Various warranty processes with service cost impact in SAP Warranty Management

In this blog post, I would like to share my views on various Warranty processes and how the service costs are handled.

This will help the Service & Warranty consultants to understand the service cost better and decide on when ‘to bill the customer’ or ‘claim the cost to the vendor’ or ‘adjust the cost in their internal accounts’

What is Warranty?

A Warranty is a type of guarantee, issued to the purchaser of an article by its manufacturer or similar party, promising to repair or replace it if necessary, within a specified period or condition.

Details on Warranty

Warranty for example is offered against the

• Equipment with Serial Number
• Vehicle Master with VIN (Vehicle Identification number)

Any service performed on an Equipment or Vehicle will incur some amount of cost and it can be broadly divided in to

• Material (E.g.: – Spare parts)
• Internal Labor (E.g.: – Five hours of repair work)
• Sublet or External service (E.g.: – Towing charges, Travel charges etc.)

These costs are either borne by

• OEM (Original Equipment Manufacturer) or
• the distributor of the Equipment/Vehicle or
• the end customer

Warranty offered by the OEM or the distributor can be either

• Time related (E.g.: – 5 years Warranty),
• Performance related (E.g.: -1,00,000 KMs)
• both performance AND time related (E.g.: -5 Years & 1,00,000 KMs)

Type of Warranty processes

Pre-sales Warranty: –

This is not exactly classified as Warranty. Any service done before the actual sale of Equipment/Vehicle to the end customer is reimbursed from OEM. This Warranty expires when the Equipment/Vehicle is sold to the customer. Typical this warranty would be like 100 Kms or 100 running hours without any time constraint.

Standard Warranty: –

Standard Warranty starts when the vehicle is sold to the customer. This is offered by OEM and any cost incurred on the Equipment/Vehicle service during this warranty period is claimed to the OEM.

Extended Warranty: –

Extended Warranty starts when any one parameter of the Standard Warranty ends. This is offered by Distributor and cost of the service will be borne by them.

Extension Repair/Service bulletin: –

List of corrections issued by the OEM which is for a set of serial numbers of the Equipment or VIN of the Vehicle. It is not mandatory for the distributor or the dealer to invite the customer for repair.

If there is a regular service or any break down, then this service is performed on the Equipment/Vehicle. The customer may not even know such ER/SB exist until the customer takes the Equipment/Vehicle to the dealer or distributor

Generally, the cost is borne by the OEM. Sometimes the distributor can issue SB where the cost is taken by the distributor

Recalls: –

Corrections or recalls are issued by OEM which has legal implications. The government agencies closely track the Recalls done for each serial number/VIN.

The cost is borne by the OEM. The distributors should advertise the recalls, so that the customers are aware of the Serial numbers/VINs affected.

Parts Warranty: –

Warranty on spare parts sold to the customer. Typically, the warranty start date would be the Sales Invoice date and will be valid for a year. This cost is borne by the OEM, so the distributor/dealer claims the cost to OEM whenever the spare parts are replaced.

Goodwill: –

This type of coverage is applicable only after the end of Standard or Extended warranty. Based on the customer’s business dealings with the OEM or distributor, either of OEM & Distributor or both can take partial or full expense of the service performed.

Pre-approval may be required for the Goodwill claims, so ‘Authorization’ is created in the system and sent to OEM for approval. Once the Authorization is approved by the OEM the Goodwill claims can be raised to OEM.

Authorization: –

Whenever a goodwill or policy job is done, the distributor is expected to get prior approval from the OEM. Here the OEM can partially or fully approve the estimated amount.

For the OEM to approve the Goodwill claim this Authorization number should be quoted in the Goodwill claim

High level SAP Warranty Management solution

I hope that this blog provided the nuances of the service costs in the Service & Warranty processes. Please feel free to provide me with your comments/suggestion to improve this blog post.