Friday, November 11, 2011

Cytometer Service Contract or Self Insure: the Wal-Mart effect.

Instrument maintenance and repair is typically not a huge factor when deciding on a piece of equipment to purchase.  People are much more concerned with the practical things like how many lasers can I put on, how fast can I run my samples, or more simply, can it handle the applications I plan to run?  Even after we have the instrument installed in the lab we're not really thinking about maintenance and repair because we're on the "full-warranty high."  If something breaks, what does it matter?  The company will come out the next day and repair it at no cost.  Right about the halfway point through the warranty period the thought hits you - I'm going to have to start paying for service on this thing.  Herein lies the dilemma.

Although there are many variations, in general there are two schools of thought here.  The first involves some level of service agreement (full, partial, lasers only, instrument minus lasers, etc...) and the second is akin to an "insurance" plan.  By the way, before I go on, I should state that I'm writing this from the standpoint of a private academic institution (namely the University of Chicago), however private companies, public institutions, or individuals may have a vastly different experience.  Let me briefly explain these two systems of instrument maintenance.

Service agreements.  About 6-8 months into your warranty period, a friendly company representative will contact you to try and sell you on a full service contract.  This basically extends the type of service experienced during the warranty period.  Labor and parts will be covered under the service contract costs you pay annually.  Be sure to get a list of what are typically called 'consumable parts'.  These items are parts that will not be covered under the service contract.  Consumables are commodities that are intended to be used up quickly and therefore are not parts that could undergo some type of failure.  It is this failure of a part that is covered by the service contract.  Consumables can be expensive; sometimes as much as $1000 - $2000 for a single item that may only last 6-12 months.  You'll need to be sure to add these costs to your total cost of ownership.  Full service contracts are fantastic.  You get rapid response times, an endless supply of new parts, and generally I find the quality of service is of a higher standard.  The downside is the expense.  You can plan on spending about 10% of the original purchase price yearly on a full service contract, which means that after 10 years, you'll have bought the instrument twice.  You can also look into service contracts that cover only parts of the instrument, such as a 'lasers-only' contract.  This may cover some of the major expenses that might hit, but some of the routine fluidics issues or electronics issues would still need to be paid out-of-pocket.  Lastly, you don't need to rely solely on the Original Equipment Manufacturer (OEM) for service.  In some cases, third party companies will either provide the service agreement (serve as a middle man between you and the OEM) or there are companies that can actually come out and fix some of your older generation instruments.

Insurance.  If you pass on the service agreement route, either with the OEM or a 3rd party company, you'll need to carefully make a plan on how you will pay for problems that pop up.  This can be done by including a line item on your budget and simply inserting the cost of the service contract.  Then you'd need to pay for any repairs using those available funds.  If you don't use all the funds then you have a surplus and possibly a way to do some upgrades or save it for a rainy day.  If, however, you end up paying out-of-pocket more than you have put away as insurance then you could have some trouble with your institution.  The insurance method also has some unintended consequences including the possibility that your service calls may be bumped to the bottom of the list if the OEM services customers on service contract first.  Secondly, I've noticed that the field service engineers tend to do the minimum to get the instrument functional again.  This is not to say they're lazy or anything, they're actually doing you a favor by not replacing non-essential parts, and performing the work quickly so the hourly labor charge is not too high.  However, this sometimes leads to more frequent trips to a site to fix a related part that breaks shortly after the instrument was put back into service.

So, what do we do at UCFlow?  Well, a hybrid, of course.  If you can anticipate which instruments will likely have more problems over the years, then you can keep your instruments running for many years without hassel for a lot less money.  Seems impossible, but here are a few tricks.  Obviously, the first thing you're going to do is monitor performance very carefully during the warranty period.  If odd things are happening monthly, or even quarterly, it may be a good idea to consider a service contract.  If you can find out from current owners of the same model instrument whether they have many service calls, that might help make the decision.  Also, if you or your lab is familiar with the innards of the cytometer and aren't afraid to do things like replace valves, regulators, or even lasers then you should be less likely to buy a service contract.  Lastly, the more instruments you have, the more money you'll be wasting on service contracts.  Let's say you have 6 instruments, and the service contract is $15,000 each ($90K total).  It's unlikely that all 6 cytometers will have multiple issues in a given year, so let's say you have 2 instruments with major problems (multiple service calls with big ticket items totaling $30K).  The other 4 run pretty smoothly, and maybe require another couple of service calls for minor issues ($15K).  If you pay out-of-pocket then you'll basically be paying 50% of the cost of a full service contract.  This might be a good year; some other years might not be so favorable.  However, it's likely that many years you'll be under budget and a couple of years you might be over budget.

As an example, I'll share a few stories of my experience.  We had multiple 1st generation FACSCantos that were breaking down monthly.  We were actually paying more out-of-pocket than the cost of a full service contract, so we went ahead and put them on contract.  This was a no brainer.  We also had an old LSRII that, over the course of 6 years had not had a single service call placed on it.  All we've had to do is perform the standard Preventative Maintenance (PM).  We never had a contract on this instrument.  After 6 years of spending nothing on this instrument, we had 2 lasers die at the same time, which required replacement at the cost of $50K.  The service contract cost was $22K per year, so 6 years times $22K = $132K, and actual costs were $50K, a 62% savings.   It is a situation like this that tells us to err on the side of NOT getting a service contract until an instrument proves to be unreliable.  Once it is deemed unreliable we either place it under service contract, or get rid of it and find a more reliable alternative.  It sometimes seems like a gamble, and if I only had 1 or 2 instruments, I'd likely have them on service contracts, but since I have the luxury of duplicate technology and the power of numbers, I'm able to take that gamble and the odds are usually in my favor.

By the way, of the 16 instruments we have in the lab, 3 are on service contract (only the aforementioned early generation FACSCanto-A).  We're able to save money by having a high number of instruments.  We can also negotiate better contracts if desired.  Larger volumes typically lead to better prices per unit.  This is what we call the Wal-Mart effect.  If that's not your case, then you'll likely want to lean more towards the service contract route.