What has happened to product warranties?

Story

October 30, 2005

Most embedded electronic hardware components come with a standard product warranty. If a board fails, you contact the supplier, arrange a repair or exchange, ship it to the repair center, and await the repaired or replaced product. This is a rather rou...

 

Most embedded electronic hardware components come with a standard product warranty. If a board fails, you contact the supplier, arrange a repair or exchange, ship it to the repair center, and await the repaired or replaced product. This is a rather routine process amongst all suppliers worldwide.  In the case of most VME, CompactPCI, and embedded motherboards, today’s warranties range from one to three years in duration.

There used to be a time when warranties from many suppliers were five years or in some cases, “lifetime” (Figure 1). What ever happened to those warranties? Why are they not as common? In the early 1990s there was a lot of noise in the industry about long or lifetime warranties. Press releases were distributed touting the warranty terms, and warranties were highlighted in advertisements. Suppliers were very proud of their product reliability and were willing to stand behind their products.

Figure 1

A quick check today of the same product types shows typical warranty periods of only two years, with a few as long as three years. Certainly these are shorter than “lifetime.” Has something happened to the reliability? Has the cost of quality risen too high to absorb in competitive pricing strategies?

This change in warranty periods quietly started happening as companies were recovering from the dot-com bust in 2001.  No embedded technology suppliers publicly “announced” their shorter warranty periods. In fact, the reduced warranty periods did not hit home until a problem occurred and a product needed repair. Did suppliers reduce prices to reflect the shortened warranty periods? I would venture to guess prices were not reduced since suppliers were already under extreme margin pressures during those times.

Some possible explanations exist as to why warranties greater than two years are no longer typical. Any one or more of the following are key factors in determining warranty terms and pricing:

• Increased cost of quality. By definition, the Cost of Poor Quality (COPQ) consists of costs generated as a result of producing defective material. Additional cost includes all the labor cost, rework cost, disposition cost, utilities cost, manufacturing cost, and material cost that has been added to the unit up to the point of rejection. It also includes the cost of lost opportunity due to the loss of resources used in rectifying the defect. The cost of lost opportunity means lower revenue and profit, potential loss of market share, and a lower service level to customers. All areas of cost in COPQ have increased in past years.
• Speed of technology. In general, the technologies used in embedded computing systems are still relatively new. New technologies evolve rapidly, and rapidly evolving technologies have a shorter product life cycle. Getting the quality to an acceptable level can be a challenge at best with many of the newer technologies. Do designers and manufacturers always fully understand the quality issues of one technology before moving on to the next?
• Pursuit of quality. With products’ shorter life cycles, perhaps the race to have the best and most optimized set of features at a competitive price has pushed quality into the backseat. Products today have manufacturing lives less than three years in duration. In most cases, the quality is not fully optimized in that short of a life cycle. Suppliers move on to the next generation before they really get the kinks out of the existing products. Sometimes designers may take shortcuts or use unproven design elements to meet time-to-market pressures. With the low quantities and high mix of the embedded space, it is hard to spend too much time on quality for any single product line. Is enough simulation and accelerated life testing being done?
• Lost the recipe. Perhaps manufacturers simply “lost the recipe” when changing manufacturing locations as mergers occurred or manufacturing was transferred offshore to large, high-volume contract manufacturers to save costs. The embedded industry tends to build products in small lots with a high mix of different types and product versions. The manufacturing efficiency is never very high in these situations. Moving to a high-volume, low mix manufacturing facility only frustrates the manufacturing process in these cases. As a result, quality suffers immensely. Lower quality levels mean higher warranty costs and loss of ability to absorb these costs in competitive prices. Most manufacturing operations are great at building high-quality products, and vendors fully understand the nuances of quality manufacturing; however, it takes high repetitions of the same steps and processes to really reach the best quality levels.
• Service as a profit center.  Maybe the answer is as simple as using warranties as a way to increase the revenue stream. Most embedded board suppliers have extensive repair and service centers. Removing the cost of the warranty from the product cost and making it a separate price line item is a way for the service centers to improve their revenue streams and justify their existence.  It does make it easier to develop custom and innovative service programs that better fit the customer’s needs.

What is going to happen to warranty terms in the future? It is possible that the Restriction of the use of certain Hazardous Substances (RoHS) or the Waste from Electric and Electronic Equipment (WEEE) initiatives being driven out of Europe and Asia will force further tightening of warranty terms. Suppliers may use this as the compelling event to tighten the warranty programs even more. Two-year warranties could easily become one-year warranties in the next one to two years.

However, all is not lost as many suppliers in the embedded industry offer various extended warranty programs that can be customized to meet the specific needs of consumers. These programs have options for warranty periods and coverage that can help manage costs for the lifetime of a program. Extended warranties are insurance against a future failure. Be sure to check out all your options when planning lifetime costs for your products.

Jerry Gipper is the editorial director of Embedded Computing Design. He has held a variety of positions in systems engineering, sales, product marketing, business development, and strategic planning. During his career at Motorola, he had the leadership role in the worldwide rollout of more than 25 major and very successful product lines. He has written numerous articles and papers for the industry and has spoken at various conferences. Jerry currently supports VITA with marketing services. Jerry holds a Bachelor of Science degree in computer engineering from Iowa State University and a Master of Science degree in computer engineering from San Jose State University.

 For further information, contact Jerry at [email protected].