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Warranty Fraud Management: Reducing Fraud and Other Excess Costs in Warranty and Service Operations



Warranty Fraud Management: Reducing Fraud and Other Excess Costs in Warranty and Service Operations

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Cut warranty costs by reducing fraud with transparent processes and balanced control

Warranty Fraud Management provides a clear, practical framework for reducing fraudulent warranty claims and other excess costs in warranty and service operations. Packed with actionable guidelines and detailed information, this book lays out a system of efficient warranty management that can reduce costs without upsetting the customer relationship. You'll dig into the whole spectrum of warranty fraud, from simple sloppy procedures to systematic organized crime, and get to know the fraudulent parties, the victims, as well as the objectives and methods of the fraudulent activities in different scenarios. You'll learn how to implement controls to detect and reduce fraudulent claims and decrease the overall warranty costs. The impact of fraudulent claims is plainly spelled out alongside detailed descriptions of typical symptoms and process gaps present in diverse companies. A comprehensive, multi-modal framework for robust warranty management is presented as a template for revamping your own company's strategy.

Fraudulent warranty claims occupy an estimated 3-15 percent of the average company's warranty costs, which generally average between 1-4 percent of sales. Many companies are unaware of the issue or struggle to take action against the claims for fear of upsetting business partners, or because they lack tangible evidence. This book details a robust warranty control framework that institutes transparency and control over the whole warranty chain—supporting the process far beyond just fraud reduction.

  • Understand the different actors (customers, sales channels, service agents, warranty providers, etc.) and different forms of warranty fraud
  • Uncover issues in your company's warranty processes
  • Learn methods to detect and prevent fraudulent activities
  • Implement a robust system of warranty cost control

Warranty fraud is a major cost-control issue for most companies, but the sensitive nature of the topic leaves most reluctant to share their experiences and divulge their strategies. Warranty Fraud Management brings warranty fraud out into the open, and provides a clear, actionable framework for cost-savings through fraud reduction.

Foreword xiii

Preface xvii

Acknowledgments xxiii

About the Authors xxv

Chapter 1 Overview 1

Warranties 3

Warranty Servicing 4

Warranty Costs 5

Warranty Fraud 6

Impact of Warranty Fraud 9

Warranty Fraud Management 10

Study of Warranty 10

Goals of the Book 12

Structure of the Book 12

Note 14

Chapter 2 Products and Product Warranty 15

Products 16

Product Performance, Failure, and Reliability 19

Product Maintenance 24

Product Warranty 26

Maintenance Service Contracts 36

Insurances 37

Notes 38

Chapter 3 Warranty Servicing 39

Parties in the Warranty Service Network 40

Warranty Service Process 46

Outsourcing of Warranty Service 54

Contracts 56

Notes 62

Chapter 4 Warranty Costs 63

Different Perspectives 65

Factors Underlying Warranty Costs 68

Warranty Cost Metrics 72

Warranty Reserves and Accruals 77

Warranty Cost Control 78

Notes 79

Chapter 5 Warranty Management 81

Evolution of Warranty Management 82

Service Life-Cycle Perspective 84

Product Life-Cycle Perspective 95

Organizational Structure 100

Warranty Management Systems 105

Warranty Management Maturity Models 122

Notes 124

Chapter 6 Warranty Fraud 125

Fraud in General 126

Actors and Victims of Warranty Fraud 128

Classification of Warranty Fraud 129

Fraud Patterns 130

Consequences and Impacts of Warranty Fraud 135

Customer Fraud 139

Service Agent Fraud 147

Sales Channel Fraud 162

Warranty Administrator Fraud 166

Warranty Provider Fraud 169

Notes 175

Chapter 7 Warranty Control Framework 177

Contracts 180

Transaction Controls 181

Analytics 183

Service Network Management 187

Chapter 8 Customer Fraud Management 189

Customer Contract 190

Customer Entitlement 200

Material Returns Control 207

Analytics 208

Notes 213

Chapter 9 Service Agent Fraud Management 215

Service Agent Contract 216

Entitlement and Repair Authorization Processes 237

Claim Validation Process 239

Analytics 248

Material Returns Control 278

Service Network Management 280

Notes 291

Chapter 10 Fraud Management with Other Parties 293

Sales Channel Fraud Management 294

Warranty Administrator Fraud Management 299

Warranty Provider Fraud Management 305

Chapter 11 Structures Influencing Warranty Fraud 307

Effective Service Process 308

Service Organization 315

Notes 318

Chapter 12 Implementing a Warranty Control Framework 319

Assessing the Current Situation 320

Crafting an Improvement Plan 322

Defining Policies and Rules 322

Building the Capabilities 323

Deploying the Change 325

Business Case Considerations 327

Implementation Challenges 328

Achieving the Transformation 329

Chapter 13 Epilogue 331

Opportunities to Improve Warranty Control 333

New Research into Warranty Fraud 335

Appendix A Detailed Claim Data 337

Appendix B Agency Theory 343

Appendix C Game Theory 347

Glossary 351

Acronyms 355

References 357

Index 363