MAINTAINING AND WARRANTING PRODUCTION PROCESS
In the production process, maintenance refers both to the maintenance of plant and equipment used to produce a product or project outcome and to the maintenance or servicing of the product or project outcome after it is sold. Maintenance must be taken into account when planning the costs of starting a company. Unfortunately, too often it is forgotten and catches the entrepreneur by surprise.
At some point any machine or process will break down, which can mean lost sales and costly repairs and redesign. There are three ways to prevent unexpected breakdowns from disrupting the production process. The process can be organized in such a way that when one machine is down, the work can be shifted to another.
Another approach is to build up inventories at each stage of the production process so that machines can keep working as long as the inventory lasts. The third and perhaps the best approach is to undertake preventive maintenance regularly by checking and fixing the machines before they break down. The advantage of this approach is that the company controls when the downtime occurs.
Service processes can also breakdown when a key person on a product becomes ill or leaves the company. By analogy to shifting work from one machine to another in a manufacturing process, it is important to cross-train personnel so that someone else can immediately step into the absent person’s position and keep the process moving along.
The entrepreneur who subscribes to total quality management will probably wish to provide warranties with products and services, both in order to protect the firm from potential liability and to demonstrate that the company stands behind what it produces and the work that it does. Today, product/service warranties have also become a competitive marketing tool. A number of decisions must be made about warranties.
The length of the warranty depends on industry standards. Another decision is what components of the product, or what aspects of the service, to cover. Some components may come from other manufacturers who have their own warranties. In this case, it is important to have use of what components on the product have been certified by Original Equipment Manufacturers (OEMs) so that the warranty isn’t inadvertently invalidated. Then, if the warranted component from the manufacturer becomes defective, it can be returned to OEM. However, it is probably good business practice to have customers return the product directly to the entrepreneur’s company or its distributors for service, repair, or exchange under the warranty, which covers the whole product.
For example, a company may conduct ISO 9000 certification workshops for companies and may warrant that if a client company attends the workshop and implements the suggestions, it will receive certification. If, for some reason, the client does not receive certification, there is no way to ‘return’ a workshop in the way that a product can be returned, but the entrepreneur can offer the client a fact-finding audit to discover what went wrong or can simply refund the client’s money (a less satisfactory solution for the client).
The product/process scope should also be considered. Will the warranty cover one or all products in a line or will there be separate warranties? Generally, for services, the warranty covers the service as a whole, unless there are products involved as well. In addition to the product scope, the market scope is a factor. Will the same warranty apply in all markets? This will depend on local laws.
Another consideration involves the conditions of the warranty that the customer must fulfill. Is there anything the customer must do to keep the warranty in force, such as servicing or replacing disposable parts? These conditions should not include registering the products via a postcard. Today, a product is covered by warranty from the moment it is purchased, whether or not the purchaser returns a postcards stating when and where is was purchased and answering a short, informational questionnaire. What many companies now do is to offer update notification and potential discounts on future products in exchange for the information the postcard solicits.
Another consideration is who executes the warranty. The entrepreneur must decide who will handle warranty claims (manufacturer, dealers, distributors, the entrepreneur’s company), recognizing that customers do not like to mail products back to the manufacture. It is also necessary to decide how the public will be educated about the warranty. What are the plans for advertising and promotion relative to the warranty? Finally, the policies for refunds and returns, and who will pay shipping and handling costs, need to be considered. A return policy is a function of the entrepreneur’s philosophy about doing business. A customer-oriented company is likely to offer a generous return policy and pay for the costs of returns.
The manufacturer who provides a warranty incurs a cost, but that cost must be weighed against the potential loss of business if no warranty is provided. In the case of a new business with a new product or service, it is difficult to anticipate the number of problems that might occur as the product or service gets into the market place. Careful and adequate field testing prior to market entry will go a long way toward eliminating many potential problems and the possibility of a recall (in the case of a product), which is very costly to the firm; let alone a growing new business.
Production is a critical component of any business. The fasted way to increase profits is to reduce the cost of product by becoming more efficient – purchasing the right materials and supplies at the right time and in the right quantities, inspecting for quality during the production process to avoid costly returns, and providing warranties that ensure customer loyalty.
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