Wednesday, November 30, 2011

Warranty against defects in material and workmanship

What affects the warranty against defects in material and workmanship?

1. For the supplier it’s the product’s reliability. As a buyer there should be a relationship between the warranty period and the stated reliability of the product. If the supplier is pushing for a short warranty when they promise a long reliability period that should make you suspicious. If they are confident in the reliability of the product, the cost of a longer warranty period should be minimal.

2. When does the warranty start? Does it start when the supplier ships the product? If it does you need a longer warranty period to take into account the in transit time and the length of time before the product is used.

3. What's covered by warranty? Does it include parts only, when the real cost of correcting the problem will be the labor?

4. Where will the warranty correction be performed? Will the supplier come to your location to provide the service or does it require return to a supplier location.? If the warranty requires the buyer to return the product to a supplier location, which party is paying the cost to ship it in both directions? If you are paying for any of that, in addition to your cost of handling, that’s adding those costs to the relationship.

5. Are you losing the time you don’t have the product while it is being repaired or replaced? Should the time that you don’t have use of it be added to the period? For any repaired or replaced product do you have a minimum period of time that it will be warranted?

6. For a defective product what inspection or test does the supplier want you to perform prior to sending the product back to them? If you have to perform any inspection or test, that is adding to your costs. If the supplier wants to charge a fee for no defect found or no problem found, tell them that you expected them to ship good product so if they want to pay you the same fee for every time they ship you bad product you’ll consider that. I’ve yet to find a supplier that will agree to that.

7. Product Changes. Unless every change is backward compatible with the prior product, you can run into situations where you may not be able to repair a defective product and you cannot use a current product to replace it.

8. Exclusions. Most warranty exclusions proposed by suppliers are far too broad. Exclusions prevent you from enforcing the warranty so exclusions can significantly add to your cost. If you allow broad exclusions your options are to either try to have the product repaired out of warranty for an additional charge or purchase a replacement at full price.There are three separate posts on warranty exclusions.

What warranty affects

1. Life cycle cost / profit. If the supplier’s warranty is less than the warranty you offer your customers on your product sales that includes the supplier’s product that is an uncovered risk. If the product fails after the supplier’s warranty has expired but before your warranty has expired you will bear the full cost of repairing or replacing that item.

2. Product or spare parts inventory. The period of time that you give a supplier to repair of replace a product means one of two things. Either you do not have use of the item during that period, or you need to carry an inventory of products or spare parts to correct the problem immediately while you wait for the return of the repaired or replaced item. The longer that period is, the larger the inventory you may have. It can also affect product shipments and revenue if you need to pull from manufacturing inventory for use with a customer warranty.

3. Competitiveness of service or maintenance charges. When a service organization knows what they have under warranty and for how long, they can take that into account in pricing their service or maintenance charges. Once the warranty expires, unless they sell “labor only” service or maintenance contracts they would need to include the cost to repair items out of warranty or replace defective items with replacements.One of the keys in service or maintenance is understanding how long they can count on the supplier to provide spare parts our out of warranty repairs that may be needed. Once you get to the point where the supplier will no longer provide the parts or service, the service organization may need to stop offering service or maintenance to its customers or charge the customers substantially more and get what they need from any source including cannibalizing and using parts from products they take in trade for new sales.

What’s most important?
Having a good warranty against defects is not a replacement for having high quality and reliability.A good warranty against defects helps manage against only a portion of the costs you will incur with a defective product. Collecting more of those costs usually requires negotiating an epidemic defects provision. Even that will not cover all your costs. Mort important defective products cause customer satisfaction issues. When a customer buys your product and it fails, they don’t care that it was the supplier’s product that failed. All they know is that they purchased the product from you.

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