Improving reliability, extending warranty, building competitive advantage

By strengthening reliability management, manufacturers can use extended warranty terms to drive top-line growth while reducing costs and enhancing reputation.

Extending warranty terms is proven to increase sales, but increasing underlying shareholder value means improving product reliability. It’s an important source of competitive advantage, but many firms seem reticent to fully exploit its significant potential. Reliability improvement programmes can increase value through cost reduction, revenue growth, risk avoidance and improved brand equity. But not all businesses have the same mindset. While some may have field quality issues they want to address, some may be content to maintain their current product reliability position, while others may want to make reliability a core part of their growth strategy. Whatever the starting point, one thing’s clear; with changes in customer expectations, technology and regulation, positive action on reliability is required just to maintain market position.

While the specific strategy required depends on the company’s current position and future aspirations, the tools and techniques to deliver it are well established. Businesses need to invest to build capability in these tools and techniques so they can make positive changes and position themselves for the future.

Key Points

The length of warranty offered by a manufacturer isn’t necessarily an indicator of quality or reliability. However, as a marketing tool, longer warranties have been proven to increase sales in both the consumer and business-to-business sector.

Extending warranty terms builds the perception of quality and, usually, de-risks the procurement of the product or service. However, not all manufacturers take the necessary steps to make sure these increased sales lead to a similar improvement in profitability. 

However, offering a longer warranty without a strategy to improve reliability can lead to reputational damage if products fail to live up to expectations. Reliability is the true driver of business value, enabling:

• Cost reduction through reduced warranty expenditure.
• Sustainable growth by increasing reputation and trust.
• Risk reduction by minimising exposure to high-profile field failures.
• Increased brand equity as a result of growing customer confidence.

 While every business is in a unique situation, leaders can often identify their organisation as fitting into one of three scenarios:

1. Reducing cost and protecting reputation, where warranty and complaint expenditure is excessive.
2. Protecting market share, where incremental improvements in reliability are needed to deal with competition, advancing technology and customer expectations.
3. Driving growth, where businesses are using excellent product innovation and reliability to drive their growth strategy.

Often, there’s a business intent to operate in a different scenario than today. Many companies sell on the basis of good quality and reliability, but the reality is that their executive leaders, salesmen and engineers spend a significant amount of time dealing with customer quality issues.

It’s not enough for leaders to accept their current level of reliability. Customers and consumers are looking for better and more reliable products, and they won’t tolerate bearing the risk or cost of field failures.

Regulation is also becoming more onerous, imposing new demands and increasing the risk of fines or even personal legal liability. Electronics are being integrated into traditionally mechanical devices, often increasing the opportunities for quality failure. Manufacturers are adding additional services to their traditional product offering, requiring them to develop new capabilities and take on more risk. All the while, product life cycles are getting shorter, driven by new technology, putting pressure on delivery timescales and – once again – increasing the risk of failure.

A strategy to improve product reliability must consider every step in the value chain, from sales right through to service. It’s not enough to focus on one department, such as engineering or manufacturing, if really significant improvements are to be made. Instead, leaders need to clearly define who’s accountable for improving reliability, and drive effective, sustainable cross-functional change.

A reliability change programme needs to build capability, developing people and processes to make sure:

• Current products are subject to effective process controls, which are continually refined and improved to protect the customer.
• Future product development projects deliver measurable improvements in reliability, while reducing manufacturing costs by ensuring capable processes that produce good parts, every time.

 Boards, shareholders and potential buyers need to be assured that reliability is being addressed at every step of the value chain. To do so, leaders need to know the answers to the following questions:

• Is the business set up to avoid a major field failure? How can we be sure?
• Does the risk of a major field failure appear on the enterprise risk register? How is that risk being mitigated?
• How would the business react to a sudden increase in warranty claims?
• Does the business have an actionable strategy to improve reliability? Who is accountable?

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This paper is relevant for the entire leadership team, and all those involved with reliability, at industrial manufacturers of electromechanical devices and components, where there is a real desire to enhance reliability and increase shareholder value.