Practical example
“Warranty & Goodwill (G&K)” Cost Initiative
The "Warranty & Goodwill" cost-cutting initiative enabled a car manufacturer to reduce its warranty and goodwill expenses within the same year.
Background
In today’s economic climate, reliability management faces a wide range of challenges within companies. Increasing demands for the safety and reliability of end products stem from the requirements and expectations of global competition, such as intense pressure to innovate, increasingly complex products and technologies, a wide variety of products, and shorter development and production cycles. In addition to growing quality challenges for companies, this also gives rise to numerous risks. In times of economic and financial crises as well as increasing competition, quality and reliability aspects are becoming increasingly important in purchasing decisions due to differentiated and rising customer expectations. As a result of these customer demands, manufacturers (OEMs) are tightening their requirements for products and processes within their own value chain. These stricter requirements thus also have a direct impact on warranty and goodwill costs, as poor product reliability negatively affects the annual financial results. Consequently, companies can and must differentiate themselves from the competition and position themselves through high product and process quality.
Specific task
At an automotive manufacturer:
- Implement short-term measures to reduce intra-annual groundwater and surface water runoff
- Identify additional control levers for reducing G&K outflow
- Establish the necessary structures and methods for targeted cost reduction
- Initiate and establish a framework for regularly implementing short-term cost reductions in procurement and logistics
KBC's Approach
High or rising general and administrative (G&A) expenses can result in G&A costs for the year significantly exceeding the provisions set aside. The causes of these overruns lie primarily in a lack of transparency and analytical methods in the G&K billing environment, as well as in excessively high G&K costs due to lengthy troubleshooting times and inefficient repair processes. This often results in unjustified billing (e.g., anomalies across different markets) to the OEM due to a lack of guidelines and rules for dealers. In this specific case, after the necessary G&K data was provided and analyzed, KBC was able to identify the key areas for action within three months, get to the root of the causes, and generate appropriate corrective measures to reduce G&K costs in the short term during the current fiscal year. To enable rapid decision-making regarding these measures, sustainable management and control processes were designed and implemented.
Impact achieved
By identifying the G&K levers for reducing costs (optimizing the repair process, lowering parts prices and handling costs, avoidance of billing anomalies, creation of dealer billing rules, and reduction of troubleshooting time), a short-term savings potential of one million euros for G&K costs was identified within a very short time, positively impacting provisions and the company’s earnings for the year.
