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The Evolving Service Model

How the right service agreement can extend equipment life, protect assets, simplify operations and deliver savings. 

by Bernard B. Tulsi
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Faced with shrinking budgets, laboratory managers are constantly seeking more effective ways to service and maintain their equipment, which they must now keep operational over lengthening life spans. Providing much-needed respite in this challenge are multivendor support operations—several of which have been provided by prominent original equipment manufacturers (OEMs) such as Agilent, General Electric (GE), PerkinElmer (PE) and Thermo Fisher Scientific for at least a decade already.

A recent survey by Frost & Sullivan of 150 Lab Manager Magazine readers with decision-making roles in their laboratories assessed how the managers sourced their service and maintenance requirements. To maintain their instruments— tools associated with data and analytical output—59 percent of the managers relied on instrument manufacturers’ service contracts. Around 30 percent used manufacturers’ service contracts to maintain their equipment—tools that perform physical functions such as cooling, freezing, stirring, mixing and centrifuging, among others. Jonathan Witonsky, Industry Manager, Drug Discovery Technologies & Clinical Diagnostics at Frost & Sullivan, noted that most labs today have far less funds at their disposal, and now typically demand more resources from manufacturers both for their initial purchases and maintenance needs.

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Lab managers typically assess and differentiate between activities that add or don’t add value in their core functions. Those not adding value are outsourced, says Gary Grecsek, Vice President, OneSource Laboratory Services, PerkinElmer, who helped to develop PE’s OneSource multivendor service program. He says that for labs using instruments from mostly one OEM, reliance on that vendor for repairs and maintenance makes sense. “Today, labs typically use many different technologies from multiple vendors, and multivendor maintenance services give managers much-needed simplicity,” says Grecsek.

OEMs offering these services compete with each other, with in-house efforts at labs and a variety of other companies and niche vendors that offer equipment service and maintenance at different levels. Several companies offer an insurance-type model that enables laboratory customers to include several assets on one contract. They manage the OEMs on behalf of the laboratory customers, enabling them to save costs and shed some administrative burdens, although this approach is less common now. Customers typically include academic, pharmaceutical, biotechnology, industrial and government laboratories and fee-forservice contract operations. The OEMs have experienced considerable growth and advancement in the service sector during the past three to five years, and commonly have service engineers at multiple customers’ locations to perform preventive and maintenance services on multiple suppliers’ instruments and equipment, says Dan Young, Director, Service Operations for the Global Enterprise Group, Thermo Fisher Scientific.

Bob Moore, Director of North American Service Sales, General Electric Healthcare Life Sciences, says that service operations were a cost center in the late 1990s; they were considered a “necessary evil” to sell equipment and consumables and not necessarily a source of earnings. The biotech and pharmaceutical sectors were heavily focused on growth and new product development at that time, and had access to substantially more financial resources. “Now, OEMs and the health science companies realize that they have to control spending and better manage their assets, which represent a lot of committed capital—and the focus has shifted to those issues.” The prevailing model seeks to control costs better and to capture data to facilitate decision making, and has ignited innovative solutions both by customers and service providers. Matters such as how asset tracking and utilization can be optimally deployed for efficiency and cost-effectiveness are being examined, according to Moore.

He dubs GE’s Smart Asset Management Services program a hybrid model, in that the group also uses the services of other OEM vendors. “We don’t profess to be able to do all the services, and do use niche vendors as the need arises, and for cost-effectiveness. GE engineers currently handle about 60–65 percent of our maintenance contracts, and that’s probably as high as it would go,” says Moore. GE healthcare and hospital services and maintenance operation was started about 15 years ago, according to Moore. He says that GE’s 2004 acquisition of Amersham Biosciences provided a gateway into the pharmaceutical and biotech area, to which it applied operational efficiencies and best practices acquired in the hospitals market. “We had our first opportunity back in 2005–2006 with Eli Lilly, and the program has since grown to about 20 facilities in the U.S., Europe and Japan. The life science service business is approaching the $200 million mark now, and has about 300 employees globally.”

Grecsek says that PE’s OneSource is a global asset management solution built in partnership with customers to provide business continuity, increased scientific output and cost certainty, which are very important to lab managers. “This enables managers to streamline their operations and take their scientists out of the service workflow, enabling greater focus on their primary activities,” says Grecsek. PE estimates that labs realize some 10–20 percent in cost savings in the first year of using a single-source system. The company operates about 200 OneSource programs, has about 400,000 multivendor accounts in multiple industries worldwide, and serves a wide range of labs including those in QA/QC and R&D.

OneSource was implemented at PE about ten to 15 years ago, and activities accelerated greatly during the past six years. “We offer a variety of services; our solution is truly vendor independent, which means that we perform services not only on PerkinElmer but on other brands as well.” Demand has broadened internationally, and the industrial base has broadened also. “Initially, demand came from the pharmaceutical sector because of cost pressures there, but over the last 24 months, especially, it has expanded to broader market verticals, including food testing labs in the U.S. and overseas, where new regulations require more compliance testing.” He added that PE has made “a significant investment in compliance testing via acquisitions, trying to provide holistic qualifications in metrology protocols for its customers. We do a lot of work with our customers on methods optimization, transfer and validation.”

