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Turn Warranty Woes Into a Service Department Winner

15 Apr, 2005 By: Ronelle Ingram imageSource

Turn Warranty Woes Into a Service Department Winner

Lately, my email and voice mail has been inundated with
messages concerning warranty issues. Learning new ways to maximize warranty
returns can be a very passionate issue within the service department. I
experienced this firsthand at February's ITEX show while discussing this issue
with dealers who were very concerned with the ongoing problems and opportunities
associated with warranty returns.

The Bottom Line

In the office equipment industry, it normally takes about $7 of revenue to
create $1 of profit. Using this equation, $10,000 of warranty credit is
tantamount to generating $70,000 in company revenue. The service department I
manage at my company has been able to sustain over $10,000 a month of warranty
credits over the past two years. This equates to $1.68 million of sales to
create the same amount of net profits we received in warranty payments.

Aggressively pursuing all fair and equitable warranty credits
has added over $750,000 in revenue to my service department’s bottom line this
past year. This warranty money is pure profit to the company’s bottom line.

No Easy Task

Earning these warranty credits, however, is no easy task. There is the constant
need to focus the attention of all service employees on providing proper
documentation for all returned parts.

With our manufacturer, there are several obligations we have:

1. We must pre-register online all newly installed equipment and all installed
PM kits.

2. We must document the reason for failure along with a current meter count.

3. We must get return authorization numbers online in advance of any return.

4. We must properly label all returned parts with specific details on why they
were returned.

5. We must fill out multiple pages of warranty information forms.

But nothing worthwhile is ever easy. I firmly believe
warranty money can be consistently earned if management focuses on this often
untapped revenue source. A minimum of five minutes every service meeting should
be dedicated to warranty issues. The warranty guru at my company has created our
own universal warranty form for the techs to fill out with each returned part or
supply. It covers all information that may be needed for a successful warranty

The HP Way

In many circumstances, supplies can be returned for credit or replaced at no
charge. For example, Hewlett-Packard has a telephone number the dealer or the
end user can use to call and request replacement supplies for any defective,
genuine HP supply item. The end user can call 800.474.6836 with the HP model
number, serial number and the symptoms of the parts, and HP will ship the
replacement product directly to them.

If the dealer calls on behalf of a client, they must have all
the pertinent information. Supplies will only be sent to the end user, not the
dealer. Sometimes HP requires the return of the defective product. HP’s return
policy can save the dealer hundreds of dollars of what I consider nuisance

At my company, we have extended our HP warranty to include a
labor warranty. Most HP printers automatically include a one-year depot (shop)
warranty. Most of our business customers are unwilling to: disconnect their
printers, drive across town in traffic, leave their printer for a diagnosis,
wait for needed warranty parts to be shipped, wait for the repair to be
completed, return to pickup the repaired machine, and reinstall the printer at
their location.

For a $75 visit charge, we offer in-office warranty coverage
for HP printers that only have depot repair coverage. Any needed parts or labor
is covered by HP’s depot warranty reimbursement program.

Where do you Draw the Line?

When dealing with warranties, however, the dealer must decide where to draw the
line. What warranty items are worth pursuing? Which items are not worth the
necessary labor hours?

Many profit-savvy service managers have come to the
realization that only the most costly of parts are worth attempting to return.
By the time the cost of labor, Internet, freight, tracking, follow up, and
frustration are factored in, many service managers feel a minimum of $150 in
potential return is necessary before they will even bother to deal with a
warranty return.

Service managers wrestle with the reality of trying to figure
out the cost of the service technician’s labor to: research and fill out the
needed forms, wait to receive and track a manufacturer’s issued return
authorization number, ship the warranty part back to the manufacturer, reorder
and pay for the freight and cost of the replacement, and track the eventual
credit being applied to the dealer’s account. The normal process can take 90
days from equipment breakdown to properly applied credit.

I made the decision to warranty EVERYTHING. It’s my mindset:
all or nothing. It is effortless to return nothing. I wanted to make sure no
warranty item slipped through our service department. I chose to change the
mindset of all those in the service department. We made the choice of returning

It is imperative that all warranty parts are returned for
credit. How else will the manufacturer know there is an inherent weakness in the
equipment? If no one ever returns a defective part, shoddy manufacturing
techniques and products will continue to be used in the equipment we sell.
Dealers have an intimate knowledge of the peculiarities of each product. It also
sets a standard for the techs.

When we first started our "take no prisoners" attitude of
warranty returns, I set up a bonus program. Ten percent of all warranty money
would be added to the techs’ bonus money. After we focused on the path to
warranty riches, we dropped the warranty payback fund to 5 percent. The money
returned to the techs was an acknowledgement of a job well done.

Working Together

During my ITEX presentation, there were several heated discussions between two
Ricoh employees that were attending, and the other dealer-based service managers
in the audience. There were definite differences in attitudes toward whether
dealers or manufacturers should be responsible for the cost of defective parts,
supplies, freight, etc.

As a working service professional, I am increasingly
concerned with the adversarial position that is created between the dealer and
manufacturer. Our dealership’s time and energy is better spent helping our
customers than disagreeing with our business partners.

Each dealership should decide how to handle warranty issues.
Make sure there is a decision as to the worth of the time and effort extended
into processing warranty work. Consider using the 7 to 1 ratio when determining
value of the warranty reimbursement.

As a dealership owner, check your credits. How much are you
receiving each month? Warranty returns can definitely boost your profitability.
If you are a seller of HP products, let them take care of supply returns.

A planned, monitored and ongoing warranty return program can
increase your bottom line. Allow the manufacturers to have direct knowledge of
product deficiencies and help establish an equality of responsibility between
buyer, seller and manufacturer. Each must be respectful of the needs and cost
restrictions of the other. Dealers and manufacturers must work together to
provide the end user with equipment, parts and supplies that have a history of

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