What Makes Pricing such a Complex Topic?
Handling warranty claims pricing presents many challenges to our customers. Let’s list three challenges:
- One challenge is, claims that occur in multiple currencies are complex to settle
- Filing claims fast enough to take full advantage of Vendor Recovery is challenging
- Within complex industries, like Aerospace & Defense, exchanging rotable spares further complicates the process
Given these three very complex challenges, SAP Warranty Management claim pricing capabilities provide numerous ways to handle these issues.
Handling Multiple Currencies
Out of the box, SAP warranty claims allow for three concurrent currencies on each claim:
- Company Code Currency
- Document Currency (which the claim can have up to 4 different currencies: Incoming customer claim, outgoing customer response payment, outgoing vendor and incoming vendor response can each have their own version currency)
- Inter-Company claims allow to re-invoice the claimed currency to whatever currency the mothership uses. Sometimes called Uni but it will be called the company currency.
Handling Vendor Recovery is Challenging
There are a number of steps in handling vendor recovery by the OEM
- Referencing the original sales order on the claim for the spare that was shipped earlier
- Removal and install
- Keeping track of dates and operating hours, cycles at the time of removal
- RMA return of the core
- Receiving the core, inspecting it as an acceptable core part number and condition, ensuring the received part is an 'acceptable core'. Happy path, the core is acceptable and
- booked into inventory for further processing
- At that point, the claim is updated accordingly to finalize the claim processing with the customer
Rotable Spares Exchange Process
Things like aircraft engines are much like calipers on a car. You usually have to exchange an old one for a new one.
This step is difficult for most manufacturers to accomplish because of the documentation gap. The core needs to be tagged as such and immediately claimed as a vendor warranty claim against the part supplier. In SAP, it is possible to solve this difficulty.
SAP Data Model is Key to Managing this Problem
You see, the claim has two main claim versions: the customer claim; and secondly, the vendor claim, all under one claim number umbrella. The customer and vendor versions get their own claim-version number. This unique feature makes it possible to trigger the vendor warranty claim and vendor recovery purchase order automatically, rules based. The vendor warranty claim involves many steps on its own, and eventually the vendor is expected to pay for parts, sometimes services, freight, etc. differently. Hence, part and labor pricing on the vendor side is different, and the system needs to accommodate those differences in pricing rules. In SAP we take care of that principally by using a second pricing procedure for the vendor claim version. The vendor pricing procedure prices out the parts and labor items on the vendor version that is used for vendor recovery.
It is not only that SAP handles this complex scenario, it is also that SAP automation takes cost out of the process and reduces disputes.
Claim Pricing, What Makes it Uniquely Challenging?
Getting pricing right leads to many questions such as the following:
- Are we reimbursing our customers accurately and fairly? Are we doing right by our customers and owners?
- Can we price automatically in real-time?
- Can the customer get reimbursed within 1-2 days? How about the same day?
Pricing can be Strategic
By reimbursing dollars immediately, available now on the customer’s AR account, we enable another purchase today! Some customers are waiting for that credit.
From a customer service perspective, with SAP's Warranty and Program's Solution, what we want to accomplish, we'd like to instill the wow-factor. E.g., a customer rep reads an email's PDF statement, saying to himself, “Wow, these guys have their act together, they are fast. Great customer service!”.
So, where do part prices come from?
- How are labor prices determined?
- What about that ‘flat rate’?
- Are prices accurate?
- Can labor prices be different from state to state, country, region?
- Can we add a flat fee to a claim?
Let’s jump into the fray. There are many ways to price claim items, however we manage three major buckets: Prices can be either about
- Labor, or
- Sublet. Sublet is for example freight, or a fee, or a job sublet to somebody at a fixed price.
Parts are known in SAP, as material masters. A part number on a claim item that is a part is a material number in SAP, e.g., 82-00100-1. A material master. The part number is known to SAP and typically has a list price for new parts. However, parts claimed on a warranty claim, may or may not be reimbursed at new part price. Think of a claim as a reversed product sale.
- The claimant references the sales order or invoice number the spare that is being claimed was shipped. Say 4 months ago the spare was purchased for this current service event
- The shipped spare was installed, the faulty part was removed
- Our policy is: We warrant the part, but we pay only for the cost to obtain a spare and only reimburse for spares ordered from our warehouse. If they bought the part on eBay, all bets are off…
- Policy is to reimburse the exact part cost our customer paid. What is that part cost? It is the net sale price plus freight plus taxes paid on that order invoice. The cost is not necessarily the new part’s list price, because the rotable may be a refurbished unit, or an “exchange” part, also the customer will receive customer specific discounts.
- Our customer has access to our exchange pool. Exchange means, these are parts that can be repaired, meaning the customer is required to return the removed core to us, so that the core can be repaired or overhauled and added back into the exchange pool. This is a great service because this allows us, the OEM. to provide better customer service levels: makes inventory available at lower prices, for exactly this purpose:
We acknowledge, part pricing rules are different in each industry.
Having an acceptable core is a key requirement to making this process work. What is an acceptable core?
Basically, it must be the part number we expected to come back, or an acceptable “exchangeable” part number. Goes into the -dash number part revisions and specs. And the core condition must be good enough. In this case FFF interchangeability doesn’t work, because even though the FFF grouped parts are interchangeable, from a refurbishment and exchange pool perspective, they are not.
In our happy path example, the core is acceptable and booked into inventory for further processing. The claim is updated accordingly to finalize the claim adjudication with the customer. The next step is difficult for most manufacturers to accomplish because of the documentation gap. The core needs to be tagged as such and immediately claimed as a vendor warranty claim against the part supplier. In SAP, this entire process is fully supported. You see, the claim has two main claim versions: the customer claim; and secondly, the vendor claim version, living all under one claim number umbrella. The customer and vendor versions get their own claim-version number.
Talking about Supplier Recovery for a minute. In our SR - Supplier Recovery Warranty Solution we have additional pre-built pricing capability - to reduce what the project needs to build in coding. With this SR pricing capability, not only is the amount of coding work reduced,- it allows you to come much closer to having a standard approach to solving specific SR pricing requirements. Getting two disconnected business entities to agree on pricing requires a more complex, robust pricing system than the standard one that comes out of the box.
Rules Based Triggers
This unique feature makes it possible to trigger the vendor recovery claim automatically, rules-based. The vendor warranty claim involves many steps on its own, and eventually the vendor is expected to pay for parts and labor differently. Hence, part pricing on the vendor side is required to be differently configured, and the system needs to accommodate those different pricing rules. In SAP we take care of this requirement by using a second pricing procedure for the vendor claim version.
To make matters even more complex, the original sales order is a special-order type that may be either free-of-charge to the customer; then the claim will be “free-of-reimbursement”; or we may charge a core deposit, typically a core value %. The purpose of the core deposit is to incentivize the customer to return the core in a timely manner, to recoup their core deposit.
We will cover the pricing aspects for Labor, Sublet, and Taxes in a subsequent blog.
In the meantime, if you’d like to talk to us about your warranty claim pricing issues, please book a meeting with us