7 KPIs every Warranty Manager Should Know

Short Summary

In this article, you’ll read about: 

  • Effective warranty management helps understand part wear trends, increase dealership loyalty, and improve customer satisfaction
  • Aftersales KPIs for warranty managers are crucial for analyzing warranty claims and trends
  • Efficient warranty management systems are only part of the solution. OEMs need a solution that facilitates supply chain connectivity with dealers and the end customers with their machines
Max Wies 22 Apr 2024 9 mins read
7 KPIs for Warranty Managers

Interconnected warranty management solutions are crucial for meeting customer expectations, understanding trends in machine wear, and fostering collaboration between dealers and original equipment manufacturers (OEMs). Without an effective warranty management solution, dealers lose valuable time submitting warranty claims and managing databases and admin, instead of handling repairs and replacements for end customers. 

This leads to claim processing inefficiency, double entries, disparate data, and, ultimately, diminished customer satisfaction.

But what constitutes an efficient warranty management system? How can warranty managers measure and benchmark claims processing? What are the benefits of an efficient warranty management system for the whole supply chain? 

We’re glad you asked

Read on to learn what warranty management is and why OEMs should invest in it. We’ll cover the benefits and challenges that warranty managers face, as well as seven key performance indicators (KPIs) for effectively tracking warranty management success.

What is warranty management? A complex process between OEMs and Dealers

Warranty management is the process of overseeing warranty policies and claims that a company offers for its product or service. Managing warranties involves multiple key processes like defining warranty terms, handling claims made by customers, tracking warranty service performance, and analyzing warranty data.

So, who are the players in ensuring warranties are fulfilled: OEMs or dealers? In short, both. Let’s take a look.

Dealers and OEMs work together to ensure the warranty terms are fulfilled for end customers. Warranty management starts when a customer has a malfunctioning machine and makes a warranty claim to dealers—who are their point of contact. Dealers then submit the claim to OEMs who fulfill the warranty. Pretty simple, right

While this process is relatively simple, it doesn’t come without a few challenges—let’s take a look.

Frequent challenges of dealer and OEM warranty management collaboration

Implementing warranty management solutions can streamline warranty claims processing and significantly save resources in the log run. However, there are a few challenges that come with implementation. 

Data integration for disparate entry systems

OEMs and dealers will frequently have to work through claims with disparate data systems. Different systems may be unable to integrate and transfer data efficiently, causing gaps in the sharing and analysis of warranty claims.

An effective warranty management software should effectively break down the data silos trapped between the separate systems. Doing so enables OEMs and dealers to better share and manage claims and warranty details. 

Warranty claim entry efficiency

When entering claim entries, dealers will have to both import the claim to OEMs and also enter the data into their own DMS systems. This process is not only time-consuming, but it also leaves room for manual errors. A warranty management system should minimize the risk of double data entries and errors by providing a unified database.

Why OEMS should invest in warranty solutions

While warranty management solutions don’t come without roadblocks and implementation challenges—the benefits for OEMs, dealers, and end customers are well worth it.

Here’s why.

Warranty solutions boost dealer loyalty

Interconnected warranty management solutions can foster stronger and smoother relationships between OEMs and dealers. Providing dealers with an efficient warranty infrastructure enables OEMs to streamline claim submission, ultimately simplifying processing for dealerships and accelerating dealer payback. An interconnected warranty solution facilitates both communication and effective collaboration for processing claims between dealers and OEMs.

With the added layer of connectivity eliminating roadblocks and optimizing supply chain management, dealers will be able to better do their job—which they’ll appreciate and value from you as their OEM of choice. And makes dealers stick to your parts even when the warranty period expires. Usually, dealers don’t even hand in warranty claims below 50€ because it’s not worth the effort.

Warranty solutions keep customers satisfied

Simplifying warranty processing doesn’t just make dealerships more loyal to your brand. It’s also a winner when it comes to customer satisfaction. Manual tasks, like processing warranty claims, divert dealers from working with customers.

Without an efficient warranty management solution, it can be difficult for dealers to provide customers with a smooth service. They’ll be too occupied with warranty work to get the job done. Lack of effective warranty management leads to unhappy customers in the long run. Once an efficient solution is in place, customers can also get their parts replaced or repaired quicker—keeping them satisfied even after making warranty claims.

