Table Of ContentSpringer Series in Reliability Engineering
Series Editor
Professor Hoang Pham
Department of Industrial Engineering
Rutgers
The State University of New Jersey
96 Frelinghuysen Road
Piscataway, NJ 08854-8018
USA
Other titles in this series
The Universal Generating Function in Reliability Analysis and Optimization
Gregory Levitin
Maintenance Theory of Reliability
T. Nakagawa
Publication due September 2005
System Software Reliability
H. Pham
D.N. Prabhakar Murthy and
Wallace R. Blischke
Warranty Management
and Product Manufacture
With 83 Figures
D.N. Prabhakar Murthy, B.E. (Hons), M.E. (Hons), M.S., Ph.D.
Division of Mechanical Engineering
The University of Queensland Brisbane
Queensland, Q 4072
Australia
[email protected]
Wallace R. Blischke, B.S., M.S., Ph.D.
5401 Katherine Avenue
Sherman Oaks, CA 91401
USA
[email protected]
BritishLibraryCataloguinginPublicationData
Murthy,D.N.P.
Warrantymanagementandproductmanufacture.—(Springerseriesinreliabilityengineering)
1.Warranty 2.Qualitycontrol 3.Manufactures
I.Title II.Blischke,W.R., 1934–
658.5′6
ISBN1852339330
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v
Preface
In industrialized societies, new products are appearing in the marketplace at an
ever-increasing pace. Their introduction is either market driven – a result of
increasing customer expectations and needs – or technology driven – resulting
from advances in technology. In addition, the complexity of products tends to
increase with eachnew generation. A further complicating factor is that customers
are uncertainabout,and have noeasy waytoresearch, new product performance.
Two items that are becoming more critical and important in the customer
purchasedecision process are:
1. Pre-purchase services – including information regarding product
performance, useful life, costof operation, etc., and
2. Post-purchase support services – including training in product use,
availability ofspares, maintenance, assistance withproblems, etc.
Customers want assurance that the product will perform satisfactorily during the
useful life of the product. Manufacturers not only need to provide this assurance,
but more importantly, need to ensure customer satisfaction as well. Without this,
survival in a fiercely competitive globalmarket environment wouldbe impossible.
Warrantiesplay an importantrole in thiscontext.
The use of warranties is widespread and they serve many purposes. These
include protection for manufacturer and buyer, signals of product quality,
assurance that the product will perform satisfactorily, providing a means of
compensating buyers when a purchased item does not perform as promised, and
resolving disputes between buyer and manufacturer. Many different types of
warranties have been studied in detail from various points of view. A warranty of
any type, since it involves anadditional service associated with a product, will lead
to potential costs beyond those associated with the design, manufacture and sale of
the product. These costs, in fact, are unpredictable future costs and have a
significant impact on the total profits for a manufacturing business. In most cases,
these costs range from 1% to 10%of total sales, dependingon theproduct and the
manufacturer. At present, the North American automotive industry spends about
8.5 billion dollars on servicing warranty claims each year. The costs of warranty
viii Preface
depend on product reliability and warranty terms. Product reliability, in turn, is
influenced by the decisions made during the design and manufacture of the
product.
Warranty management deals with decisions with regard to product warranty.
Warranty decisions must be integrated with decisions relating to technical issues
such as design, development and manufacturing, and to commercial issues such as
marketing, price, sales, revenue, etc. Warranty must be managed so as to ensure
that the business objectives – profits, return on investment, market share, and so
forth – are achieved, while at the same time providing adequate assurance to
customers and ensuring customer satisfaction.
Unfortunately, most businesses view warranty as only providing the assurance,
and warrantymanagement as efficient administeringof warranty claims. The focus
is on monitoring claims to ensure that they are valid and to prevent loss through
warranty fraud. This can be termed Stage-1warranty management. Few businesses
have moved beyond this to Stage-2 warranty management, where the focus is on
improving business performance through actions that lead to warranty cost
reduction and/or increase in customer satisfaction. This is achieved through
changes to product design, production and warranty servicing logistics through a
proper analysis ofdata obtained during the servicingofwarranty claims. In bothof
these approaches to warranty management, warranty is viewed as an afterthought
andwarranty decisions are not linked toother product life cycle decisions. Stage-3
warranty management views warranty from a strategic perspective. This begins
with a warranty strategy that is linked to the various technical and commercial
strategies from the very startof the new productdevelopment process. The aim of
warranty management is to achieve the overall business objectives by focusing on
productperformance assurance as well as ensuring customer satisfaction.
Thisbookdeals with Stage-3warranty management and looks atboth strategic
and operational aspects. It is the third and final book in the warranty trilogy
written/edited by the authors. The first two books are Warranty Cost Analysis
(Marcel Dekker, 1990) andProduct Warranty Handbook(Marcel Dekker, 1994).
