Springer Series in Reliability Engineering Series Editor Professor Hoang Pham Department of Industrial Engineering Rutgers The State University of New Jersey 96 Frelinghuysen Road Piscataway, NJ 08854-8018 USA Other titles in this series The Universal Generating Function in Reliability Analysis and Optimization Gregory Levitin Maintenance Theory of Reliability T. Nakagawa Publication due September 2005 System Software Reliability H. Prabhakar Murthy and Wallace R. Blischke Warranty Management and Product Manufacture With 83 Figures D.
Division of Mechanical Engineering The University of Queensland Brisbane Queensland, Q 4072 Australia p. 5401 Katherine Avenue Sherman Oaks, CA 91401 USA Cblischke@aol.com British Library Cataloguing in Publication Data Murthy, D. Warranty management and product manufacture.5′6 ISBN 1852339330 Library of Congress Control Number: 2005924560 Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be repro- duced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms of licences issued by the Copyright Licensing Agency. Enquiries concerning reproduction outside those terms should be sent to the publishers.
Springer Series in Reliability Engineering series ISSN 1614-7839 ISBN 1-85233-933-0 Springer Science+Business Media, Inc.com © Springer-Verlag London Limited 2006 The use of registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant laws and regulations and therefore free for general use. The publisher makes no representation, express or implied, with regard to the accuracy of the infor- mation contained in this book and cannot accept any legal responsibility or liability for any errors or omissions that may be made. Typesetting: Camera-ready by the author Printed in the United States of America (IBT) 69/3830-543210 Printed on acid-free paper Dedicated to our ever patient, supportive and loving wives, Jayashree and Carol v Preface In industrialized societies, new products are appearing in the marketplace at an ever-increasing pace.
Their introduction is either market driven – a result of increasing customer expectations and needs – or technology driven – resulting from advances in technology. In addition, the complexity of products tends to increase with each new generation. A further complicating factor is that customers are uncertain about, and have no easy way to research, new product performance. Two items that are becoming more critical and important in the customer purchase decision process are: 1.
Pre-purchase services – including information regarding product performance, useful life, cost of operation, etc. Post-purchase support services – including training in product use, availability of spares, maintenance, assistance with problems, etc. Customers want assurance that the product will perform satisfactorily during the useful life of the product. Manufacturers not only need to provide this assurance, but more importantly, need to ensure customer satisfaction as well.
Without this, survival in a fiercely competitive global market environment would be impossible. Warranties play an important role in this context. The use of warranties is widespread and they serve many purposes. These include protection for manufacturer and buyer, signals of product quality, assurance that the product will perform satisfactorily, providing a means of compensating buyers when a purchased item does not perform as promised, and resolving disputes between buyer and manufacturer.
Many different types of warranties have been studied in detail from various points of view. A warranty of any type, since it involves an additional service associated with a product, will lead to potential costs beyond those associated with the design, manufacture and sale of the product. These costs, in fact, are unpredictable future costs and have a significant impact on the total profits for a manufacturing business. In most cases, these costs range from 1% to 10% of total sales, depending on the product and the manufacturer.
At present, the North American automotive industry spends about 8.5 billion dollars on servicing warranty claims each year. The costs of warranty viii Preface depend on product reliability and warranty terms. Product reliability, in turn, is influenced by the decisions made during the design and manufacture of the product. Warranty management deals with decisions with regard to product warranty.
Warranty decisions must be integrated with decisions relating to technical issues such as design, development and manufacturing, and to commercial issues such as marketing, price, sales, revenue, etc. Warranty must be managed so as to ensure that the business objectives – profits, return on investment, market share, and so forth – are achieved, while at the same time providing adequate assurance to customers and ensuring customer satisfaction. Unfortunately, most businesses view warranty as only providing the assurance, and warranty management as efficient administering of warranty claims. The focus is on monitoring claims to ensure that they are valid and to prevent loss through warranty fraud.
