Technical article
Supplier Recourse
Supplier Recourse: The Hidden Potential of Warranty and Goodwill Costs
Premature wear on the faux leather seats of the new sports car, faded hardwood floorboards, brittle rubber coating on a tool handle, corroded patio furniture, and a leaky coffee maker—what now? The customer is upset, and the manufacturer is faced with the question of liability: Was it natural wear and tear, or is this a warranty claim? Is the defective product component a purchased part? And who, ultimately, bears responsibility for the resulting damage?
A large portion of procurement costs is attributable to suppliers
Our experience shows that a large portion of quality and compliance costs is attributable to suppliers. This means that the resulting damage is due to a defect in the purchased part and was likely already present at the time the supplier delivered it to the product manufacturer. In this case, the product manufacturer can assert claims against its supplier regarding subsequent performance, rescission, or a reduction in the purchase price, or even damages. However, the existing recovery proceeds of product manufacturers are usually very low in the benchmark. Furthermore, there is often little transparency regarding the levers for increasing recovery proceeds within the company, and consistent processes are frequently lacking. As a result, there is untapped potential in many companies.
Procedure for Supplier Recourse
Our clients’ optimization projects focus on increasing recovery revenues, reducing recovery-related expenses, and improving liquidity. To establish a foundation for identifying potential areas for optimization, we first conduct an analysis of general and administrative costs, supplemented by an industry-specific benchmarking assessment. The goal of the analysis is to gain transparency into the existing cost situation within the respective company and to identify potential optimization approaches. In addition, we examine the existing recourse objectives as well as the “recourse process chain” and compare them with best-practice approaches. This ultimately allows us to optimize the recourse objectives as needed and to identify potential process gaps and areas for process optimization within the “recourse process chain.” In addition to establishing the business management control processes, we then work with our client to define a comprehensive set of measures, including a monetary valuation, implementation plan, and target agreement. If necessary, a package of immediate measures can be formulated to leverage existing potential early and efficiently.
An average increase of 16% in supplier recourse recoveries
Our proven approach typically results in an immediate increase in recovery rates and, consequently, a rise in EBIT within the same year. Our project experience shows that recoupment returns can be increased by an average of 16% after three years. Our clients also gain complete transparency into their recoupment processes. The resulting professionalization of these processes also enables the realization of long-term potential. Another consequence of the increase in supplier recoupment is a medium-term improvement in supplier quality.
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