The objective of thebook is to provide a comprehensive, integrated framework
for strategic warrantymanagement. This requires an understanding of the role and
impact of warranty on design, engineering, development and production of a
product, as well as on quality assurance, marketing, and post-sale service. Each of
these aspects of warranty is discussed in some detail in the book. The approach
taken is conceptual, using few symbols and no mathematics, with some formulas
and mathematical discussion given in footnotes for the interested reader, and
references cited for details and further results. Finally, some accounting and legal
aspects of warranty that are relevant for effective warranty management are briefly
discussed.
The book is primarily intended for managers at all levels (senior, middle and
junior) in manufacturing businesses. We recommend the following sequence for
initial readingof thebook:
Senior Level Managers
CEO: Chapters 1, 3, 4 and 14
Manager in charge ofDesignand Development: Chapters1, 2,3,4, 5,14
Preface ix
Manager in charge of Production: Chapters 1, 2, 3, 4, 5, 9, 14
Manager in charge of Marketing: Chapters 1, 3, 4, 5, 10, 14
Manager in charge of Post-sale Support: Chapters 1, 3, 4, 5, 11, 14
Middle and Junior Level Managers
All managers: Chapters 1 – 14
Managers at the middle and junior levels should supplement this by extra reading
as indicated in the endnotes for the various chapters.
The book can also be used as textbook for a graduate level course in Business
Management, Operations Management and Industrial Engineering programs as part
of managing new product development.
The authors wish to thank Anthony Doyle and Oliver Jackson of Springer-
Verlag, London, for their assistance and support in producing the camera-ready
version. The first author would like to thank the Department of Quality and
Reliability Engineering at the Technische Universiteit Eindehoven and the
Department of Production and Quality at the Norwegian University of Science and
Technology for the visiting appointments during 2004 and for providing a
stimulating environment for writing the initial drafts of the book.
D. N. Prabhakar Murthy
Brisbane, Queensland, Australia
Wallace R. Blischke
Sherman Oaks, California, USA
Contents
Preface vii
1. Introduction and Overview 1
1.1 Introduction 1
1.2 Historical Perspective 2
1.2.1 Pre-Industrial Revolution 2
1.2.2 Post-Industrial Revolution 3
1.3 Theories of Warranty 5
1.3.1 Exploitative Theory 5
1.3.2 Signal Theory 5
1.3.3 Investment Theory 6
1.4 Warranty and Manufacturing 6
1.4.1 Impact of Warranty 6
1.4.2 Warranty Decisions 7
1.4.3 Warranty Management 8
1.5 Objectives of the Book 10
1.6 Outline of the Book 10
References 13
2. Products and Product Quality 15
2.1 Introduction 15
2.2 Products 15
2.2.1 Product Classification 16
2.2.2 Product Decomposition 20
2.2.3 Perspectives 22
2.2.4 Product-Service Bundling 22
2.3 Product Quality 23
2.3.1 Perspectives 23
2.3.2 Definitions of Quality 23
2.3.3 Notions of Quality 24
2.3.4 Product Quality and Customer Satisfaction 25
2.4 Product Life Cycle 27
2.4.1 Manufacturer’s Point of View 27
xii Contents
2.4.2 Buyer’s Point of View 28
2.4.3 Product Performance 29
2.4.4 Product Cost 29
2.5 Product Reliability 30
2.5.1 Definition 30
2.5.2 Product Life Cycle Perspective 31
References 32
3. Product Warranty 35
3.1 Introduction 35
3.2 WarrantyConcept 36
3.3 Role of Warranty 40
3.3.1 Buyer’sViewpoint 40
3.3.2 Manufacturer’sViewpoint 40
3.3.3 Warrantyin Government Contracting 40
3.3.4 Societal Viewpoint 41
3.4 Description of Warranty Policies 41
3.4.1 One-dimensional Policies 42
3.4.2 Two-dimensional Policies 46
3.4.3 CumulativeWarranties 50
3.4.4 ReliabilityImprovement Warranties 51
3.5 Classification of Warranties 52
3.6 ExtendedWarranties 54
3.7 Study of Warranty 55
Appendix. Selected Warranty Policies 56
References 60
4. Warranty Management 63
4.1 Introduction 63
4.2 Framework forStrategic Warranty Management 65
4.2.1 TechnicalIssues 67
4.2.2 Commercial Issues 68
4.2.3 InteractionofTechnological andCommercial Issues 69
4.2.4 Product Life Cycle Approach toWarranty Management 70
4.2.5 Formulation of WarrantyStrategy 71
4.2.6 StrategyImplementation 72
4.3 Pre-LaunchStage 72
4.3.1 Front-End [Pre-Design or Feasibility] Phase 72
4.3.2 Design and Development Phase 74
4.3.3 Production Phase 76
4.3.4 Formulating Warranty Strategy in the Pre-Launch Stage 76
4.4 LaunchWindow 78
4.5 Post-Launch Stage 79
4.5.1 WarrantyasaMarketing Strategy 79
4.5.2 WarrantyServicing Strategy 79
4.5.3 Other Issues 80
4.5.4 Warranty Related Data 80
4.5.5 Use of Warranty Claims Data 81
4.5.6 Modifications to Warranty Policy 82
4.5.7 Dealing with Customer Dissatisfaction 82
