Seven Ways to Lower Warranty Costs

Warranty costs can be the bane of hardware companies. Think about it. One of the great benefits of a software company (whether it’s the old fashioned standalone software on a disk or the more common webservices) is no warranty. Facebook does not have any set asides for warranty claims, which can run into the billions of dollars for some companies. Billions of dollars doing nothing but acting as insurance.

 So, imagine you are the Manager/Director/VP of Quality (because, have you ever noticed, it is never higher than VP? Never heard of a President of Quality or a Chief Quality Officer, have you?). One of the first and most important things you can do in your job, whether you were hired, or promoted, or transferred, is to review the current warranty situation and implement policies and processes that will reduce the rate of warranty returns and lower warranty costs. And there are six tired and true methods for being successful at this endeavor

1.  Pareto Analysis. Depending on how bad the situation is, one of the first things you will want to do is perform a Pareto analysis of the warranty returns. Pareto analysis is a process of classifying your warranty returns into categories and then ranking those categories based on frequency. The initial concept actually comes from observations by engineer and economist Vilfredo Pareto back in the 19th century that led to the 80/20 rule (80% of your problems can be traced to just 20%). Quality guru Joseph Juran built upon this concept to create actionable processes, such as the Pareto chart that businesses worldwide use today. Completing the Pareto analysis will allow you and your team to be focused on resolving the top drivers for warranty returns and quickly develop clear corrective actions. Despite being one of the most straightforward tools in a Quality organization's toolbox, Pareto analysis can be frequently stymied by bad taxonomy and bad categorization.
2. Failure Taxonomy. Pareto analysis would seem to be an obvious first step in reducing warranty returns, but it is surprisingly easy to get the wrong answers out of Pareto. One of the key landmines in Pareto analysis is failure terminology. In the world of quality failures, it is important that like to be compared to like. This requires that the team in charge of categorizing warranty use the correct failure terminology when describing the warranty returns. Common failure terminology uses five terms to describe the basic structure of failures: failure, failure mode, failure site, failure mechanism, and root-cause. A failure is any unwanted or disappointing failure of a product. Failure mode is the effect by which the failure is observed. Failure mechanism is the process by which the failure mode is induced. The failure site is the physical location of the failure mechanism. And root-cause is the driver(s) for the failure mechanism. However, a robust failure terminology can be hijacked if most warranty returns are incorrectly categorized as 'no-fault-found'.
3. No-Fault-Found (NFF). NFF (also sometimes NTF for No-Trouble-Found) are warranty returns that are not classified as failures because the returned product was found to be fully operational. These three letters are also the bane of every person in charge of warranty returns. This is because most organization will not count NFF as true failures. The justification is that NFF is primarily driven by improper operation by the customer or incorrect diagnostics by a service agent. Unfortunately, this mentality of 'don't ask, don't tell' with NFF can result in massive blind spots that will skew the findings of any Pareto Analysis. This is why robust root-cause techniques, using robust environmental exposure and comprehensive failure analysis, is critical to drive NFF numbers as low as possible.
4. A Quality Supplier is not a Quality Supplier. One of the standard methods for selecting a contract manufacturer, especially for smaller companies, is to go with a name brand. Foxconn (only for OEMs with high volumes, low mix), Flex, Jabil, Plexus, etc. These companies produce billions of electronic hardware every year. So why do they sometimes produce product with insufficient quality? The answer is not in what you are missing, but in what other customers are getting. OEMs in the know realize that due to low margins, hiring contract manufacturers effectively means you are hiring equipment and personnel. You are not necessarily getting a process. If you are struggling with high warranty returns from hardware built an international contract manufacturer, the first thing you need to check is the requirements and specifications that you have flowed down to your supplier. With the need to operate on razor-thin margins, contract manufacturers are masters at "If you don't ask for it, you won't get it". If the process requirements are not world-class, it is time to pull an all-nighter, re-write the supplier qualification and audit documents, update the traveler, and then get on the first plane to wherever in the world your vendor is located and immediately start auditing the manufacture of your product. And don't forget - perform a technical audit, not just a quality audit.
5. To Screen or Not To Screen. While trying to initiate corrective and preventative actions on the existing problem, don't forget you have a warranty problem right now. If the warranty return rate is really bad, you may even have a warehouse full of quarantined hardware that won't ship and are killing cash flow. To get that product to customers without having another wave of warranty returns requires that you consider a screening program. Screening, also known as auditing or burn-in, is a test performed at the end of manufacturing that subjects the product to environmental stresses (temperature, humidity, vibration, power, etc.) in an attempt to detect or precipitate existing quality defects. Screening is difficult to implement, expensive, and is a brake on throughput. But, in certain situations, it can be a lifesaver (and some organizations like it so much that they use it as a key tool in warranty cost reduction across the enterprise). Successful screening implementation requires knowing how to screen (What stress? How is the stress applied? Are the units on?), how often to screen (Every part? Every other part? Some declining percentage?), and where to screen (At the manufacturer? At your facility?).

Want to know number 6 and 7? Drop me a request or send me and my team an email at [email protected]. Looking forward to continuing the discussion...