Warranty Best Practices

Center for Automotive Research Microsoft Study on the Automotive Industry, Volume 1

Microsoft in Automotive

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Dear Industry Executive:

If youve stored away a few million warranty claims but are struggling over how best to use the data they contain to improve your operations, you have plenty of company in the maintenance shop. This report from the Center for Automotive Research (CAR), the first CAR-Microsoft Program on Automotive Industry Practices, examines in depth the issues that face OEMs, suppliers and dealers handling billions of data fields of information generated by industry-covered repairs. Every day, you and your colleagues are likely to confront inconsistent warranty processes, data overload and problems from the increasing level of sophistication required to repair todays mobile home-office-cum-entertainment-center vehicles. Microsoft commissioned this research program, a four-year-long series of focused interviews with key automotive stakeholders at all levels, as a natural part of our commitment to the automotive industry. Because Microsoft is an integral element of the electronic backbone that supports manufacturing, marketing, global supply-chain communications, dealer operations and the vehicles themselves, its crucial that we listen to our customers to learn what hurts, where it hurts and what the impact of their pain is. With deep understanding of automotive manufacturing, we work to equip the industry to expand its body of knowledge to improve decision making and the innovation of cost-effective solutions. With our dedicated efforts, we are enabling automotive manufacturers globally to anticipate, innovate and deliver world-class products and services through the automotive ecosystem that connects consumers to the vehicles they drive. Microsofts Automotive & Industrial Equipment unit, headquartered in the heart of southeast Michigans industrial-technology landscape, is executing a mission that we call our Peak Performance Initiative. It is focused exclusively on working with our partners to develop solutions to help the industry improve in four arenas: sales and customer service, new-product development, operations and the supply chain. This study of warranty issues is one aspect of our insights into the sales and customer service area. As we move forward with future studies in this program, we intend to monitor the industrys responses to our recommendations and to report on the best practices that revitalize the industry online, on the production line and on the bottom line. We hope youll e-mail us a line or two on ways youre implementing technology to empower your company and your reactions to this report. Were as close as your dashboard. Sincerely,

Kyle Solomon Worldwide Industry Director Microsoft Automotive & Industrial Equipment

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Introduction

The Center for Automotive Research has undertaken a CAR-Microsoft Program on Automotive Industry Practices. This program is a four-year research effort consisting of in-depth, focused interviews with industry participants on subjects of importance to Dealers all industry stakeholders. The Automotive Industry Program will investigate two topics per year; the results will be publicly disseminated. Warranty in the automotive industry is the rst topic for consideration. It is Customers important to note that it was not our intent to gather condential data, such as warranty cost estimates. Instead, this report will describe the ow of warranty datagathering (including processing and application activities) and, where possible, highlight selected practices and critical future operating issues. The identity of companies interviewed will not be made available; nor will information be presented in a way that could directly identify any participating companies. As a part of this project, CAR researchers interviewed representatives from three automakers and three suppliers. By design, this report is not intended to be a complete description of the topic. Instead, it is hoped that by focusing on companies that have been identied as leaders in a specic topic, these reports will be viewed as contributing to the greater understanding of the issues and challenges. Given the high volume of manufacture, the complexity of the product and the often harsh environment in which the automobile operates, it is inevitable that there will be component failures. While there are certainly lessons to be learned from these failures, such incidents can in some ways be viewed as normal operating noise. However, the manufacturers and suppliers must be able to differentiate the expected component failure ratethe noisefrom those incidents that appear to be an indication of a systemic failure of the component. This report will focus on how the industry is addressing those warranty issues that appear to be systemic in nature and that would thus present signicant potential cost exposure. Guided by the responses of those interviewed, CAR has identied two areas of warranty process for

special focus, as well as three issues that are likely to be critical challenges for the industry in the coming years. The rst area of focus is the ow of data from the dealership to the manufacturer and then to the supplier. Second, we will highlight the challenges brought about by the large volume of OEMs warranty data that is available. Lastly, CAR will address three issues that were described by interviewees as pending warranty challenges within the industry: the challenge of increased warranty Suppliers issues surrounding greater application of on-vehicle electronics; the challenge inherent in OEMs moving toward warranty cost-sharing as a method to increase revenue; and, nally, the difculty presented in applying current warranty strategies to developing markets.

From the Repair Bay to the Supplier: Data

The ow of warranty data, in its most simple form, is a reporting and transfer of information regarding an in-service product failure. A failure is reported by the service representative (the dealer) to the originalequipment manufacturer (OEM) and, then, if deemed necessary by the OEM, to the component supplier. In reality, this seemingly simple path is exceptionally complex and at times even serendipitous. The warranty data process is highly quantitative and highly qualitative, sometimes scientic and often creative.
The process, as identied by the participants, includes:

1. Part identication/defect analysis and codication. 2. Reporting of the warranty claim to the vehicle manufacturerclaim processing. 3. Investigation of the claim by OEM warranty analysis centerclaim review. 4. Notication of the incidentor more accurately, increase in reported incidents to component supplier. 5. Incident remediation e.g., manufacturing, engineering, materials, as required. 6. And, possibly, further action taken to assure the correction is implemented throughout the product line, including in future components.

