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Two Most Effective Tools to Reduce Warranty Cost

Posted by Rita Mohanty on Feb 16, 2017 9:27:00 AM

Reducing warranty costsIn today’s high-tech world, we heavily depend on electronics for our health, safety, mobility and economic welfare. When they fail, the results can be as minor as consumer annoyance to as severe as loss of life. For these reasons, it’s necessary for all electronics manufacturers provide product warranty. A warranty, in its simplest form, means the manufacturer of the product guarantees that the product will function as expected without failure for a given period of time in a specified environment.

In the electronics industry, especially in consumer electronics, warranty expense can be 1% - 2% of total revenue. As an example, for a $1B company, this can impact the bottom line by $10M-$20M. For many companies, this can be as much as their new product development budget and can represent a major piece of profit margin. In addition to the direct monetary impact, repeated product failure can have a detrimental effect on the reputation of the company, leading to loss of marketplace position.

So, what can a company do to reduce the warranty cost and uphold its reputation? The first and the most important step is to understand what causes a warranty claim (cost), then take actions to reduce or eliminate these causes.

Warranty claims arise primarily because a product fails to perform its intended function/use. Product failure occurs due to the classic 3P’s:

Product – Poor product design leading to reliability issue

Process – Poor manufacturing process design, leading to quality/variation

People – People misusing the product

Most research in the area of warranty claim shows the first two reasons are the most common reasons why products fail in the field and they are also the most amenable to improvement. Hence, we will focus on how improving reliability (product design) and quality (process variation) can drastically reduce warranty issues.

The terms reliability and quality are often used interchangeably to describe product failure rates, but they have very different meanings. Quality measures the manufacturing process by comparing how well the products perform against set specifications at time zero, while reliability measures the quality of products over time. In simplest terms, reliability is a function of the design process; quality is a result of the manufacturing process.

Product – Design for Reliability (DfR)

One of the most commonly used definitions of reliability is “The probability that an item will perform a required function without failure under stated conditions for a stated period of time.” If a company can achieve reliability in its true form, then warranty becomes a non-issue. This can only happen if reliability is built into the design during the early stage of the product development. Traditionally, physical modeling combined with Failure Modes and Effect Analysis (FMEA) has been the primary method to build reliability in to product design. This type of traditional method is facing challenges meeting today’s product reliability (warranty) demands. Figure 12 shows an example of warranty claims paid by US based companies (in US$ millions, 2003-2013) for Consumer Electronics Industry. The spike in 2008 for traditional consumer electronics is known as “Microsoft Xbox 360 effect”. Poor product design was the cause of unusually high repair rates for the Microsoft Xbox 360.

Warranty in the Consumer Electronics Industry ClaimsFigure 1. Warranty in the Consumer Electronics Industry Claims Paid by U.S.-based Companies (in US$ millions, 2003-2013)

Meeting reliability requirements through building sequential physical models is expensive and time consuming, hence inefficient. Predicting possible failure modes using FMEA only can also be insufficient as it relies on statistical methods only.

Today, we have much more powerful tools available that not only provide robust design but are also cost effective and increase speed to market. One such tool is design simulation software based on Physics of Failure. It allows you to test multiple design scenarios within a matter of hours (as compared to weeks and months for testing through building physical models) with high levels of confidence. When the design is based on physics, chemistry and engineering principles, product reliability tends to be high. This is probably the most effective way to reduce warranty cost.

Process – Design for Six Sigma (DFSS)

Quality of a product can be viewed as the collection of features and characteristics that contribute to its ability to meet specifications as set by the product design. Everyone understands that no two products/parts manufactured by the same process are exactly the same. Variation exists in every manufacturing process. As long as the products fall within the specification range, they are considered “good”. However, variation within specification can still lead to product failure in the field, increasing warranty cost and customer dissatisfaction. This is best described by the “Taguchi’s Loss Function” which states that any variation away from the nominal (target) performance will begin to incur customer dissatisfaction and cost to the producer. Figure 2 illustrates the concept.

Taguchi Loss Function

Figure 2. Taguchi Loss Function

Over the last several decades, many tools and techniques have been developed to improve product quality. The most successful method is considered to be Design for Six Sigma (DFSS). DFSS combines the principle of Lean Manufacturing with Six Sigma to eliminate or reduce variation at it source. The primary goal of DFSS is to eliminate or reduce nonconforming units and production variation.

Poor quality and reliability continue to cost companies millions of dollars in warranty cost, and present a huge opportunity for improvements that address inadequate design and excessive variation. Now, we have the right tools available – DfR and DFSS  – to eliminate these two primary root causes of product failures and reduce warranty cost. For more information and insights on strategic electronics reliability testing, download Test Plan Development: How To Do It. Click the button below for your free copy.

Test Plan Development: How To Do It

Topics: Design for Reliability, Design for Six Sigma