Apexon and IQS early entrants in warranty management software space

Reducing the inherent costs associated with warranty claims is top of mind with manufacturers and suppliers as they look to squeeze the rising costs of claims from bottom-line expenses. The result is a growing number of early entrants in the warranty management software space, a relatively new vendor category.

And there's much at stake. Estimates indicate manufacturers devote from 2 percent to 5 percent of sales revenue to warranty costs, with a staggering 90 percent of claims being paid. General Motors alone reportedly spends $1 billion annually for warranties.

"Manufacturers are pushing more costs back to the suppliers. They're all trying to establish more accountability and address the liability issue. It's a major cost issue," says Bill Swanton, a VP with AMR Research, Boston.

In addition, two key regulatory changes snapped the manufacturing industry to attention: the TREAD Act (Transportation Recall, Enhancement, Accountability and Documentation); and the FASB (Financial Accounting Standards Board) Interpretation No. 45, which requires an explanation of accounting methods and policies, including warranty costs. One final factor is manufacturers setting up shop overseas, which makes the task of monitoring supplier quality processes that much more difficult.

Into the breach created by the warranty management issue have stepped at least two different business application vendors—Apexon and IQS—both of which aim to reduce manufacturers' warranty costs through improved production coordination, a focus on quality management, more efficient claims processing, and better use of data.

"Companies have data somewhere, but don't have the ability to bring it together. Where do they find design parameters and engineering changes? It must be put into a business system to capture corporate knowledge," maintains John Cashat, chairman and founder of IQS, a provider of performance management software to the manufacturing industry.

Yet with more manufacturing being done overseas and via outsourcing, managing quality control throughout the production cycle can be tricky.

"Warranty costs are now very visible to consumers, and Wall Street is looking at them too," says Matt Holleran, president and CEO of Apexon, an enterprise quality management software solutions vendor. "Lower warranty costs are about quality and performance and can mean a competitive edge. When these are rolled together, it's a very significant issue with serious dollars at stake."

The biggest ROI, however, will come from vendor recovery programs, AMR reports. Getting there, however, will require an investment in warranty cost-reduction solutions similar to those being provided by Apexon, IQS, and others.

"Manufacturers must take the supply chain and link it tightly with the warranty side of the organization. The real shift is happening through warranty exposure. They can't treat warranty claims as isolated incidents," says Swanton.

Honeywell, for instance, reduced its cycle time from 28 days to five using Apexon's solution, which uses a series of "phase gates" to ensure that reliability is being driven into the product. It also resulted in employees spending from eight to 24 hours a week on higher-priority projects.