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The definition of a Time & Materials service is that the
vendor charges you for a service call (time), on either a per
trip or per hour basis, and a charge for the parts (materials)
used to repair the equipment. On occasion, he will add in a
nominal (or excessive) travel cost, should the distance exceed
XX number of miles. Most Service Contracts, in contrast, are
inclusive of all possible expenses and therefore, seemingly
much less expensive. Some managers make a big mistake by
taking the vendor's advice that the service contract is a
better method of managing service costs. He will say this
method enables cost-center managers ( a cost-center is a
specific department or portion of a firm, i.e. Shipping and
Receiving or Data Processing ) to plan their budgets better,
as they will know exactly how much the service will cost
during the budget period. Well, that part is true, you will
know EXACTLY how much your service costs are. You will also
know that your costs are TOO HIGH. A good rule of thumb is
to take the contract price and multiply it by 0.10 to
determine your overall cost. On an individual machine basis, a
cost center manager may actually pay more than expected, due
to a burned out circuit board or a spilled soda. But, overall,
your service costs will fall like a rock. It is always a
mistake to take out a contract on a typewriter. It is a
mistake to take a service contract on a computer, especially
during the first 24 months after purchase. If a computer makes
it past the sixty to ninety-day warranty, it's as good as
gold, actuarially speaking. My practice is to insist upon
time and materials, instead of Service Contracts. Make no
mistake about it, vendors know that service contracts are
almost pure profit. The best way to verify this statement is
to take a moment and attempt to recall how many times vendors
have asked for a contract. Before you decide to buy a
service contract, take advantage of the warranty. Many
suppliers fail to give you the sixty or ninety-days of prepaid
warranty when you buy a new, capital asset. They typically
sell you a twelve-month service contract, that magically
terminates a few weeks short of fifty-two. If that has
happened to your firm, you have every right to bring this
matter to their attention and insist upon those additional
weeks at no additional cost. My next suggestion is to insist
upon the time & materials means of providing repair service,
regardless of how outrageous that cost appears to be, compared
to the cost of the Service Contract. In almost every instance,
this T&M vs. CONTRACT value is meant to shock you into opting
for the "bargain." At Santa Barbara Savings & Loan, I
determined how many calls were made for each model copier
within the Association, and computed the T&M costs for each.
Copiers that ran at less than fifty copies per minute were
maintained more economically on the T&M basis, while the 50+
copies per minute units either reached a cost equilibrium or
economically benefited the Association by being under
contract. I had a similar experience with 3M microfilmer
maintenance costs. They presented me with a bill for about
$48,000, for annual maintenance, and intimidated me with a
mountain of proof that their service contract was the
least-cost alternative. By opting to take the T&M route, our
actual cost of maintenance was about $6,000. And, this cost
was for units that were over thirty eight months old! My
savings was over $40,000 or almost 85%. Let's face it, if
there was more money to be made in Time & Materials service
efforts, suppliers would be pushing it instead.
RESULTS: By going for the Time & Materials method of
purchasing repair service, you should save more than 50% of
this expense.
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