Warranty and sustaining engineering costs are too high, limiting our ability to invest in future product and technology development

Let’s tackle these one at a time beginning with sustaining engineering.

We have become accustomed to technology product lifecycles that are measured in just a handful of years.  How old is the computer or mobile phone with which you are reading this?  Two years?  One?  Three?  It’s likely not much more than three.  Many consumer technology products are simply not expected to last very long, they get replaced when something new and better comes along or when they stop working as well as they once did.  

With some notable exceptions such as the semiconductor sector industrial and scientific capital equipment is expected to last many years, even decades.  Equipment procurement specialists often use five to seven years in their return-on-investment calculations, but they fully plan to utilize the equipment for much longer.  The outer years will require more maintenance and spare parts expense to keep the machinery operating but new capital outlays can be deferred for quite some time. 

This means the capital equipment is expected to last many more years than the technology elements from which they are comprised. This requires capital equipment organizations to prepare for and assign resources toward sustaining the products so that they can be manufactured and supported in the field.  This is simply a fact of capital equipment life.  Years down the road that shiny new equipment product will face component obsolescence issues that require engineers to resolve.  

When faced with overly burdensome sustaining engineering costs, it is important to understand the work’s origin. Is it required to keep the manufacturing line running?  Is it stemming from another department such as supply chain?  Technical Service?  Customer special requests?  Capital equipment organizations often find themselves spinning up engineering work without taking the time to fully understand the cost.

Keeping the manufacturing line running is of course not negotiable.  The motherboard in the control computer is no longer available, for example.  Ideally the supplier of the board notifies you with enough runway to execute a last time buy and qualify a replacement but invariably there will be surprises driving a ‘drop everything’ priority interrupt to an engineer’s workload to address some shortage or another.

A commodity manager might have identified an opportunity to save hundreds of dollars per machine on a component.  We can still procure the old component, however.  Is it in the DNA of the organization to critically analyze the full cost, including engineering opportunity cost and the lifecycle of the new component, to switch?

In many organizations the engineers tasked with qualifying a new component or motherboard are planned to be working on the next product or technology development.  Any interruption for sustaining engineering results in a serial pushout of progress on that initiative.  If this happens frequently enough the organization can enter a ‘death by sustaining engineering’ phase where the team is so pinned down with sustaining the current products, they are unable to execute on the new one(s). Delays in releasing new products only exacerbate the sustaining issues as the current product continues to age.  Death spiral indeed.

A separate but related burden on capital equipment organizations is warranty expense.

World class businesses manage to keep warranty expense as a percentage of revenue under 1%.  In others, especially those with new and immature product lines, it can range as high as 5% or more.  Understanding and addressing warranty issues often falls to the engineering team to resolve with technical investigations that result in design modifications.  There is often significant delay between a warranty issue arising and assigning engineering resources to investigate, however.  Engineers are typically not front-line customer facing employees.  Issues that are later classified as warranty related often flow into the business via the technical service department where customer satisfaction is the first priority.  

Issue raised → technician sent → parts swapped → customer back up and running is the typical sequence of events.  If the issue arises again at the same customer or perhaps a different customer but the same technician there might be a quick acknowledgement that a design issue exists and an escalation to the engineering department occurs.  In larger organizations with global scale this is unlikely, and the escalation can wait months or quarters until someone identifies the trend in spend for a certain part number or commodity and starts digging into the data before pulling in the engineering team.  By then it’s all hands-on deck to resolve and just like the sustaining items above: progress slows to a crawl on new product or technology development initiatives. 

If your product development team is spending inordinate amounts of money on warranty and/or sustaining engineering, hampering progress on new product and technology development initiatives, CapSure Solutions is here to help with cross functional coaching and business process enhancements that will mitigate the short-term situation and position your organization from falling victim to the death spiral long term.