Ditch the service contract Featured

8:00pm EDT October 26, 2009

Most business operations rely heavily on electronic equipment, and when it malfunctions, it can be costly.

In most cases, a business purchases a service contract from the original equipment manufacturer (OEM) or a third-party vendor to maintain its equipment. And while service contracts give business owners peace of mind, they can be expensive and are often limited. Business leaders typically rely on the advice of the person selling them the equipment and are unaware that there are other options.

“Businesses are finding that an equipment maintenance management program (EMMP) is a worthwhile solution to the hassles and expenses of equipment maintenance,” says Terry Quinn, vice president of business development with Aon Risk Services, which partners with The Remi Group, an EMMP administrator for the state of Indiana. “EMMPs consolidate various maintenance contracts into a single contract, which eliminates multiple contracts with multiple vendors, thereby creating ease and transparency.”

Smart Business spoke with Quinn about how to save time and money by using an EMMP.

Why should a business consider an EMMP?

Equipment maintenance management programs save money, provide transparency into maintenance expenditures and give businesses the freedom to use their favorite service provider for each equipment maintenance event. An EMMP aggressively manages the maintenance of a business’s entire equipment portfolio and centralizes equipment maintenance management by administering an online system that reports on equipment and vendor performance. In addition, an EMMP offers simplicity of management of both equipment and vendors, ease of administering the program and cost savings.

Who should use a maintenance program, and what is covered?

Anyone who purchases electronic equipment or maintenance contracts, including health care providers, commercial, educational, financial and government institutions. EMMPs work well in large organizations with established hierarchy and multiple departments and facilities, where accounting of equipment service contracts is decentralized.

Companies that have retired equipment still covered under a contract or that are unsure of the location of service contracts may find an EMMP’s transparency useful. Equipment can be added or deleted at any time with written notification and cost is adjusted accordingly.

Equipment covered is basically anything that is electronic and plugs into a wall, including medical equipment, laboratory and research equipment, financial equipment, general office equipment, IT equipment, communication, security and mail room equipment.

How does the program work?

A business calls the administrator when equipment malfunctions. A dispatcher calls the client’s preferred service vendor, then manages the service event from start to finish.

The dispatcher confirms that the client receives satisfactory service, and paperwork is sent directly to the EMMP provider for processing and payment. The user no longer needs to call vendors, schedule repairs, collect paperwork, or make payments. Clients select the vendor and are encouraged to continue to use preferred service providers.

Business owners are frequently informed by vendors that their equipment is becoming obsolete, can no longer be maintained, needs an upgrade, or needs to be replaced. These statements are a clear conflict of interest when the same company that sold the equipment is designated to maintain it.

By having the freedom to choose service providers, users can determine which providers are giving the highest level of service.

What are the steps to beginning an EMMP?

The first step for the EMMP administrator is to conduct an analysis of the organization’s current maintenance situation. Identify all eligible assets and determine which have service agreements in place and which are covered by a manufacturer’s warranty. Then evaluate equipment coverage levels, preventive maintenance plans, contractual exclusions and special conditions to uncover potential cost savings.

It is imperative to choose a company that has experience administering these types of programs and that will dedicate enough resources to ensure successful implementation.

What are the potential savings with an EMMP?

Businesses can receive a discount of 10 to 25 percent compared to typical service contract pricing. In addition, most organizations have no structure for measuring service contract use over the years because they receive a limited amount of information about frequency of maintenance and cost. With an EMMP, detailed information on each service event is captured, providing visibility into equipment breakdown rates and maintenance costs. Long term, this is critical in achieving incremental cost reduction and cost management. An EMMP provides a capped yearly maintenance budget for all electronic equipment, and the useful life of equipment may be extended by scheduling preventive maintenance.

What other benefits can a business receive with an EMMP?

While cost savings and enhanced management are important, reporting of comprehensive information is also vital. Vendor participation, equipment performance and cost metrics can be reported, providing clients with a full history of service events. This gives users the power to make informed decisions concerning choice of service vendors and new equipment purchases. With proper tracking, the most appropriate replacement equipment can be determined. An EMMP covers a client’s equipment around the clock and consolidates its maintenance contracts into one convenient anniversary date.

Terry Quinn is vice president of business development at Aon Risk Services. Reach him at (317) 237-2412 or terry_v_quinn@aol.com.