OEMs and Service Contracts

Observations from an outsider: All three major imaging OEMs would love to sell you a service contract on their equipment, and most customers will buy one. If you decide on a purchase, here are some things to consider.

Service is a profit center. Service contracts are determined at a corporate level and are typically 10% of the purchase price, no matter what level of service is required. Parts are stocked at FedEx, requiring a two-trip repair. Equipment is computer controlled, multilayer PCBs—nonrepairable on-site. OEMs love computers and hate hardware. Digitize the front end and let the computer do the rest; that way, they can put a service key on the computer and require a contract to service the unit. Noncontract customers get a crippled version of software.

Service personnel work out of their homes and seldom see their managers. Managers are business admin types on the first rung of the career ladder, and turnover for some averages every 18 months. The customer seldom sees or knows the OEM service manager. As a profit center, cost savings drive management decisions. One way is to squeeze labor costs. If there are 20 contracts and 10 more time and materials (T&M) sites, and his budget calls for one full-time employee per four machines, then it is possible to hire only four service personnel and have them work five contracts each, and make do on the T&M sites.

Another variation is multimodality—more work, but no increase in staff. The customer gets to wait, since there are fewer techs available. And finally, encourage turnover—long-term employees are expensive in wages and benefits. Early retirement buyouts, overworked techs, poor advancement possibilities, and stagnant wages will all encourage turnover so a cheaper tech can be hired.

Who does the actual work? You may get an OEM service person. What you get is unknown. It could be someone with long experience and grey hair, or it could be a junior hire who doesn’t know legacy equipment (anything older than 5 years). Grey hair is becoming rare with early retirement options by the OEMs and the “Boomer” generation aging. New hires fall into two categories. First is the labor pool raid—hire personnel from another OEM or do a lateral transfer from within the company. Hiring from another OEM limits training time and impacts your OEM competition as they try to restaff. Lateral transfers bring immediate manpower. Both work within regions; however, moving personnel between regions may be a tough sell when the receiving region is a high-cost-of-living area. One OEM proposed a $1,000 per month housing allowance to move to Southern California, only to rescind the offer when the existing service personnel requested the same consideration. The second source of new hires is recruitment of personnel from outside the medical field, but with a good electronics background. These are people in established jobs, not fresh out of college or trade school. They need mentoring and will spend telephone time getting it. When asked about the mentoring of new hires, I was told, “We don’t hire anyone until someone leaves.” So much for institutional memory; that’s why the customer might know more than the service person responding to the service call.

Or you may call the OEM and find that an ISO or third party has been contracted to repair the problem. Outsourcing service is just another way to save money. This saves the OEM training, full-time employee recruiting, and retention costs. The ISO is staffed with OEM people anyway, since they quit the OEM over wages, benefits, and working conditions. The downside is that they might not know the OEM’s latest offering.

Or you can do it yourself. Take the minimum contract. Get the OEM service school. Go to RSTI or DITEC. Be a partner with the OEM and limit your external expenses. This can be a hard sell if you’re just starting an imaging shop and the hospital is afraid you will be recruited as soon as you are experienced. And you will be approached since there are vacancies at the ISO and OEM and the headhunters are looking, but that is a different political fight.

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Stan McNally, electronics technician, nuclear medicine and radiation therapy, Cancer Center of Santa Barbara, Calif. For more information, contact .