Volvo Trucks' valuable early warning system

        For any manufacturing company, in-warranty failures represent a significant expense. There is the cost of the repair or replacement itself, administering the process and, often, a loss of customer good will.

　　But an efficient warranty system can cut these costs and more. Customer satisfaction is higher if any warranty issues are handled efficiently and quickly. The manufacturer ties up fewer resources handling the repair, and goods are turned round more quickly.

　　The product itself can even be improved, if the warranty system can feed data into both the manufacturing process and suppliers. And a good reputation for handling in-warranty repairs will even justify a price premium in some marketplaces.

　　These are some of the benefits identified by Volvo Trucks, the heavy goods vehicle manufacturer, which created a new quality and warranty analysis tool (QWAT) a year ago. The system is based around SAS Institute’s Warranty Analytics software and an Oracle relational database.

　　The scale of warranty operations at Volvo’s trucks division is significant. The company currently builds about 100,000 trucks – mostly tractor units for semi-trailers or rigs – each year. The standard European warranty on these vehicles is one year, with some vehicles covered by a 300,000km warranty.

　　“With current production levels, and some good will campaigns, 200,000 to 300,000 trucks could produce a warranty claim or produce a problem that ends up in the analytics system,” says Micke Rydbeck, project manager for warranty systems at Volvo Truck Corporation. To add to the complexity, in Europe the vehicle could be taken to any one of 1,000 service points or, in North America, one of 350 sites.

　　Added to this, the vehicles Volvo produces are simple, commodity items. Within the annual production total, perhaps as few as two vehicles might be identical, such is the range of variants and configuration options available to customers.

　　An in-warranty failure might be the result of a particular, and quite possibly very rare, combination of components. The new system is much more effective at narrowing down the list of vehicles fitted with a particular part to those that are most likely to have problems.

　　“It might not show up as a battery problem on each and every truck, but only when two parts are used in combination,” says Rydbeck.

　　The business case for Volvo’s project was based on achieving more efficient warranty claims, reduced fraud, better reporting and improved recovery of warranty costs from suppliers.

　　The warranty tool acts as a valuable early warning system, helping to pick up any potential faults before they occur in a truck. Improved trend analysis is a valuable feature of the new system: previously, quality control staff had to use three main tools and three data sources in what was still, largely, a manual process.

　　But the earlier the company identifies a problem, the cheaper it is to fix. Advanced warning allows more vehicles to be examined and repaired during regular servicing. This reduces Volvo’s costs but critically, keeps customers’ trucks on the road for longer.

　　The system also helps Volvo to give customers a wider range of configuration options without compromising on the manufacturer’s standards or increasing support costs. “We need to have a situation where we can produce trucks built to customers’ specifications that still nurture our core values of quality and safety,” Mr Rydbeck explains.

　　Another important part of the analytics-based approach to warranty management is that it helps Volvo’s design and manufacturing teams react to after-market problems with the trucks, and prioritise design or production changes. These are all important benefits for Volvo customers.

　　The project has had a significant impact on Volvo’s after- market costs: cutting them plays a key part in keeping the manufacturer competitive.

　　“Our warranty costs have fallen by 40 to 50 per cent in the past couple of years,” says Mr Rydbeck. “But it becomes progressively harder to lower these costs and harder to find the problems that cause them. Our warranty costs are now about the industry average, but were higher.”

　　He believes that the new warranty management system, and in particular its analytical capabilities, will allow Volvo Trucks to deliver above-average service to vehicle owners while cutting its prices and increasing per- vehicle margins.

　　“If we can reduce our warranty costs, it gives us room to increase our margins while also being competitive on price,” he says.

　　Volvo is also using its system to detect unusual or potentially fraudulent warranty claims. The analytics tool can go through historical claims data and identify claims that need to be checked. Rather than send a team of auditors to look at a dealer’s books, picking random samples, it can focus on claims that arouse specific suspicions.

　　“During an audit we can focus on three, five or 10 claims that we are really interested in, rather than picking 20 at random. Dealers are getting the message, and we are at much less risk of fraud now,” says Mr Rydbeck.

　　The system is also being implemented at US truck maker Mack and at Volvo’s bus operations. The next step for Volvo is to extend the warranty analytics system to key suppliers, a process it started in June this year.

　　“We are opening up the system and showing suppliers information relating to them. Previously we reported to suppliers twice a year, but now we can show quality information to them and they can improve products immediately,” says Mr Rydbeck.

　　“Because we can share our information, we can have a better conversation with suppliers.”

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