Nearly every manufacturing executive I talk to is looking for ways to improve product quality and reliability, and they often think that drastic measures are required. They assume they’ll have to reinvent their engineering design processes, implement expensive upgrades on the manufacturing floor, or restructure their supply chain. They’re often surprised to learn that the key to improving product quality is already in place in their organization, and it can be summed up in one word: Accountability.
For most large manufacturers, the responsibility for designing and building a product often rests with one part of the organization while the responsibility for providing warranty support lands elsewhere. Each area has its own budget and reporting structure, so costs incurred in warranty support are rarely traced back to the design/build process where defects often originate. By creating a culture of shared accountability between upstream and downstream teams, you can dramatically improve product quality using the people and processes you have in place today.
The concept is simple, intuitive, and nearly free to implement. But putting it in place takes three key steps.
1. Identify exactly where your costs are.
When a product fails under warranty, you might repair it, replace it, or even provide a discount on a future purchase to secure your customer’s business. Who covers those costs? Many manufacturers have corporate accounts that are funded annually to cover warranty service—that was Keysight’s approach up until a few years ago. Other manufacturers track warranty expenses at the business-unit level or the product level. The problem is, those costs are often hidden from view. In fact, many of the executives I work with have only a vague idea of who actually pays for warranty service. The first thing I encourage them to do is follow the money: Trace warranty expenses to the payer so you know exactly who’s footing the bill and what it’s really costing the company. The next thing I have them do is look upstream and identify the source of the problems that are costing them money. Typically, when a product is returned under warranty, the issue can be traced to a design flaw, a manufacturing process, or a perceived flaw—meaning the product is functioning exactly as intended but does not meet the expectations of the buyer. Each scenario is expensive for manufacturers. By looking upstream and downstream, you get a clear understanding of where problems come from and who pays, so you know where to focus your efforts in the next two steps.
2. Empower your teams to fix the problem.
Product teams are under dire pressure to meet schedule and cost targets. They’re probably also thinking about sales targets, competitive threats, supply chain logistics, environmental issues, you name it. It’s no surprise that product reliability sometimes falls off their radar, especially if a product can pass inspection and ship on time. But here’s the thing. When product teams are held financially responsible for warranty repairs that occur a few years down the road, product quality becomes a priority. Give them the power to solve the problem. Let them decide how to allocate budgets and resources, and make the process changes and business tradeoffs that need to be made. Ultimately, their goal is not to ship a product on time or on budget but to make the company more profitable and successful. In that sense, empowering product teams is a lot like parenting teenagers: instead of telling them exactly what to do, tell them what the goal is, make sure they understand the consequences, then let them figure it out.
3. Extend P&L accountability across the product lifecycle.
In many OEM environments, R&D designs a product, manufacturing builds it, the support team fixes it, and everyone’s responsible for their own budget. If you’re serious about improving quality, that model needs to change. Have all teams operate under a single P&L structure that spans the entire product lifecycle, from design and build through end of warranty. With a unified accounting structure, everyone shares the cost of repairing a faulty product, and everyone gains when quality is improved.
This isn’t theoretical. At Keysight we implemented a companywide accountability program in the mid-2000s. Most divisions were able to make the transition in less than a year, producing a 50 percent reduction in failure rates across the company. In fact, warranty repairs declined so dramatically that we were able to extend our standard warranty coverage from one year to three years, creating a powerful competitive advantage at zero cost to our company.
It’s never easy to change corporate culture. It takes vision and fortitude in the C-suite and buy-in down the line. But changing your company’s culture of accountability is one of the best competitive moves you can make, and it’s available to any manufacturer.