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with a review of the dealership claim. Such a review is intended to monitor the work done at the dealership. In most aspects, this step serves as a method to monitor dealer repair work and focus on the process of repairing the vehicle. Special attention is given at this step to assuring that the warranty claim meets the standards set by the manufacturer. Commonly, the review includes an evaluation of the claim to assure completeness and correctness, an analysis of the type of repair, the time taken to make the repair (especially if different from the standard), the frequency of repair at that dealership vis--vis other dealerships and other such concerns. Although the claim process has become electronic in recent years, there is still a considerable amount of staff effort required to analyze and follow up via Warranty Claim from Dealer telephone for clarication. While this review process OEM Legal, Policy, etc. is intended to monitor the dealership repair work, it is also considered a line of rst defense in identifying potential OEM Quality/ warranty problems. Warranty Database Component OEM Assembly Once the warranty data is Supplier Facility in an acceptable form, the OEM enters it into a database. From this point, each manufacturer has developed very strong and OEM Product OEM Manufacturing Engineering Engineering condential internal systems, often using both internally developed and third-party INITIAL INFORMATION FLOWS software. The warranty data is Second Tier Suppliers OEM Product controlled by either a quality SECONDARY INFORMATION FLOWS Development or warranty function but is available to be accessed by product engineering, manufacturing, materials, their views, this was not an indictment of the repair legal and other functions within the company. shops ability to analyze the problem. Instead, it was a (CAR heard from the manufacturers we interviewed reection of the extent of the challenge. Often times, that there was some uncertainty among those the reason for a part failure is obvious; but just as who regularly access the data as to who else in the often, the root cause of a failure is not readily apparent. organization might be accessing the same data The dealer repair shop must make a rapid decision and what they were using it for. There was also regarding the failed part. Included in the decision uncertainty expressed as to how that same data process is allowable repair time, workload of staff, the might be of value to others in the company.) experience of the technician and even the history of Selected data is then generally sent to the reimbursement by the OEM. suppliers. The type of data transferred from OEM From this rather inauspicious start, the data is then to supplier also differs greatly between OEMs. One sent to the OEM where, although it is usually centrally respondent described three general types of data housed, it often follows several separate paths. While his company receives: incident-based data (limited each manufacturer has developed its own internal to claims and count), rate-based data (based on process for warranty data, the ow generally starts production/sales) and warranty data with born-on date included. Obviously, the ability to tie a defect to The report describes the communication formats and touch points for the six data-ow processes. As noted, on the surface, the warranty process would appear to be rather straightforward. However, the variance at which the data is collected, communicated and analyzed creates opportunity for complexity nearly unimaginable by an outsider. Warranty data reporting varies from dealer to dealer even technician to technicianwithin and between OEM dealer networks. Nearly all those interviewed suggested that, if they were to take the same part to ve different dealers, the failure would likely be identied and coded differently by each dealer. In

The Matrix: OEM Style

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a date of manufacture, months in service or some similar measure is of great value when assessing the problem and developing a response. It was widely agreed that, to have an effective warranty process, the born-on date for a component is critical. CAR believes that (increasingly) the traceability of parts will become a competitive advantage in the automotive industry.

Data Analytics: Data Overload

Police Reports Insurance Claims Web Documents

Dealer Claims

Customer Feedback

Components

While the warranty data is vital to identifying systemic failures, an analysis of the component is often required to establish the root cause of the failure. Due largely to logistics and transportation, it is also a costly proposition. Thus, it is important to better understand the fate of the failed component. Often the component is disposed of at the dealership, thus ending any opportunity to establish the root cause of the failure. Manufacturers may also randomly select dealers to whom they send a limited number

Structured Text

Data and Text Warehousing

Unstructured Text

Police Reports Structured Analysis of Data

Manufacturing Documents

Defect Identification

Although the claim process has become electronic in recent years, there is still a considerable amount of staff effort required to analyze and follow up via telephone for clarication.
of components for inspection, allowing a sample for study. These components are then sent to the supplier for review. If the supplier has an indication there may be issues related to a component, the supplier may request that the OEM ask the dealers to send a small number of components for analysis. An important fact is that the OEMs differ greatly in how they deliver the parts. Some send them through an OEM parts center, while others have a more formal warranty processing location and still others send the parts directly to the supplier. According to one supplier, one OEM sends it a box of parts with no information nor explanation of failure. CAR does not consider such a system to be a best practice.

