Warranty and Quality

Customers can be a nuisance.  First, they want what they want.  Then, they want it when they want it.  Finally, they expect the quality of the goods or services purchased to be perfect.  Sometimes it seems that they are never satisfied.  While these patterns are emerging across all industries, they are most accented in the auto industry.

Hence, the hypothesis: Customer requirements for quality of cars are becoming stricter and more numerous.  Customers suddenly do not tolerate failures and defects, and this is true both for initial quality, and at high milage.  As warranty periods gets longer, automakers are facing a big challenge in trying to reduce warranty costs.  A typical model costs the manufacturer Rs 50,000 per car for warranty work, while the best-in-class is as low as Rs 15,000 per car.  If you multiply Rs 50,000 times the 100,000 units sold per year, the total comes to Rs 500 crores.  This is for cars only.  If trucks, tractors, earthmoving equipment and two-wheelers are brought under the discussion umbrella, one is staring at an “opportunity” of dazzling magnitude.

Basically, there are two types of quality: “customer quality” and “engineered quality”.  Customer quality refers to the characteristics customers are looking for, including features and styling.  For example, Maruti was very successful in introducing the 800 series in the 1980s with its features and styling.  Currently, the Ford Ikon fits the bill.  Customer quality addresses price-advantage and market share.  In other words, the revenue dimension of business gains from customer quality.

On the other hand, engineered quality deals with failures, defects and reliability.  When customers purchase a car, they know what features the car offers.  They pay for the customer quality.  Once they own a car, they expect no failure, no defect, and good reliability.  This is engineered quality.  Engineered quality, in turn, addresses waste, warranty costs and cycle time.  This is the cost dimension of business.  Here, higher quality costs less.  Returning to the car example, longer warranty periods need not cost more if quality is engineered into the product and processes.

Both customer quality and engineered quality are important.  The product planning function is responsible for customer quality. Engineers and manufacturing are responsible for engineered quality.  More than 80% of the problems in engineered quality are due to product and process design engineering.  Obviously, such problems are not operator controllable.  They are clearly management controllable.  Further, warranty issues are best addressed by management using the tools of reliability engineering, which are certainly more proactive in character.

Unfortunately, typical quality improvement activity is nothing but fire fighting.  Fire fighting tries to solve issues such as defects, failures and poor manufacturing yield, but only after the problems have occurred.  Fire fighting is designed to get rid of bad things after bad things take place.  And the cost of fire fighting is exponentially greater as it approaches the customer end on the value chain.  Or in other words, as it enters warranty.

At a typical company, it is said that well over 50% of engineers’ time is spent to fight fires.  A better option is to prevent fires.  Quality Function Deployment (QFD) offers a process to prevent fires.  QFD starts with identifying and thoroughly understanding needs of customers; these needs are translated into best-in-class product goals; product goals are in turn translated into best-in-class process goals.  The result, an opportunity to reduce warranty costs to as low as Rs 15,000 per car, amongst other QFD advantages.