How to Select A Service Contract For Barcode Equipment

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If your company has implemented, or is considering, a mobile computing solution involving bar code equipment, an important decision item is how to provide for ongoing hardware repair service. A variety of options exist. This document reviews the options and presents a method for evaluating which option is the most cost-effective for your operation.

Service Models

There are four repair service models:

Service Contracts
T&M (Time and Material)
Flat Rate
Self-service

Service Providers

OEMs (the equipment’s manufacturer) – generally provide service only for their products.
Independent third party service companies – can provide service for multiple manufacturers.
In addition, each type of provider may be represented by a VAR (Value-Added Reseller).
Internal technicians

Service Locations

Provider’s Depot
Customer’s site

Service Contracts: Many Flavors

Equipment manufacturers and their reseller partners typically pitch three-year service contracts bundled with the hardware. Customers can choose a level of service – “standard” covers defects and normal wear and tear, and “comprehensive” adds coverage for abuse, accidental damage, etc. Customers also choose a turnaround time – overnight, 2-day or 5-day. Another common option is immediate “hot-swap” replacements. Prices, of course, vary based on these coverage levels.

The new equipment warranty (typically 1 year) that covers new equipment is limited to manufacturing defects and offers slower turnaround than a Service Contract.

Time & Materials

This model involves a diagnosis of problems and a quote by the provider at its standard labor rate, plus parts. The customer then decides whether or not to approve the quote. A turnaround time is usually not guaranteed.

A variation on this model offered by some independent service companies offers a free depot evaluation program utilizing a web portal. Registered customers submit information about non-working units on the portal, an RMA is generated and the unit is submitted. Within three days the customer receives a problem diagnosis and a quote to repair. If the customer accepts the quote, the repair is completed and the unit is returned within three days. If the repair is declined, the customer is offered a trade-in for a refurbished unit. If the trade-in is declined, the unrepaired unit is returned to the customer without charge.

Flat Rate

Providers offer a device-based fixed price to repair most types of damage, however certain types of damage can incur extra charges. A turnaround time is usually not guaranteed. Pricing is typically three to five times the per-unit Service Contract price.

Self-Service

Repair manuals are available for most equipment, and some OEMs offer customer certification training. The most common self-service involves printer repair which is less demanding than mobile computer/scanner repairs.

Spares

A generally recommended policy is to buy one spare for every 10 units. This reduces the potential for costly down-time and expensive emergency repairs.

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Compare and Contrast

Service Contracts can be viewed like a term insurance policy: a single premium payment covers all named devices with a specified level of repair for a specific period. The procedure for obtaining service is simple and turnaround time is generally reliable. Contract language generally stipulates that items placed under contract are in working condition at the start of the contract. This is a difficult condition to enforce and most suppliers rely on their customers’ good faith.

Advantages: one payment, simple RMA process, peace of mind for a specified time period.

Disadvantages: Compared to other service options, the cost increases as the number of units repaired decreases. (See chart, below) Language in the contract absolves the turnaround commitment if parts are unavailable. In the consumer economy service contracts are generally considered not worth their cost. (See Consumer Reports)

Time & Materials

Advantages: Customers pay only for what’s needed, and don’t run the risk of a wrong choice regarding a “standard” vs. a “comprehensive” Service Contract.

Disadvantages: Some suppliers guarantee a turnaround, others don’t. Some supplies charge a service fee for the quote, others don’t.

Self-Service

Larger companies with extensive equipment pools are more likely than smaller enterprises to decide that it’s cost effective to maintain internal repair resources.

Depot vs. On-Site

On-site service is significantly more expensive than Depot. Printers are heavier, more bulky to pack, more expensive to ship and more inconvenient to swap. On-site is, therefore, more common for printers than mobile computers, which are easier to pack, ship and swap.

Warranty

All service providers warranty their work for 30 to 90 days.

What’s Most Cost-Effective for You?

The following chart is a hypothetical comparison of some service options for 20 handheld computer/scanners. The “OEM Plan” column represents an OEM Service Contract at a hypothetical $3,000 annual cost (20 units x $150/unit). It shows the total cost per repair based a range of 1 unit (5% of 20 units) to 14 units (70% of 20 units). The “3rd Party Plan” illustrates the same comparison based on a 25% lower cost for a 3rd party Service Contract. In both cases you can see how a Service Contract becomes more cost-effective as the number of repairs increases. The last two columns illustrate the cost of using a Flat Rate model. The OEM Flat rate is calculated at 4.5 times the hypothetical OEM Service Contract price which is based on published pricing of several leading OEMs. The 3rd Party Flat rate again assumes a 25% reduction. The T&M model is not illustrated because pricing is based on specific repairs and varies widely.

Number Devices: 20	OEM Plan	3rd Pty.Plan (-25%)	OEM Flat*	3rd Pty Flat (-25%)*
$ per Device	$150	$112
1 yr. Total	$3,000	$2,250
Per repair cost if 1 (5%) repair	$3,000	$2,250	$675	$506
Per repair cost if 2 (10%) repairs	$1,500	$1,125	$1,350	$1,012
Per repair cost if 4 (20%) repairs	$750	$563	$2,700	$2,024
Per repair cost if 6 (30%) repairs	$500	$375	$4,050	$3,036
Per repair cost if 10 (50%) repairs	$300	$225	$6,750	$5,060
Per repair cost if 14 (70%) repairs	$215	$161	$9,450	$7,084

Conclusions

Companies wishing to analyze the cost-effectiveness of their options can plug their own numbers into this chart. Those that have not maintained easily accessible repair records can request records from their service provider.

The obvious conclusions from this analysis:

Service Contracts are cost-effective in proportion to the amount of service rendered: the less service, the more costly.
A Flat Rate program can be more cost-effective than a Service Contract based on the number of repairs performed. In the illustration, four Flat Rate repairs -- 20% of the 20 devices -- cost almost the same as the one-year Service Contract; more than four Flat Rate repairs exceed the cost of the Service Contract.
The model that offers the best cost-control is the T&M model, because only the required repairs are paid for. Significant benefits come with the Free Evaluation T&M plan, described above – a simple, portal-based procedure, a committed turnaround time, and a trade-in option. T&M becomes less cost-effective, of course, when the number of repairs performed renders the fixed cost Service Contract more economical.

By Gerald Hirsch, President, ASAP, Inc.

Gerald Hirsch has twenty-five years experience operating ASAP, Inc. He has hands-on experience with business/government processes; supply chain, distribution, inventory control, and materials management; and VAR for major mobile computing/data collection manufacturers.

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