Real-World Example
Reduction in Warranty Costs
These days, warranty costs account for a large portion of OEMs’ total operating costs. Warranty costs often rise significantly, unexpectedly, and on short notice—particularly as a result of technical actions and recalls. While efforts to optimize warranty costs typically focus on material and labor costs, another major cost driver is often overlooked: handling costs.
Background
In addition to the costs of replacement parts and labor, handling costs are playing an increasingly significant role today when it comes to warranty expenses. The term “handling costs” refers to all surcharges added to the part price that arise in warranty cases in connection with the provision of replacement parts to dealers in the external sales organization. Specifically, handling costs may consist of logistics, warehousing, and other provision costs, among others. In most cases, the amount of the handling costs is determined by a percentage markup on the part price, which can sometimes exceed 20%.
Specific Task Description
A targeted (short-term) reduction in warranty costs during the year through a significant reduction in handling costs.
KBC Approach
To optimize your company’s warranty costs, we begin by gaining a detailed overview of your spare parts portfolio and the billing processes with your dealer network in order to identify the key cost drivers. In the next step, we identify “classic” warranty parts—that is, those replacement parts with a warranty rate exceeding 80 percent. For these parts, we then determine the optimal part price. This allows us to reduce your handling costs without changing the percentage markup. In addition to implementing this reduction within product management—that is, actually carrying out the price reduction—we also set up a monitoring system that allows you to continuously track your warranty billing rates so that you can adjust part prices again if necessary.
