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Cut those warranty costs: it really does pay to test

25 June 2013

Faced with slimmer profit margins in a shrinking economy, today’s leaders of manufacturing businesses find themselves scrutinizing every aspect of their business model to find ways to shave costs.

Profitability targets are getting harder to attain, and as CEOs and COOs scrutinise their profit and loss sheets, they recognise insidious leaks in profitability and ask, ‘what can we do to make a change?’

While companies look at downsizing or other ways to cut costs — which, incidentally, can also cut productivity — new areas are being explored that have previously been taken for granted.

One example is warranty return costs. For many, satisfied with de-facto warranty claim rates averaging from one percent to five percent, billions are spent annually that come right off the bottom line.

In the US alone, warranty costs have ballooned to $24bn annually, according to a study conducted by Accenture in 2010; IDC Insights estimates the global figure at close to $70bn. Even more startling is that almost one dozen major US manufacturers were identified where warranty spending amounted to as much as $1m each day.

But with more attention on warranty chain management, many savvy CEOs are uncovering an often overlooked avenue for cutting costs while improving profitability.

Instead of focusing first on the cost of warranty administration and how to reduce processing and service costs, manufacturers are realising faster net spend reductions by shifting their focus to warranty claim avoidance.

With this type of proactive, preventative approach, companies are cutting warranty return rates by 50 percent or more, halving warranty costs and saving millions.

As an example of hard savings numbers, a 2010, year-long study of a single product conducted by one of the largest leading electronics manufacturers demonstrated a cost savings of $400,000 annually, giving a return on their investment in the first year alone of 311 percent

Success lies outside accepting “the way it has always been” with corporate directors turning to more effective, advanced product testing methods to ensure products reaching the intended consumer, be it an aerospace manufacturer or a mobile phone user, are much more robust. With better quality products, not only are warranty return costs slashed, but customer confidence and goodwill are built.

Testing: costly and time consuming?
Consider one approach to resolving the problem of warranty costs - accelerated stress testing, a process that any manufacturer can accommodate within a product development programme before considering it ready for release into the marketplace

Here, clearly, the goal is to prompt product failures that might otherwise occur during the warranty period and escalate warranty costs. 

By subjecting products and components to harsh environments beyond their specified design criteria, failures can be forced and all weak links of the product can be found while still under initial design or before release to the market where they are the least expensive to correct.

With the latent warranty issues in the product discovered early on, durability and robustness can be built in by conducting further design iterations, thereby reducing warranty expenses. And, as it is accelerated, this testing procedure produces results in hours or days, which reduces product development cycles and, more importantly, reduces time to market.

In fact, new trends in manufacturing demand accelerated testing procedures; multi-layer boards, surface mount technology, lead-free solder, not to mention the variable component quality from suppliers that can’t always be detected using old-school product testing methodologies, are all prime examples.

Larry Choate is vice president of Colorado based Ensign Power Systems, a manufacturer of mission critical military, medical and industrial power supplies. Established in 1995, Ensign's products include high- and low-voltage uninterruptible power supplies, ac-dc converters, and dc-dc converters. For Ensign, reliability can quite literally mean the difference between life and death. Not surprisingly, therefore, Mr Choate takes accelerated testing very seriously indeed.

“It’s all about efficiency: how much time, footprint, headcount and manufacturing resources you have to devote to product screening,” he says. Instead of taking 48 hours to test a product, we utilise an accelerated testing system to accomplish the task in less than five hours, a greater than two hundred percent improvement in efficiency.

“Over 3,000 of our power supplies do duty in the military’s Bradley personnel carriers. All of them are in Afghanistan and Iraq, and not one has failed on the battlefield. In such a critical marketplace we want to make sure we ship the most reliable product we know how.”

Ensign uses the products and services of Qualmark, a Denver, Colorado-based manufacturer of advanced accelerated testing systems and provider of test and professional support services via a global network of testing labs. The company maintains more than 1,000 testing systems in 30 countries.

And these testing systems can prove very effective. Another of Qualmark’s customers, a major aerospace company, took its warranty costs from $27m annually down to $9m annually over a period of six years as they increased implementation of Qualmark systems.

One advanced technology from Qualmark, QFusion, is able to perform several testing stages within a single system, speeding time to delivery, cutting production and product testing costs dramatically.

And with Qualmark’s ‘proof of concept’ service, the financial rewards of taking a proactive approach to warranty claim reduction are easily demonstrated. The company will also put these projections to the test via a risk sharing plan, in the event of their systems be implemented. Larry Choate again:

“A CEO would want to know: does this make me money? The answer is yes, of course! Remember, the biggest expense you can incur is to have your product fail in the field. It not only bloats your warranty costs, but also yields unhappy customers.”


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