Data overload

The manufacturers (and some of the suppliers) interviewed indicated that one of the most pressing challenges of warranty investigation is the vast amount of data processed, and the wide range of groups within the company that have use for the data. During the creation and implementation of the TREAD (Transportation Recall Enhancement, Accountability and Documentation) Act, much was made of the enormous amount of data already collected by the industry. Based on numerous published estimates, CAR suggests the automotive industry handles more than 100 million warranty

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claims per year. Each claim includes numerous elds and often several lines of test. Realistically, the industry handles billions of warranty data elds annually. While the TREAD Act is not of central concern to this report, we feel it is important to briey address some key points of the regulation. Probably the most visible element of TREAD is the development of an early-warning database containing 24 key vehicle systems to help identify critical safety defects. However, like many aspects of the warranty/defect discussion, this database presents a challenge far greater than merely reporting on vehicle systems. Although the act requires OEMs to report quarterly on 24 different systems, in reality each of those systems is made up of numerous components, which are manufactured by a wide range of suppliers. Interestingly, the interviewees had varying levels of familiarity with TREAD. The OEMs have proactively approached the act by developing internal systems.

that these systems are not yet fully capable of delivering consistent data to the suppliers. One supplier suggested that they dont need more data; they need increased responsiveness (from the manufacturers to data requests), while another suggested that consistent data was not available. All discussions asserted that a successful warranty program relied on a strong relationship between the interested parties. Several companies were either currently investigating, or had recently investigated, text data mining as a method of increasing their ability to better analyze warranty data. From an OEM perspective, text data mining presents an opportunity to investigate further and understand the vast text reports received from dealer repair shops. The ability to accurately analyze text entered by technicians may offer insight into, and potentially an early warning of, likely inservice product failures. Some interviewees mentioned that text data mining might also help to better understand dealer repair shop activities. One supplier indicated that his company had spent several months investigating text data mining but concluded that the cost of off-the-shelf systems could not be justied by the expected savings.

CAR ILLUSTRATION TK

One manufacturer had developed a TREAD response system that it felt offered a signicant advantage over its competitors. However, the representatives were not willing to discuss the specics of that program. The suppliers were less versed in the act. Not only are companies challenged to develop methods of effectively capturing and storing warranty data, but they also must have the ability to access the information in a timelyand maybe, most importantcost-effective way. As noted, each manufacturer has developed information technology systems, but there continues to be concern

Based on discussions with industry sources, CAR offers insight into three warrantyrelated issues we believe to be of great concern. The rst issue concerns the difculties presented by the dramatic increase in on-vehicle electronics. In many ways, electronics present a new and perhaps greater warranty challenge to the industry than that of the traditional mechanical component. Several respondents indicated that the traditional dealer service infrastructure (and some OEM engineering strategies) may not be capable of properly addressing in-service electronics failure. The increased application of electronics will continue to offer the potential for greater customer satisfaction but leave manufacturers exposed to hard-to-diagnose electronic glitches. There was also great concern from the suppliers interviewed regarding the possibility that some manufacturers may pursue warranty cost recovery as a means to increase their revenues. The traditional domestic industryboth OEM and suppliersis currently under severe cost pressure. While OEMs have not yet fully pursued a warranty cost recovery strategy, there is much concern that it is increasingly viewed as an option. Such a strategy would likely hurt long-term warranty performance as suppliers shift resources to

The Next Great Challenge

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defend their actions, instead of proactively working to resolve issues. The nal area of concern addressed in this report is that of the international challengeor more accurately the two international challenges. The rst is that of OEMs operating different warranty strategies and processes in Japan, Europe and the United States.

analyze, and identify warranty problems. They also benet from strong logistical networks inside the country. As manufacturers move into developing markets, they are often asking their suppliers to apply their warranty data control systems to operations in these new markets. This request presents challenges on many levels. It was strongly suggested that operations in markets with relatively undeveloped dealer networksand no local supplierscan not meet the same warranty standards as those in more experienced markets. It is important for OEMs to work with suppliers and dealers in these developing markets to leverage the systems already in place elsewhere but also to be prepared for lapses in the system. This report presents a description of the ow of warranty data within the automotive industry, and highlights pending challenges faced by dealers, OEMs and suppliers. CARs investigation has highlighted several areas that we believe offer opportunity

As manufacturers move into developing markets, they are often asking their suppliers to apply their warranty data control systems to operations in these new markets.
Suppliers indicated that some manufacturers have different warranty processes and targets for each of these regions. The elimination of such differences could bring signicant efciency gains. The other challenge is that of bringing the current warranty methodology to developing markets. The warranty process is, in many ways, driven by the dealer repair service. As noted earlier, the dealer repair service is the point of entry for any in-service product failure. The United States, Japanese and European dealer systems are characterized by strong technical expertise, signicant experience, and relatively ample resources. As such, they have demonstrated a great ability to for improvement. It is apparent that the industry continues to struggle with the warranty data ow, particularly in the areas of data management and process interfaces. CAR believes the warranty process will continue to be an area of great challenge, interest and opportunity for the industry.

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www.microsoft.com/automotive

Microsoft Corporation. All rights reserved. Microsoft Corporation, One Microsoft Way, Redmond, WA 98052-6399

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