Practical example
Reduction in warranty costs
Warranty costs now account for a significant portion of OEMs’ total operating expenses. Technical service campaigns and recalls, in particular, often cause warranty costs to rise sharply, unexpectedly, and at short notice. 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 in warranty expenses today. The term “handling costs” refers to all surcharges added to the part price that arise in warranty cases when replacement parts are provided to dealers in the external network. 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 surcharge on the part price, which can sometimes exceed 20%.
Specific task
A targeted (short-term) reduction in warranty costs during the year through a significant reduction in handling costs.
KBC's 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 spare 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 in 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.
