers. Manufacturers can leverage Accentures supplier analytics and parts expertise to segment supplier parts and benchmark suppliers to gain sufficient

insight to launch targeted supplier improvement programs like supplier reviews and parts diagnostic training programs. In particular, Accentures industry specific analytical services help manufacturers monitor and act upon the following suppliers performance indicators: Process efficiency: Supplier recovery rate, recovery claim processing time, part inspection cycle time, no-fault-found rate vs. peers of the same part family group Quality: Repair / incident rate, warranty costs per part, no-fault-found per part, number of issues resolved, detection to correction time, non-conforming materials percentage Financial: Actual supplier claims cost vs. budget

Supplier performance improvement programs can typically generate warranty costs savings of 5 to 10 percent.

Figure 4: Accenture Early Detection Services

Collected Inputs Warranty claims Social media sonar Customer complaints Product launch dealer panel On-board Telematics

Accenture Early Detection Analytics Turnkey quality analytical models Industry expertise Standard quality detection Engineering services

Outcomes Near real time monitoring of quality issues Quality issues tracked from occurrence to resolution Root cause analysis tracking

Early Detection Services:

Improve quality of parts and components through analysis of after sales information to quickly identify recurring quality issues. Late detection of product defects may lead to larger recalls, increased warranty repair costs and may cause customers to switch brands, which reduces distribution channel profitability and requires more resources to acquire new customers. Manufacturers have typically used dealer focus groups and warranty claims analysis tools to identify recurring quality issues. To reduce the time taken to detect problems, Accenture leverages analytical tools to sort through new sources of near real-time information from sources like social media and on-board telematics.

Accentures experience and reach can be leveraged to build a global, reactive surveillance system, collecting and consolidating masses of quality information, analyzed to identify statistically significant exceptions in failure rates. Key performance indicators used are: Process efficiency: Number of open issues, number of open root cause analysis Quality: Problem detection time, detection to correction time, product and parts perceived quality index Financial: Average repair cost per quality problem, warranty reserve accuracy

Early detection services can typically help manufacturers reduce quality problem detection times by 50 percent and generate warranty costs savings of 10 to 15 percent.

Figure 5: Warranty Optimization Potential Benefits

Illustrative example: Auto/Industrial equipment manufacturer with $10B in annual revenue and with warranty expenses at 2.5% of revenues.

300 250 200 $M 150 100 50 0 Baseline Warranty Cost Warranty operations optimization Dealer performance improvements Supplier performance improvements Early quality problems detection Optimized Warranty Cost $250M $2M $5M $19M $30M $190M

$60M

Benefits to manufacturers
Effective warranty optimization programs can generate overall warranty costs savings of up to 25 percent. With Accentures Warranty Optimization Services, manufacturers benefit from: Accentures significant track record providing warranty operations and optimizations programs as a managed service in the auto, heavy and industrial equipment industry. Accenture Warranty Optimization assets : Multi-lingual, warranty operations delivery centers A business-led, technology-driven warranty analytics approach that is software and hardware agnostic

Industry specific analytics templates to compile warranty KPIs from heterogeneous data sources (warranty claims, social media feedback, on-board telematics, customer surveys, historical audit results and so on) A network of over 5,000 analytics professionals with over 500 professionals with advanced analytics skills Accentures global scale, proven experience and cumulative learning from global and local warranty projects Accentures ability to quickly engage regional/ local country teams to manage warranty optimization programs (dealer performance programs for example) in regions with significant cultural or language differences

Figure 6: Enterprise Warranty Analysis

Enterprise Warranty Analysis Warranty Business Rules & Processes Claims Sales Data Product Data Dealer Data CRM Data Warranty Information Store Customer Surveys Technician Hotlines Dealer Audits Supplier Audits Corrective Actions

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Companies can improve warranty costs by as much as 25 percent while boosting overall profit by up to 1 percent thanks to improvements.

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Intrigued?
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About Accenture
Accenture is a global management consulting, technology services and outsourcing company, with more than 244,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US $25.5 billion for the fiscal year ended Aug. 31, 2011. Our Internet address is www.accenture.com

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