This can be termed Stage-1 warranty management. Few businesses have moved beyond this to Stage-2 warranty management, where the focus is on improving business performance through actions that lead to warranty cost reduction and/or increase in customer satisfaction. This is achieved through changes to product design, production and warranty servicing logistics through a proper analysis of data obtained during the servicing of warranty claims. In both of these approaches to warranty management, warranty is viewed as an afterthought and warranty decisions are not linked to other product life cycle decisions.
Stage-3 warranty management views warranty from a strategic perspective. This begins with a warranty strategy that is linked to the various technical and commercial strategies from the very start of the new product development process. The aim of warranty management is to achieve the overall business objectives by focusing on product performance assurance as well as ensuring customer satisfaction. This book deals with Stage-3 warranty management and looks at both strategic and operational aspects.
It is the third and final book in the warranty trilogy written/edited by the authors. The first two books are Warranty Cost Analysis (Marcel Dekker, 1990) and Product Warranty Handbook (Marcel Dekker, 1994). The objective of the book is to provide a comprehensive, integrated framework for strategic warranty management. This requires an understanding of the role and impact of warranty on design, engineering, development and production of a product, as well as on quality assurance, marketing, and post-sale service.
Each of these aspects of warranty is discussed in some detail in the book. The approach taken is conceptual, using few symbols and no mathematics, with some formulas and mathematical discussion given in footnotes for the interested reader, and references cited for details and further results. Finally, some accounting and legal aspects of warranty that are relevant for effective warranty management are briefly discussed. The book is primarily intended for managers at all levels (senior, middle and junior) in manufacturing businesses.
We recommend the following sequence for initial reading of the book: Senior Level Managers CEO: Chapters 1, 3, 4 and 14 Manager in charge of Design and Development: Chapters 1, 2, 3, 4, 5, 14 Preface ix Manager in charge of Production: Chapters 1, 2, 3, 4, 5, 9, 14 Manager in charge of Marketing: Chapters 1, 3, 4, 5, 10, 14 Manager in charge of Post-sale Support: Chapters 1, 3, 4, 5, 11, 14 Middle and Junior Level Managers All managers: Chapters 1 – 14 Managers at the middle and junior levels should supplement this by extra reading as indicated in the endnotes for the various chapters. The book can also be used as textbook for a graduate level course in Business Management, Operations Management and Industrial Engineering programs as part of managing new product development. The authors wish to thank Anthony Doyle and Oliver Jackson of Springer- Verlag, London, for their assistance and support in producing the camera-ready version. The first author would like to thank the Department of Quality and Reliability Engineering at the Technische Universiteit Eindehoven and the Department of Production and Quality at the Norwegian University of Science and Technology for the visiting appointments during 2004 and for providing a stimulating environment for writing the initial drafts of the book.
Prabhakar Murthy Brisbane, Queensland, Australia Wallace R. Blischke Sherman Oaks, California, USA Contents Preface vii 1. Introduction and Overview 1 1.1 Pre-Industrial Revolution 2 1.2 Post-Industrial Revolution 3 1.3 Theories of Warranty 5 1.4 Warranty and Manufacturing 6 1.1 Impact of Warranty 6 1.5 Objectives of the Book 10 1.6 Outline of the Book 10 References 13 2. Products and Product Quality 15 2.4 Product-Service Bundling 22 2.2 Definitions of Quality 23 2.3 Notions of Quality 24 2.4 Product Quality and Customer Satisfaction 25 2.4 Product Life Cycle 27 2.1 Manufacturer’s Point of View 27 xii Contents 2.2 Buyer’s Point of View 28 2.2 Product Life Cycle Perspective 31 References 32 3.3 Role of Warranty 40 3.3 Warranty in Government Contracting 40 3.4 Description of Warranty Policies 41 3.1 One-dimensional Policies 42 3.2 Two-dimensional Policies 46 3.4 Reliability Improvement Warranties 51 3.5 Classification of Warranties 52 3.7 Study of Warranty 55 Appendix.
