Warranty claims are inevitable. Design trade-offs, material defects, and manufacturing errors will cause products to fail during the warranty period. However, your business may be entitled to reimbursement for the warranty-related costs if the defect arose from materials or parts from an outside supplier.
More Than Supplier Cost Recovery
The process of obtaining this reimbursement is called supplier recovery and SAP ACS Warranty Management software includes a component to facilitate supplier recovery. Learning to use this component can help your business’s finances, product quality, and customer relations. Detering Consulting's Cost Recovery Consulting is designed to help your organization to master this complex, yet critical process.
What Does Supplier Recovery Mean?
Supplier recovery is a process that is usually built into a third-party supply contract. This contract provides a supplier warranty that the supplied parts or material will be suitable for its intended purpose. If they fail, the supplier’s responsibilities include replacing the parts and reimbursing your business for costs incurred for any warranty claims you received due to the defect.
What’s Involved in the Supplier Claim Recovery Process?
A supplier claim is usually triggered by a warranty claim. Warranty claims are legal claims under the sales contract with a customer. Your business’s sales contracts likely disclaim all implied warranties – warranties that are not written into the contract – and replaced them with express warranties.
The express warranty sets forth the conditions under which your business will provide free replacement parts and service for defective products. A warranty claim is simply your customer’s request for a warranty service.
However, as described more below, warranty claims processing can be handled separately from supplier claims in SAP ACS Warranty Management.
Warranty Claim Management
Warranty claim management is the process for tracking warranty claims and tying them to the processes needed to support them. For example, a warranty service may require a replacement part. This replacement part must be ordered and shipped to the authorized service provider (ASP). Moreover, the ASP must supply labor to remove the defective part and install the replacement part. The ASP will need to be reimbursed for the labor costs.
Supplier Recovery Claims
When these costs, like parts, shipping, and labor, are not incurred due to your fault, but due to a defect in a part or material supplied by a third party, you can repair the product but recover the costs from the supplier. In other words, rather than forcing your customer to obtain warranty service directly from your supplier, you provide the service and sort out the costs between you and the supplier.
This process, called a clawback, is a contractual claim based on an allocation of liability between your business and the manufacturer of OEM parts. Since the OEM created the defective part or supplied defective materials, its supplier responsibilities include replacing, or paying to replace, the defective parts or materials.
How to Use SAP ACS Warranty Management for Supplier Recovery
SAP ERP provides the ability to enter and manage supplier contracts. SAP ACS Warranty Management provides the ability to use SAP’s supplier management functions to create a supplier recovery claim based on a warranty claim or work order for warranty service. However, SAP ACS Warranty Management supplier recovery handles recovery processing independently from warranty processing so the status of the supplier is not dependent on the status of the warranty repair. This ensures that the supplier recovery claim is consistent with the supporting warranty claim but can be handled on a separate timeline.
The supplier recovery claim is forwarded to the supplier by SAP’s electronic data interchange (EDI), email, or mail. If the supplier accepts the claim, your system will receive a credit from the supplier. Since SAP’s financial modules are integral with the warranty management module, the credit note can be processed directly into the company’s books.
If the supplier rejects the claim, your system will notify you so that you can open an appeal claim.
3 Ways to Optimize Supplier Recovery with SAP ACS Warranty Management
SAP ACS Warranty Management can save time and money while you manage supplier recovery claims. Most of these efficiencies are built into the SAP ACS Warranty Management module. However, there are a few ways to optimize your use of the supplier recovery function including:
1. Provide Warranty Claim Documentation
When creating warranty claims, have ASPs and dealers use the dealer portal to attach documentation to support the warranty claim. This documentation could take the form of photos, descriptions, or other documents to explain the nature of the defect. Moreover, SAP ACS Warranty Management uses the SAP catalog functions to categorize defects. The more information that you can provide to your supplier about the defect, the easier it will be for the supplier to accept the recovery claim. Complete documentation could reduce the number of appeals and the amount of correspondence with suppliers over rejected supplier recovery claims.
2. Track Expenses
The SAP pricing module can be used in conjunction with the warranty management module. Use this module to associate precise costs to the warranty claim. These costs, in turn, can be used to submit a precise supplier recovery claim. This will boost your workflow by reducing the back-and-forth with suppliers over costs.
3. Use EDI and Encourage Your Suppliers to Use EDI
EDI (Electronic Data Interchange) is the electronic exchange of business documents, such as purchase orders, purchase requisitions, and invoices, between the computer systems of business partners. These documents need to be in a standard format such as the commonly used EDIFACT and ANSI X12.
EDI provides three key benefits that can reduce workflow:
- Reduce errors: Since data is taken directly from the SAP warranty management system, supplier recovery claims sent through EDI do not require rekeying to correct the typographical errors that inevitably occur.
- Reduced overhead: Without rekeying, fewer employees are needed to process supplier claims with the SAP warranty management solution. These employees can be assigned to other activities.
- Quicker turnaround: Since the data exchange of claims and supporting documentation occurs immediately, suppliers can act more quickly on them.
Additional Benefits of Supplier Recovery
Implementing Supplier Recovery facilitated by SAP ACS Warranty Management not only improves your bottom line. Tracking of defects and holding suppliers accountable for the parts and materials they supply will improve your product quality, and higher quality products will translate into greater customer satisfaction.
Contact us to discuss how SAP ACS Warranty Management can help your business realize all the benefits of supplier recovery claims.
