Equipment Financing

Service Lifecycle Management: How Machine Builders (OEM’s) Enhance Their Warranty and Contract Solutions - Part I

Tuesday, February 27, 2018

Many machine manufacturers today are looking to improve their warranty and contract management process. The goal is increasing their after market revenue while improving operating efficiency. This approach minimizing down time which increases profitability at the end users. Systems and software programs are often implemented to help achieve this goal by automating warranty and contract processes.

This article is the first installment of a two-part series in which we’ll evaluate the performance-based product solution, its value to the entire manufacturing industry and the steps OEMs can take to implement it successfully. From smart contracts to silo busting, we’ll cover it all. Read on to learn more.

How to Leverage Contracts and Warranties to Enhance Customer Value

First, there are a few key steps that OEMs can take to leverage contracts and warranties and gain an advantage in meeting customer demands while also demonstrating value. In this article, we’ll examine the first two steps within this process.

Strategy + Big Picture Thinking = Competitive Advantage

Understanding the Pressures on Machine Builders

There are a number of pressures pushing machine builders to improve their warranty/contract management performance.

These include:

• Desire to increase aftermarket revenue

• A directive to increase service profitability

• Reduced margins on standard service operations

• Increase in cost for repairs under warranty

• Competition and pressure from other service organizations

• “Contract leakage” is an important term to mention here. A Key Performance Indicator (KPI), contract leakage can be used to determine purchase amounts without considering existing contracts, as well as any changes over a period and the source of the leakage.

Get Smart

Savvy coordination of the warranty or contract management process are crucial for offering important services and products to help improve outcomes and maximize value. By providing a secure, accessible digital display to all parties on the chain and automating tasks and payments, blockchain technology eliminates the security risks and challenges associated with traditional processes, such as exposure to loss of information and fraud.

Part of “getting smart” is utilizing smart contracts. In defining smart contracts, Ameer Rosic compares the technology to a vending machine. Whereas traditionally people sought the services of attorneys and notaries in developing and executing contracts, smart contracts allow users to “simply drop a bitcoin into the vending machine” for the document to be placed into the user’s account. By reducing the middleman’s involvement, the critical parties associated with the smart contract can move forward quickly and seamlessly.

Big businesses and tech giants are embracing smart contracts as well. In October, Oracle announced plans to release a new platform designed to help businesses use blockchain technology.

Optimize Product Performance

Performance-based warranties allow OEMs to truly stand behind their products. When products perform as they should, their value to the customer increases, and the cost of warranty decreases. This, in turn, reduces the cost of service, as well as the risks and challenges that are common among high warranty claims. Performance-based warranties are multi-beneficial, and can succor the relationships between OEMs and end-users. How? If the machine performs well, the end-user’s production runs and bottom-line can be enhanced significantly, and the OEM gets paid.

Bust Silos, Relieve Pain Points and Reap the Rewards

It is important that manufacturers not only see the benefits of improving warranty and contract management but also that they recognize the potential pitfalls.

A common pitfall and a significant barrier to success is an organizational syndrome known as the “functional silo.” First coined in 1988 by Phil S. Ensor, an employee of the Goodyear Tire and Rubber Company, a functional silo describes a department or element within a business that acts as a stand-alone function, even forming its own “strategies and work plans in parallel with other business functions.”

Functional silos can be detrimental to businesses seeking to incorporate smart technologies into their production platforms. This is because they divide warranty and contract processes and put distance between development and operational teams. These teams could be stronger and elevate one another if able to share perspectives and product insights.

A product-centric approach is required to effectively “bust” silos. When focusing initiatives on improving product performance, different departments must collaborate and provide consistent cross-support. This process helps the manufacturer integrate and streamline processes, thereby achieving more key objectives with fewer resources and allowing for reinvesting of the potential savings. Achieving end-to-end workflow and agility will enhance consumer value and ultimately benefit the bottom line.

Learn More

Watch the Steamchain blog for part 2 of this series, which will cover the final steps, including the contract management lifecycle and bill of materials (BOM).

Steamchain is your source for warranty and contract solutions. We leverage performance-based data to design new business models and offer extensive experience in customizing and implementing blockchain models for a host of manufacturers. We have developed and deployed smart contracts on behalf of various clients and can design a custom solution that is tailored to your unique demands. Contact us today!

Do you have a question? Contact us now!

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