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Maximize warranty data and programs to improve quality

Quality is all about meeting the customer’s expectations. Sometimes, the customer conjures up these expectations. And, sometimes, suppliers communicate standards expressly or imply that they exist. The result is that customers pay for a product or service and expect quality—that the good or service will meet their needs for a certain minimum period. If products or services fail, a warranty, which is a supplier’s promise to rectify the failure without charging the customer, will often preserve customer loyalty.

But beyond merely processing customer claims, suppliers should maximize warranty data and programs to continually improve product and service quality. Assess trends, patterns, and the most common warranty issues and focus on them.

For example, perform a Pareto analysis. The Pareto principle arose from the work of Vilfredo Pareto, a 19th-century social scientist who identified the 80/20 concept. Applied to warranty, business, and other issues, the idea is that 80% of problems can be traced to 20% of causes. Therefore, a Pareto analysis of causes will help you focus on the issues that will eliminate the bulk of your warranty-related problems.

A Pareto analysis fits nicely into a warranty program with the ultimate aim of ensuring and improving quality. Regardless of an organization’s size and whether it supplies products or services, and even if there is no formal warranty program, a Pareto analysis can be beneficial—what are most customers complaining about, and what action could eliminate most of those problems?

An effective warranty program is multi-faceted and addresses several elements beyond Pareto analyses, including the following:

Written, accessible, and plain-language policies
Clear coverage, warranty period, and warranty commencement
Extended or tiered warranty and accidental damage coverage
Reasonable, lawful, and competitive warranty terms
No-hassle and expeditious processing of warranty claims
Superb customer support
Options for post-warranty support
Compliance with statutory requirements
Continual quality improvements
Training and certification of warranty personnel
Hewlett Packard identified the following business and operational risks from quality issues in its Form 10-K securities regulation filing on SEDAR for the fiscal year ended October 31, 2023. Any other entity, large or small, in any industry, could adopt the same wording and the essence of it would be equally valid:

IF WE CANNOT CONTINUE TO PRODUCE QUALITY PRODUCTS AND SERVICES, OUR REPUTATION, BUSINESS, AND FINANCIAL PERFORMANCE MAY SUFFER.

IN THE COURSE OF CONDUCTING OUR BUSINESS, WE MUST ADEQUATELY ADDRESS QUALITY ISSUES ASSOCIATED WITH OUR PRODUCTS, SERVICES, AND SOLUTIONS, INCLUDING DEFECTS IN OUR ENGINEERING, DESIGN, AND MANUFACTURING PROCESSES AND UNSATISFACTORY PERFORMANCE UNDER SERVICE CONTRACTS, AS WELL AS DEFECTS IN THIRD-PARTY COMPONENTS INCLUDED IN OUR PRODUCTS AND UNSATISFACTORY PERFORMANCE OR EVEN MALICIOUS ACTS BY THIRD-PARTY CONTRACTORS OR SUBCONTRACTORS OR THEIR EMPLOYEES. IN ORDER TO ADDRESS QUALITY ISSUES, WE WORK EXTENSIVELY WITH OUR CUSTOMERS AND SUPPLIERS AND ENGAGE IN PRODUCT TESTING TO DETERMINE THE CAUSES OF PROBLEMS AND TO DEVELOP AND IMPLEMENT APPROPRIATE SOLUTIONS. HOWEVER, THE PRODUCTS, SERVICES, AND SOLUTIONS THAT WE OFFER ARE COMPLEX, AND OUR REGULAR TESTING AND QUALITY CONTROL EFFORTS MAY NOT BE EFFECTIVE IN CONTROLLING OR DETECTING ALL QUALITY ISSUES OR ERRORS, PARTICULARLY WITH RESPECT TO FAULTY COMPONENTS MANUFACTURED BY THIRD PARTIES. IF WE ARE UNABLE TO DETERMINE THE CAUSE, FIND AN APPROPRIATE SOLUTION OR OFFER A TEMPORARY FIX (OR “PATCH”) TO ADDRESS QUALITY ISSUES WITH OUR PRODUCTS, WE MAY DELAY SHIPMENT TO CUSTOMERS, WHICH COULD DELAY REVENUE RECOGNITION AND RECEIPT OF CUSTOMER PAYMENTS AND COULD ADVERSELY AFFECT OUR REVENUE, CASH FLOWS, AND PROFITABILITY. IN ADDITION, AFTER PRODUCTS ARE DELIVERED, QUALITY ISSUES MAY REQUIRE US TO REPAIR OR REPLACE SUCH PRODUCTS. ADDRESSING QUALITY ISSUES CAN BE EXPENSIVE AND MAY RESULT IN ADDITIONAL WARRANTY, REPAIR, REPLACEMENT, AND OTHER COSTS, ADVERSELY AFFECTING OUR FINANCIAL PERFORMANCE. IF NEW OR EXISTING CUSTOMERS HAVE DIFFICULTY OPERATING OUR PRODUCTS OR ARE DISSATISFIED WITH OUR SERVICES OR SOLUTIONS, OUR RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED, AND WE COULD FACE POSSIBLE CLAIMS IF WE FAIL TO MEET OUR CUSTOMERS’ EXPECTATIONS. IN ADDITION, QUALITY ISSUES CAN IMPAIR OUR RELATIONSHIPS WITH NEW OR EXISTING CUSTOMERS AND ADVERSELY AFFECT OUR BRAND AND REPUTATION, WHICH COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

Meeting your duty of care
Keep quality and continual improvement at the heart of warranty programs. Log in to the Operations and Marketing database in PolicyPro and read OP 7.01 – Warranty Service for tools to help you maximize warranty programs based on International Organization for Standardization (ISO) and other standards.

Policies and procedures are essential, but the work required to create and maintain them can seem daunting. The Finance and Accounting, Operations and Marketing, Not-for-Profit, and Information Technology databases in PolicyPro, co-marketed by First Reference and Chartered Professional Accountants Canada (CPA Canada), contain sample policies, procedures, checklists and other tools, plus authoritative commentary to save you time and effort in establishing and updating your internal controls and policies. Not a subscriber? Request free 30–day trials of Finance and Accounting, Not-for-Profit, Operations and Marketing, and Information Technology databases in PolicyPro here.

Apolone Gentles is a CPA, CGA and Ontario lawyer and editor with over 20 years of business experience. Apolone is leveraging 20 years of business and accounting experience to build a commercial litigation practice with an emphasis on construction law. She has held senior leadership roles in non-profit organizations, leading finance, human resources, information technology and facilities teams. She has also held senior roles in audit and assurance services at a “Big Four” audit firm. Apolone has also lectured in Auditing, Economics and Business at post-secondary schools.

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