This blog expands on the Decision Imperative around warranty service in our IDC FutureScape: Worldwide Manufacturing Product and Service Innovation 2015 Predictions report.
Current economic growth has the manufacturing industry on more solid footing than during the recent economic downturn and slow recovery. While there have been positive reports on manufacturing industry growth overall, companies are still focused on finding ways to reduce costs while improving product quality and customer experience. Warranty expenses can be particularly onerous in certain manufacturing verticals, and IDC Manufacturing Insights continues to see efforts by manufacturers to find ways to further reduce warranty costs and break warranty outside its traditional silo. In fact, our IDC FutureScape: Worldwide Manufacturing Product and Service Innovation 2015 Predictions report highlights the attention on Warranty Service:
In 2015, Warranty Service Will Rise to Strategic Importance as Manufacturers Use Warranty and Service Touch Points to Boost Profit Margins by 5 Percentage Points
The shift away from viewing warranty service as a cost center and toward it being an integral part of aftersales service profits is emerging across leading manufacturing companies. Warranty has long been trapped within its own silo as companies have viewed it as a necessary evil and unavoidable cost center. However, the rise of service innovation in manufacturing, and the executive-level search for hidden profit opportunities, is driving warranty out of the back rooms and into a prominent role for opening doors to new aftersales revenue possibilities for certain manufacturing verticals.
IDC Manufacturing Insights last performed a comprehensive assessment of the Warranty applications landscape in 2012, and during the ensuing time there have been several significant changes in the warranty landscape, both on the business and the technology sides. We have seen some very visible product recall events that have pulled warranty into the spotlight, with global brands like Toyota and General Motors suffering brand damage and financial consequences. The costs of recalls come from both consumer and regulatory sources: for example, GM reportedly paid $4.3 Billion in warranty claims in 2014, and Toyota settled a federal investigation for $1.2 billion regarding the 2009 unintended acceleration recall.
Brand damage costs are harder to quantify, but the most recent Takata airbag recall has led to brand attrition from some of the prominent Automotive OEMs. The damage is widespread, across approximately 17 million vehicles made by 10 different automakers. The complexity of this type of recall, and its impact up and down the value chain for automotive manufacturers, is still being felt. As recently as February 20, Takata was being fined $14,000 per day by the National Highway Transportation Safety Administration (NHTSA) for not cooperating fully with the agency’s investigation.
The above example is somewhat sensationalist, because most manufacturers are exposed to warranty events that are not as cataclysmic. However, across industrial equipment, agriculture and farming, medical devices, building automation and control, consumer electronics, and consumer goods manufacturers are experiencing costly warranty claims, the need to increase warranty accruals, and changes in their warranty reserves. All of these buckets impact a company’s net profit and therefore senior level management is approaching warranty with renewed interest.
Technology increasingly plays a role in how manufacturers choose to manage their warranty processes, and the increased use of cloud, mobility, analytics, and social are having an impact on the applications being offered by warranty vendors. As connected products become more widely adopted, leading manufacturers will provide a stronger connection between warranty and aftermarket service lifecycle management (SLM). Manufacturers will increasingly using connected products to link warranty with field service and provide monitoring, preventative maintenance, and the ability to be proactive when a warranty event occurs.
IDC Manufacturing Insight's upcoming report, IDC Manufacturing Insights: Worldwide Warranty Applications 2015 Vendor Assessment (forthcoming), offers a closer look at the functionality most commonly present in warranty applications, and the vendors that are offering these applications to manufacturers. Warranty is an integral part of a comprehensive SLM approach to aftermarket services. We will continue to follow developments in warranty technology closely, and how leading manufacturers are taking a strategic approach to warranty management.