Service Engineers often provide a cost-effective solution to solve problems quickly and efficiently. Here are some good reasons why organizations use them:
- Experience: These people live and breathe equipment or system issues every single day. Although you may already have an employee in your organization capable of performing the work, no one can do the job as quickly and efficiently as an expert on the system. They have highly specialized knowledge which might not be available in-house. Such knowledge can be critical in helping you protect your business and achieve the success you desire.
- Speed: A service technician's highly specialized knowledge makes them extremely efficient. They can zero in on a problem and come up with a solution that can be implemented quickly. In contrast, in-house employees can have several different projects competing for their attention; not have the experience to develop a timely solution; and need to be directed and supervised on assigned tasks, which slow down the entire process.
- Dedicated Time: Time is the most precious commodity for your staff. Usually people or groups assigned to a project also have their other work to perform and are very often pulled away as a result of conflicting priorities and longer project times. Outside Service Engineers, by their nature, are able to focus on the project until the work is completed. In addition, because of their experience and efficiency they are usually able to complete the project in far less time than an in-house employee.
- Independence: Service engineering firms are independent contractors, not your employee. This simple fact has many implications. Service Engineers work closely with their clients, but they do not require the amount of direct supervision that employees performing the same tasks often need, nor are they concerned with many of the internal political issues.
- Better Control: Simply put, you control their money. If a service contractor doesn't perform, you can withhold payment or terminate them. This can be quite advantageous for corporations using significant numbers of contractors.
- Availability: Most Service Engineers are flexible and try to be available to their clients on a moment's notice. If you had to hire someone new to take on an assignment, you could spend months to place ads, perform interviews and reference checks, make a final selection, and bring a new employee on board. For a service contractor, all one needs to do is pick up the phone and make a call.
- No long-term commitment: When a Service Engineer completes the contract or special project, they simply disappear. There is no scrambling to try and place an employee in another position within the organization. The two-week notice, termination, layoff, severance pay, etc. are not there. Service companies certainly can and do develop long-term relationships with organizations, but only when their client desires such a relationship.
- The right price: Tallying up the real cost of hiring an employee to take on a task versus bringing in a Service Engineer to perform the same task, the Service Engineer may prove to be more cost advantageous. You don't have to worry about overhead, health insurance, vacation time, taxes, 401(k) plans, and other benefits or fringes.
So, How Much Does It Really Cost?
When determining the value a Service Engineer brings to your company, there are two questions to ask: Can a Service Engineer do the work better than anyone else? Can they do the work for the same amount or for less? To answer the first part of the question, you must compare the experience and credentials the contract Service Engineer offers against those of an existing employee or one you may hire.
Assuming the service group can do the work, we are ready to talk about the real cost to you. On the surface, asking for a fee of $200 an hour for the service contract may appear to be excessive. However, suppose that you had to invest almost $200,000 a year to hire a full-time employee to achieve the same result that a Service Engineer would in 40 hours each month or $96,200 each year. In that case, a Service Engineer provides incredible value to your company, especially if he can provide better service or work than your employee.
Let's look at an example in detail. Say that your company wants to upgrade your vibration monitoring system to eliminate performance issues and future-proof the network. You have a choice: you can hire a part-time or full-time employee or you can contract a Service Engineer for a fee that, at least on the surface, appears to be pretty steep. The first thing to consider is the cost of each alternative to your company; a full-time employee for $50 an hour or a contracted system Service Engineer at $200 an hour. On the surface, hiring and using an employee seems to make the most sense. Right off the bat, you're going to save $150 an hour - right?
Maybe you're not. Let's take a look.
The employee is paid a rate of $50 an hour. However, this is not the true hourly wage rate to your organization. The cost of benefits to the employee (health insurance, life insurance, 401(k) plan, and so on) generally weighs in at 35% of the hourly wage or $17.50 an hour. Employee overhead is also a factor; electricity, facilities, computers, tools, training, etc. can cost your business up to another 50% of the employee's wage or $25.00 for each hour worked. This brings the new employee's total hourly cost to the organization to $92.50 per hour. Almost double the wage cost of the employee for each hour worked. When you multiply the hourly rate by the standard number of hours worked in a year the grand total for the new employee comes to a whopping $192,400.
Use an employee.
|Hourly pay rate||$50.00|
|Fringe benefits @ 35%||+17.50|
|Overhead rate @ 50%||+25.00|
|Total effective pay rate||$92.50|
|Hours per year||x 2,080|
|Total annual labor cost||$192,400|
So what happens if the organization hires a contract Service Engineer to do the same job?
Although the Service Engineer's hourly rate is as much as four times the new employee's rate, you save the cost of benefits and overhead you would have applied to a new employee's wage. When you contract your business with a service firm they bear the cost of fringe benefits and overhead. You only have to pay the fee that was agreed upon.
Not only that, but the Service Engineer is probably more experienced. They know where the traps, landmines and faults are within the system. They are more efficient and not distracted by other day-to-day site requirements, or looking for tools or manuals. And lastly, if they are the manufacturer representative they are better connected than your employee, having access to the manufacturer's restricted technical information and people. In short, they will devote far less time to the same problem to get better results; for example they may only need 480 hours a year to maintain your vibration systems versus 2,080 hours for the employee*.
Hire a contract Service Engineer.
|Hourly pay rate||$200.00|
|Total effective pay rate||$200.00|
|Hours per year||x480|
|Total annual labor cost||$96.000|
Surprise!!! You could actually save about $96,400 ($192,400 - $96,000) by contracting with a Service Engineer rather than hiring a full-time employee. And that doesn't include possible equipment downtime!
In addition, a good Service Engineer hits the ground running, is on site for as long as you need them, requires no hand holding, little training, and is highly self motivated and driven to get the job done.
The end result of utilizing a contracted Service Engineer is usually an overall savings in time and money - often with better results than if the assignment were performed by your in-house employees alone. It sometimes just makes more sense to hire a Service Engineer!
*Results of a Mackinac Center study showed the cost of contracted services for equipment maintenance was 50% to 60% lower than in-house servicing.
Written by Arne Oas, CMRP
Reliability Principal Consultant
Optimization and Control