Warranty solutions help OEMs identify patterns in part wear

Effective warranty management isn’t just about ensuring the customer gets repairs or a replacement for their assets. It’s also about collecting and harnessing warranty data to improve operations—something that’s increasingly popular in warranty management operations.

Interconnected warranty solutions allow you to do just that. Managers can collect and analyze data points indicating usage patterns and defects to identify trends in part wear. By knowing which products are prone to failure, OEMs can allocate resources towards areas in urgent need of improvement.

Alongside this, interconnected warranty management solutions provide warranty managers with valuable data on claims processing. They can then use this data to benchmark success and calculate KPIs, helping them better understand just how effective their warranty policies are.

Let’s take a look at some key KPIs that warranty managers should be aware of and track on a regular basis. 

7 key KPIs for effective warranty management

Warranty managers can use aftersales KPIs to measure warranty management success. They help with understanding areas of improvement for warranty claims efficiency and where to allocate resources for product improvement.

Here are the seven KPIs for warrant managers, along with formulas and examples. 

1. Average claim processing time

The average claim processing time measures the average time necessary to process a warranty claim from submission to resolution. This is the most crucial KPI for getting a grasp of warranty management efficiency. Lower times are typically indicative of higher customer satisfaction.

How do you calculate the average claim processing time?

The formula for calculating ACPT is:

Average claim processing time = Total time taken to process all claims / Number of claims processed

Let’s say you’ve spent a total of 500 hours handling 50 warranty claims from start to finish. Plugging these numbers into the formula, that gives you 500/50 with an average time per claim of 10 hours. 

2. Claim approval rate

Not all warranty claims made by customers will result in replacement or reimbursement. You’ll likely have a number of claims that don’t meet the conditions outlined in your warranty for repair or replacement—meaning OEMs won’t need to pay for replacing or repairing the part. By calculating the claim approval rate, you’ll get a stronger understanding of the percentage of total claims made that will need action from your side.

How do you calculate claim approval rate?

The formula for calculating CAR is:

Claim approval rate = (Number of approved claims / Total claims submitted ) x 100

Imagine you’ve dealt with 100 claims in the last month. Exactly 85 of those claims were approved while the remaining 15 weren’t. That gives you (85/100) x 100, which gives a claim approval rate of 85%.

3. Warranty cost as a percentage of sales

Warranty costs as a percentage of sales measures the ratio between total warranty costs to total sales over a specific period of time. By calculating this KPI, you’ll form a clear understanding of how warranty costs impact your company’s revenue and profitability. A lower percentage indicates low warranty costs relative to sales.

How do you calculate warranty cost as a percentage of sales? 

The formula for calculating WCPS is:

Warranty cost as a percentage of sales = (Total costs of warranty  / total sales ) x 100

Let’s say that you’ve spent $10,000 on monthly warranty costs with total sales of $200,000 per month. Dividing those two numbers and multiplying by 100 gives you a ratio of 5%. 

Keep in mind that you can calculate warranty cost as a percentage of sales for any given period such as annually or quarterly too. Simply adjust the figures in your formula to include the cost of warranty and total sales from your time frame of choice.

4. Warranty costs per unit

When looking to set benchmarks for warranty management effectiveness, it’s crucial to understand the warranty cost for each unit you sell. Calculating warranty costs per unit helps you form a clear picture of the impact of every product unit on warranty management success, aiding in financial planning and setting prices.

How do you calculate warranty costs per unit? 

The formula to calculate WCPU is:

Warranty costs per unit = Total warranty costs  / Number of units sold

Let’s say the total warranty costs for 1,000 units is $5,000. Plugging in the formula gives you 5,000/1,000 and a final WCPU of $5.

5. Percentage of supplier recovery

The percentage of supplier recovery KPI measures the total warranty costs recovered from suppliers due to claims such as faulty parts or breakdowns. Put simply, it’s the proportion of costs an OEM manages to recover from its suppliers for defective products or parts.

Supplier recovery is a crucial KPI for warranty managers because it indicates the effectiveness of recovery processes of parts and products between the supplier and OEMs.

