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Reduce warranty liabilities with artificial intelligence

15 May 2020

New technologies and data can lead to more proactive warranty management

Running out of cash is every business’ biggest fear. Improving cash flow even slightly can have a major impact on a business. In my last post, I showed how artificial intelligence and analytics can play a significant role in increasing cash flow for manufacturers. 

Companies successful with tuning collections and inventory management should then move on to warranty management, another major opportunity to improve cash flow with AI and data. Every manufacturer has warranty liability on their books, no matter what product they make. The amount sitting in P&L will depend on the history and sales of a product. Depending on the number of products manufactured, this can be a significant amount and requires cash reserves. Streamlining the amount needed to cover warranties frees up more capital for the business. 

Using data and analytics, artificial intelligence and machine learning can help manufacturers make more accurate warranty predictions and, in some cases, avoid a warranty claim altogether. But manufacturers need to bring together data from both OT and IT to build the analytics. 

For example, automotive companies have a huge amount of data available to help predict and proactively maintain their cars. One OEM reduced its warranty costs by approximately 35% using data and AI. 

The data is not always contained on the manufacturing floor. A product team at a technology company wanted to react more quickly to social-media sentiments, rather than waiting for customers to call the help desk. Working with customer data and social-media statements, it created a data lake and algorithm to proactively identify potential warranty claims. It reduced warranty costs by 15%. 

AI and analytics can also support the cash flow on the other side of warranties – fraud. One technology company used data to identify third-party agents making claims on their products outside of the warranty period. It saved them millions of dollars. 

With IoT sensors collecting massive amounts of data, companies can analyze warranty claims and see where they can realize savings. There is also the opportunity to gather data from suppliers to potentially head off problems before a product is even shipped. 

This was the case at one technology company. Data analysis determined that one component in a product was prone to overheating and causing outages. Manufacturing and supplier data allowed the company to identify the problem and replace the defective component before the product shipped to the client. 

Approaching warranties proactively is a huge opportunity to increase cash flow. Manufacturers will always need to have warranty liabilities on their books but relying on AI and analytics means they can better predict the number of claims. A decrease in warranty claims means better cash flow, so the business can concentrate on growing its revenues. 

Prasad Shyam is a Vice President, Insights & Data Global Practice at Capgemini. To learn more about how using data and analytics can improve business performance, contact him at