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Two Most Effective Tools to Reduce Warranty Cost

Warranty expenses can eat up millions of dollars.

In today’s high-tech world, we rely 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 to provide a product warranty. A warranty, in its simplest form, means the manufacturer guarantees that the product will function as expected, without failure, for a given period of time, in a specified environment.

In the consumer electronics industry, warranty expense can eat up 1% to 2% of the total revenue. For a $1B company, this can impact the bottom line by $10M to $20M. For many companies, this can be as much as their new product development budget — or a major piece of their profit margins.

In addition to the direct monetary impact, repeated product failures can have a detrimental effect on the reputation of the company — leading to the loss of a marketplace position.

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

The Three Primary Causes of Warranty Claims

Poor manufacturing designs can lead to tolerance issues where products are out of specification (out of spec).

Primarily, warranty claims arise because a product fails to perform its intended use or function. There tends to be three major causes of warranty claims, dubbed the 3P’s, they are:

  1. Product: A poor product design leads to reliability issues
  2. Process: A poor manufacturing design leads to quality and tolerance variations
  3. People: An inappropriate use of the product leads to failure in the field

Most research in the area of warranty claim show that product and process designs are the leading cause of failure in the field. They are also where engineers can enact direct improvements. Therefore, we will focus on how improving reliability (product design) and quality (process variation) can drastically reduce warranty cost.

It should be noted that the terms reliability and quality are often used interchangeably to describe product failure rates. However, they have very different meanings. Quality measures the manufacturing process by comparing how well the product performs against a set of specifications as it comes off the line. Reliability, on the other hand, measures the quality of products over time and in the field. In the simplest terms, reliability is a function of the design process while quality is the result of the manufacturing process.

Product Design for Reliability (DfR)

Reliability is commonly measured as the probability of an item performing a function, without failure, for a given 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 product development.

Traditionally, physical modeling combined with failure modes and effect analysis (FMEA) has been the primary method to build reliability into product designs. However, these methods aren’t keeping up with the current product reliability demands of the market.

Graph of the computer industry warranty claims paid by companies in the US (in USD millions, 2003-2018). Image courtesy of Warranty Week, May 2, 2019.

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

Today, we have powerful tools available that quickly and cost effectively provide robust designs. For instance, you can use design simulation software that is based on the physics of failure (PoF). It allows you to test multiple design scenarios within a matter of hours with a high level of confidence — compared to weeks or months testing with physical models.

When the design is based on physics, chemistry and engineering principles, product reliability tends to be high. Therefore, PoF simulations are one of the most effective ways 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. It’s true that that no two products, or parts, are manufactured the exact same way — variation exists in every manufacturing process. As long as the products fall within tolerance, the part or products are considered good.

However, variation within specifications can still lead to product failures in the field. This increases warranty cost and customer dissatisfaction. Taguchi’s Loss Function describes this scenario well. It states that any variation from the nominal performance will begin to incur customer dissatisfaction and cost to the producer.

The good/no good interpretation of loss chart (left) shows conventional wisdom where as long as your product is in tolerance the customer will generally be satisfied. The truth is closer to the chart showing the Taguchi continuous interpretation of loss (right) where there is no “breaking point.” Here, as the product’s performance moves further from nominal, customer dissatisfaction increases exponentially.

As a result, many tools and techniques have been developed to improve product quality. One of the most successful methods 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 the source.

Overall, poor quality and reliability continue to cost companies millions of dollars in warranty cost. This represents a huge opportunity for engineers to improve inadequate designs and excessive variations. With DfR and DFSS, we have the right tools available to eliminate the primary root causes of product failure and warranty cost.

For more information and insights on strategic electronics reliability testing, watch the webinar: Implementing Reliability Physics into the Design Process: What Every Manager and Engineer Needs to Know.