Selected Warranty Policies 56 References 60 4.2 Framework for Strategic Warranty Management 65 4.3 Interaction of Technological and Commercial Issues 69 4.4 Product Life Cycle Approach to Warranty Management 70 4.5 Formulation of Warranty Strategy 71 4.3 Pre-Launch Stage 72 4.1 Front-End [Pre-Design or Feasibility] Phase 72 4.2 Design and Development Phase 74 4.4 Formulating Warranty Strategy in the Pre-Launch Stage 76 4.5 Post-Launch Stage 79 4.1 Warranty as a Marketing Strategy 79 4.2 Warranty Servicing Strategy 79 4.4 Warranty Related Data 80 4.5 Use of Warranty Claims Data 81 4.6 Modifications to Warranty Policy 82 4.7 Dealing with Customer Dissatisfaction 82 Contents xiii 4. Systems Approach to Warranty Management 87 5.2 The Systems Approach 87 5.1 Step 1: Define the Objective 88 5.2 Step 2: System Characterization 89 5.3 Step 3: Build Models 89 5.4 Step 4: Derive Solutions 90 5.5 Step 5: Implement Solution 90 5.6 Step 6: Measure Outcomes and Evaluate Modifications 90 5.4 Decision-making in the Front-end Phase 92 5.5 Systems Approach to Warranty Cost Analysis 97 5.6 Modeling Product Failures 98 5.1 The Black-box Approach 100 5.2 The White-box Approach 102 5.3 Modeling Component and System Failures 103 References 106 6. The Role and Use of Data in Warranty Management 109 6.2 Types of Data 110 6.1 Data on Earlier Similar Products 111 6.2 Data from External Sources 111 6.3 Product and Process Related Data 111 6.3 Sources of Data 112 6.2 Business Management Systems 112 6.3 Scientific Journals and Conference Papers 112 6.5 Test and Experimental Results 113 6.6 Scientific and Technical Handbooks 113 6.9 Warranty Servicing and Field Support 113 6.10 Consumer Reports and Magazines 114 6.4 The Nature of Data 114 6.2 Probability and Statistics 115 6.5 Summarization of Data 116 6.1 Data Structures 116 xiv Contents 6.2 Graphical Presentation of Data 117 6.4 Measures of Variability 121 6.5 Measures of Relationship and Trend 122 6.6 Inferences from Data 124 6.1 The Role and Methods of Statistical Inference 124 6.7 Data-based Decision Models 129 6.8 Analysis of Warranty Claims Data 132 6.9 Computerized Data Analysis 134 Appendix. Data for Example 1 136 References 137 7.
Warranty Cost Analysis 139 7.2 Basis for Warranty Cost Analysis 139 7.1 Warranty Cost per Unit Sale 140 7.2 Life Cycle Cost per Unit Sale 141 7.3 Life Cycle Cost over Repeat Purchases 141 7.3 Methodology for Warranty Cost Analysis 142 7.3 Some Comments on Analysis 145 7.4 Warranty Cost Analysis – Cost per Unit Sold 146 7.1 Cost Analysis of the Non-renewing FRW Policy 147 7.2 Cost Analysis of the Non-renewing PRW Policy 151 7.3 Cost Analysis of the Non-renewing Two-dimensional 153 FRW 7.5 Life Cycle Cost Analysis 155 7.1 Life Cycle Cost, Non-renewing FRW Policy 156 7.2 Life Cycle Cost, Non-renewing PRW Policy 157 7.3 Life Cycle Cost – Dynamic Sales Model 157 References 157 8. Warranty Considerations in Product Design and Development 159 8.2 The Design–Development Process 160 8.1 Product Performance / Specification 161 8.1 Product Reliability Specification 163 8.2 Alternate Design Options 165 8.