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2006 Predictions: Warranty and Quality Bleeding Continues

03 February, 2006

This Manufacturing Insights Perspective examines the trends in product warranty and quality functions and assesses the road ahead in 2006. Manufacturing Insights spoke with technology vendors, consultants, and buyers about what the coming year will hold for companies in the manufacturing industry, which resulted in 10 predictions for 2006.

by Joe Barkai Program Director, Product Life-Cycle Strategies, Manufacturing Insights

Quality issues continue to plague vast areas of the manufacturing industry landscape and are evident by rampant product recalls, increased warranty claims, and customer dissatisfaction. Recalls of motor vehicles tend to be visible and capture headlines, but 3.4 million consumer products are recalled every month because of product flaws and safety concerns. Quality and safety issues impact all manufacturing sectors, and even household names typically associated with quality (e.g., Toyota and Apple Computer) experienced large recalls in 2005.

Product quality problems cost manufacturers dearly in customer defection and erosion of brand loyalty, as well as in the substantial direct costs of the claims alone. Warranty spending of North American companies has reached $25 billion per year and continues to increase, with more than half of this burden being shouldered by the automotive industry. Warranty spending represents 2–3% of manufacturing companies' revenue, and in some cases takes as much as 8% from the bottom line.


Warranty costs continue to escalate in response to the increases in new product introductions, increased technology complexity, and shrinking engineering cycle times. Warranty management and early warning systems continue to be much-discussed topics, especially in the automotive industry, but have yet to bubble up to the top of the CIO's priority list.

FASB 49 and the TREAD Act continue to be top of mind, but the impact begins to wear off, hurting mostly the small technology vendors and consultants that capitalised on fear and uncertainty to create new products and business opportunities.
Technology necessary for effective closed-loop management, especially around data and text analytics, continues to mature, but a lack of standards across industry segments hinders adoption. Unable to agree on best practices and interoperability standards, small technology companies and system integrators and services companies continue to dominate the space.

Early case studies depicting substantial financial benefit from transforming warranty/quality processes emerge, particularly for companies that embrace a comprehensive design for serviceability and for warranty approach.

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