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Spring 2001

The Cutting Edge

 

Reap Financial Rewards

by jim plavecsky

 

The Sealed Insulating Glass Manufacturers Association recently released an update on its insulating glass (IG) field correlation study. After 15 years, the failure-rate for CBA rated windows is between 2.7 percent and 5.9 percent, while failure rates for Class C units are between 7.5 percent and 11.5 percent.

Window manufacturers that submit their units to this test are among the most quality-minded manufacturers in the business. It would certainly seem from these results that the consumer is benefiting from the use of this test as a predictor of unit longevity.

Warranty Programs
But what is the cost to the window manufacturer who is maintaining a warranty program? 
Many are offering ten and 20-year warranties on the insulating glass. Some of these are limited warranties, which are prorated and include only replacement glass (with the homeowner paying for labor). However, I also have seen some impressive warranties that are non-prorated, include the full cost to replace the glass and are even transferable!

Looking at the results of the field correlation study, one could conclude that a window manufacturer offering such a warranty selling 100,000 CBA-rated windows (with 200,000 IG units) could end up replacing as many as 11,800 IG units after 15 years. At a cost of $100-200 per IG, this could cost as much as $2,360,000.

But what about a similar manufacturer that is only achieving C level ratings? The number of failed units could total 23,000 with an associated warranty expense as much as $4.6 million! 

Should I dare to think about the window manufacturer that is not currently participating in an IG certification program? It is surprising to see the number of window manufacturers that do not, yet many of these are offering similar window warranties.

The major factors to consider in building IG units with long-term durability in mind are: 

• IG unit design;
• Choice of single-seal vs. dual seal design;
• Sealant selection and amount;
• Desiccant selection and amount;
• Type of framing system—continuous vs. cut and keyed;
• Argon loss, which can lead to implosion;
• Level of workmanship; 
• Proper glazing practices.

Investments
Money spent to make a higher performance IG unit represents a high return on investment. The Net Present Value (NPV) and Internal Rate of Return (IRR) can be calculated for the investment in improved durability, especially when full-replacement warranty programs are in place. An Excel spreadsheet program can be used to evaluate the financial benefits of manufacturing insulating glass with improved durability (see example below).



NPV = PV – I
PV is the present value of the cash savings in warranty expense for each successive year, and I is the cost of the initial investment. The investment could be one or all of the following:

• The cost of superior materials (spacer, desiccant or sealant) to construct an IG unit with improved durability;

• The cost of capital equipment to simplify and improve the manufacturing process;

• The cost of quality assurance programs to improve workmanship practices.

Returns
The IRR is the true interest yield provided by the investment in more durable IG. The IRR is the interest rate at which the present value of future warranty expense savings is equal to the initial investment. 

Looking at such an example, a window manufacturer is considering a switch to a more durable edge-seal system, and an automated equipment system to improve the quality of workmanship. This system costs him 5 cents per foot more in materials and requires an equipment investment of $500,000, but it will reduce failure rate by one-half of a percent per year. The NPV, that is, the present value of the cash savings less the initial cash investment, is worth $837,469 if the manufacturer offers a 15 –year warranty. The corresponding IRR on this investment is an astonishing 32.8 percent.

With the emergence of the information age, homeowners are becoming more educated than ever. The result is an increased level of knowledge at the consumer level and a demand for improved warranty programs. 

Because of the potential liability involved with servicing these warranty programs, investments that improve the long-term durability of the IG unit represent a real opportunity to improve profitability for the modern window manufacturer. The financial benefits of investing in methods for improved durability can be tremendous.

  Jim Plavecsky serves as vice president of marketing and sales for Edgetech IG.

DWM

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