How do you calculate the percentage of supplier recovery?: 

The formula for calculating POSR is:

Percentage of supplier recovery = (Recovery of suppliers / Total warranty costs ) x 100

Let’s say that your total warranty costs for a given period are $10,000 with $4,000 recovered from suppliers. When you divide 4,000 by 10,000 and then multiply by 100, you get a percentage of supplier recovery of 40%. This means you recover 40% of total warranty costs from suppliers.

6. Warranty contribution rate

As a warranty manager, you’ll frequently need to identify and analyze which products and parts receive the most warranty claims. Warranty contribution rates help you measure the proportion of warranty costs connected to a single area (such as a product category, model, or region) compared to total warranty costs. You’ll understand which parts are costing the most in warranty expenses, helping you guide resource allocation towards improvement efforts to minimize claims.

Formula: 

The formula for WCR is:

Warranty contribution rate = (Specific area warranty costs / Total warranty costs) x 100

For example, say a particular product area is incurring $2,000 in warranty costs with total warranty costs amounting to $10,000. When you divide 2,000 by 10,000 and multiply by 100, you get a warranty contribution rate of 20%. 

7. Claim frequency

Another crucial KPI for warranty managers is claim frequency. This helps to understand the quality and reliability of a particular product by looking at how often claims are made. With this KPI, you’ll reach the number of warranty claims submitted per number of units sold.

How do you calculate claim frequency?: 

The formula for calculating claim frequency is:

Claim frequency = Number of claims / Number of units sold

Let’s say you want to calculate the claim frequency of a unit with 100 claims of 1,000 units sold. Dividing two numbers gives us a claim frequency of 0.1.

Connecting OEM warranty systems with dealer DMS systems 

Understanding warranty performance is crucial for OEMs and dealers. With the right warranty management solution, both players will have the data they need to analyze and improve the effectiveness and efficiency of processing warranty claims. 

But it’s not just about having a warranty system—it’s also about the interconnectedness between OEMs and dealers. Only a properly connected process yields the time savings the network needs, freeing up valuable time dealers can spend on their customers instead of tiresome manual work. 

With ClearOps Aftersales Solutions, OEMs can improve end-to-end supply chain efficiency through a layer of connectivity. With this specific aftersales platform, OEMs can ensure smooth collaboration with dealers, automate service work, and predict future demand.

Warranty KPIs FAQs

What is a warranty manager’s role?

A warranty manager’s role is to oversee, analyze, and improve warranty claims and cases within a company. Warranty managers also communicate with suppliers and customers on warranty policies.

What are KPIs for managers?

KPIs or key performance indicators are measurements that help benchmark success in achieving business objectives. KPIs can include metrics for anything from warranty management effectiveness to customer satisfaction.

Are there specific examples of how warranty solutions have helped OEMs identify and address patterns in part wear more effectively?

Examples of how warranty solutions have helped OEMs identify and address patterns in part wear include the ability to collect and analyze data points indicating usage patterns and defects. By harnessing warranty data, OEMs can identify trends in part wear, allocate resources towards areas in urgent need of improvement, and ultimately enhance product quality and reliability.

In what ways do warranty management KPIs like claim frequency and warranty contribution rate contribute to the overall improvement of product quality and reliability?

Warranty management KPIs such as claim frequency and warranty contribution rate contribute to the overall improvement of product quality and reliability by providing insights into the frequency of warranty claims and the proportion of warranty costs associated with specific product areas. By understanding these metrics, OEMs can allocate resources towards improving the quality and reliability of products, thereby reducing warranty claims over time.

How do interconnected warranty management solutions address the challenge of disparate data systems between OEMs and dealers?

Interconnected warranty management solutions address the challenge of disparate data systems between OEMs and dealers by providing a platform that effectively breaks down data silos. This enables seamless integration and transfer of warranty claims and details, facilitating better communication and collaboration between OEMs and dealers.

 

Next Steps with ClearOps

ClearOps is your ideal partner in your mission towards aftersales excellence. With our help, you’ll be able to unlock the full potential of your aftersales data, leading to improved service quality, decreased churn, higher customer satisfaction, and increased profitability. Contact us to learn more about how we can transform your aftersales strategy. 

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