AMR Research States Auto Manufacturers Must Utilize Early Warning Systems to Reduce $12 Billion in Annual Warranty Costs

Auto Manufacturers Must Embrace Early Warning Systems to Maintain Profitability

BOSTON, Dec. 7 -- In a new report entitled Early Warning System Benefits Emerging, AMR Research finds that auto manufacturers embracing Early Warning Systems (EWS) can save billions through reducing the detection- to-correction (DTC) window, the time between determining a defect in product design or the manufacturing process, and applying the corrective action. Auto companies implementing EWS as business critical applications rather then as compliance solutions are achieving greater competitive advantage and higher profits.

The North American automobile industry is struggling with the impact of poor quality and product defects, as well as meeting compliance demands:

  * Current DTC windows average 105 days with many manufacturers reporting
    twice that number.
  * Automotive product recalls midway through the fourth quarter of 2004
    reached 24.8 million vehicles, 22% more then last year and 7 million
    more then North American manufacturers expect to build in 2004.
  * The annual warranty expenses associated with recalls is now estimated at
    $12.3 billion annually for the North American market, exceeding auto
    manufacturers' yearly profits.
  * For the past two years the automotive industry has been taxed with the
    compliance requirement known as Transportation Recall Enhanced
    Accountability Document (TREAD) Act, which will cost the industry
    almost $2 billion in its first three years.

AMR Research conducted surveys and interviews of 220 companies over the last 12 months surfacing some important trends among vehicle and component manufacturers. Most notably, 65% of auto manufacturers surveyed say customer satisfaction and solving problems faster, not compliance, drive current technology project justification.

"Successful EWS investments improve visibility and shape information management around product quality," said Kevin Mixer, Research Director at AMR Research and author of the report. "Failure to reduce detection-to-correction time will result in continued commitment of bottom-line revenue to cover the enormous costs of poor quality."

Organizations are already seeing payback from initial investments in EWS, but even greater benefits will emerge as EWS systems integrate with global supply chains. The maturation of technologies that capture unstructured free flow data such as text analysis and speech recognition tools, allow manufacturers to deliver accurate information provided by customers during the initial interaction to engineering, procurement and suppliers. These systems can reduce the problem detection process by 50%.

"Improving warranty and quality programs requires a multi-year evolution in which companies should focus IT investments around EWS," said Mixer. "Although there is no silver bullet to control the enterprise-wide costs of poor quality, organizations should start the journey today by implementing technologies that allow for improved manufacturing traceability and better 'listening' to the voice of the customer."

For more information about the "Early Warning System Benefits Emerging" report, please visit http://www.amrresearch.com/.

About AMR Research:

AMR Research provides world class research and actionable advice for executives tasked with delivering enhanced business process performance and cost savings with the aid of technology. Five thousand leaders in the Global 1000 put their trust in AMR Research's integrity, depth of industry expertise, and passion for customer service to support their most critical business initiatives, including supply chain transformation, new product introduction, customer profitability, compliance and governance and IT benefit realization. More information is available at http://www.amrresearch.com/.