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Auto maker saves $250M on warranty costs

A major US automobile manufacturer is saving over $250 million per year on warranty costs due to changes identified using an Analytica model.

The company chairman made a special quality award to the analysis team in a company-wide video broadcast.

The challenge

Like other automobile manufacturers, this company experienced skyrocketing costs to servicing warranties, due to longer warranty periods and more comprehensive coverage.

By 2000, its annual costs were several billion dollars, and the company tasked an internal team to find ways to reduce these costs.

Why Analytica?

The project leader decided to use Analytica to model warranty costs because of its “ability to model a complex system in a visual and transparent way.” He went on to say: “Management finds spreadsheets hard to understand. What modelers say about the model structure is often a lot different from what it really is underneath.”

He added: “Clear models are especially important when new staff needs to take over when existing experts leave. Analytica has a lot more power than any traditional influence diagram software. We drew heavily on the array facilities.”

The solution

The project team created a model in Analytica to quantify the key drivers of warranty costs. These included new vehicle launch costs, manufacturing quality, defect remediation, dealerships, and servicing.

The used sensitivity analysis and tornado charts to compare the effects of these drivers. According to the team leader, with the model they “found new opportunities for cost savings that had been unappreciated previously due to lack of quantified linkages”.

So far, the group has identified and implemented over $250 million per year in savings. They are now expanding the model to explore opportunities for further savings.

In August 2003, the company chairman and union president singled out the team’s achievement for recognition with a special quality award. The award ceremony, including a segment showing the Analytica model, was broadcast by video link throughout the company.

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