SAS® Solution for Warranty Reserve Forecasting
Right-size warranty reserves and put "lazy" capital back to work.
According to Warranty Week, of the 49 US-based manufacturers that saw their warranty claims rate fall from 2006 to 2007, 11 increased their accrual rate; and of the 44 companies that saw their claims rate rise, 16 cut their accrual rates. Which of these companies reserved adequately vs. over-reserving or shorting their warranty reserves? Without accurate forecasting, it is impossible to know.
Traditionally, determining warranty reserve allocations has been highly manual, cumbersome and error-prone. Inaccurate warranty forecasts put companies at risk of either under- or over-budgeting for warranty payouts – increasing financial risk and diminishing overall company performance.
Improvements in the processes used to forecast warranty reserves can yield tremendous savings. When you merge a true picture of projected failure rates over time, cost factors for addressing those product failures (both historical and anticipated) and field population under warranty, you gain a highly accurate and adaptable picture of the short- and long-term warranty reserves needed to cover those projected costs.
The SAS solution for Warranty Reserve Forecasting extracts data from your present operational systems, applies sophisticated modeling and forecasting techniques to this data and generates forecasts that are significantly more accurate than what manual methods and spreadsheet programs can achieve.
- Margin of error can be reduced from 20 percent to less than 5 percent. An organization that reserves $20 million for warranty accruals could see $1.2 million coming back into the budget, based on an 8 percent cost of capital.
- Companies expending extra manual effort to decrease the margin of error can reduce manual labor by 50 percent or more by automating the process. For a typical $100 million company, savings could add up to 4,000 hours a year – double that for a typical $1 billion company.
The SAS Solution for Warranty Reserve Forecasting is a component of SAS Service Intelligence, an integrated set of solutions for the post-production, after-market service chain that also includes SAS Warranty Analysis, SAS Service Parts Optimization and SAS Service Operations Optimization. You can either add the SAS Solution for Warranty Reserve Forecasting to your existing service platform or integrate it with the SAS Service Intelligence suite of solutions. Either way, the benefits are substantial – including reduced "lazy" capital, freeing up of resources from manual forecasting tasks for strategic planning, and reducing risky or embarrassing shortfalls.
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