Dan Young is responsible for the Asset Management Services Group at Thermo Fisher Scientific, which has a customer base of about 130 facilities. This group offers a multivendor service engineering program, which stations service engineers at multiple customer facilities. He says that engineers are trained and certified on all the equipment (from the multiple vendors) they are likely work on. Young says that reliance by labs on the original equipment supplier for services is not a sustainable model, and instead, “we are seeing a natural evolution away from exclusivity into a more open model, which focuses on process, efficiency and cost- effectiveness.”

He says that while many other OEMs focus on specific niches, “Thermo’s value proposition is that no other company can provide a single-stop solution— we do have the ability as a manufacturer, as a service provider and as a distributor to pull all the pieces together to provide a single-stop solution to lab managers to address all their needs.” He adds, “This model is associated with tremendous efficiencies and allows the company to deliver simple and elegant solutions to the marketplace, and it is being received well.”

Viewed as a growth area (revenue increases at 15–25 percent annually) in Thermo Fisher, the Asset Management Group has attracted considerable investment. Young says this is a reflection of the marketplace demanding more services and greater innovation. He adds that customers are also demanding that these services offer both hard dollar and soft savings consistently. “It is incumbent on us as a service provider to put together and present a scorecard on a regular basis demonstrating our adherence to those performance levels,” says Young. He notes that at some point the degree of differentiation between consumables, plastics, glassware and chemicals, among other items, becomes subtle, and competitors begin to compete on price. “Our differentiator in the marketplace is the ability to add value for the customer that exceeds the price they are paying for the service.”

From Agilent, customers see one support service operation that the company maintains to deliver a portfolio of services covering products for “selfmaintainers” through a single-source program, according to Michael Pope, Laboratory Productivity Solutions Unit Business Manager at Agilent. “Internally, we are divided into two groups under this service umbrella—the core standard Agilent service agreements and some other ancillary services that fit along the continuum, and then the group I am responsible for: Laboratory Productivity Solutions,” says Pope. “The lab productivity solutions group is responsible for the custom programs that compete in the multivendor or single-source space against GE, PE and Thermo,” he says.

As capital budgets became constrained due to the economic downturn, companies look to save costs in as many areas as possible, notes Pope. “So as they try to eke out more mechanical life from their existing base of installed laboratory equipment, they will turn more frequently to service agreements. For the large companies in the service industry, the trend is to go to a single source provider to be able to extract economies of scale and cost savings across the installed base of equipment,” he says. Pope says that depending on the customer, the level of customer sophistication, the number of assets installed and the service model, savings of 5–20 percent per year may be realistic. He says that 20 percent is what companies would like to reach, but sees 5–15 percent as more achievable based on his experience.

The Laboratory Productivity Solutions group has three territories in the U.S. that are managed at the senior level—both the financial aspects and the support delivery. Based on the distribution of equipment and customers in each of the three territories, there are districts that are headed by managers who oversee the field service engineers. There are also five world regions that essentially follow the same pattern.

Pope says that Agilent has a very thorough training program, and the company prides itself on the training of its engineers. “We have training centers throughout the world, which use a well-defined instructional curriculum for all Agilent instrumentation. We have a team responsible for curriculum development, and a team of engineers who serve as trainers—Agilent certificates are issued upon the successful completion of training on different equipment,” he says. Engineers are required to maintain the skills for which they received certification. Agilent collects that information in a large database that is available to workload administrators who handle service calls, so that engineers can be assigned to particular jobs appropriately.

“For training, in addition to taking equipment off our production line, we buy other vendors’ equipment for our service training labs around the world,” says PE’s Grecsek. “We have made substantial investments to build our servicing skills—PE has more than 1,500 scientific service engineers around the world—and in the last five to six years, invested close to $300 million in facilities, training and tools, so that our engineers will have the ability to ‘turn the wrench’ on other vendors, equipment.”

According to Grecsek, “PE has invested substantially in building its lab relocation capabilities to give customers a single point of contact for an end-to-end solution to relocate assets from one site to another.” PE’s OneSource partners with customers on the logistics, transportation, compliance, breakdown of the equipment, packaging, shipping, receipt and reinstallation at the other end where it will be used,” he said. “This is a turnkey solution for our customers, and we see a lot of demand in the marketplace for it.”

“Once you are able to do that, it allows you to take advantage of the scale at a customer’s facility. A customer might have three different brands of HPLC instruments in its lab; with the appropriate training, one of our engineers can go onsite and service all three HPLC machines. That allows lab managers to realize improvements in the operation of the lab and improve response time and downtime metrics substantially—and obviously, this improves productivity.”

Moore says that GE approaches training in multiple ways. “Our core GE offering today is really a multivendor service within itself. We service a broad range of equipment that includes HPLC, DNA sequencing and bioreactors, among others, and our core engineers are becoming multivendor technicians in their own right, and that becomes the base of the program.” Moore points out that GE also focuses on ensuring that its personnel assigned to customers’ facilities are as self-sufficient as possible, and have the training and skill sets to deliver solutions based on the customer’s specific inventory and needs. “To get there, we train internally and hire externally to get the skills needed to serve our customer base,” he says.

All four OEM executives believe that the service model will continue to evolve. While customers will ask for services around key areas such as sample preparation and methodologies, one of the major growth areas in the future will be the utilization of tools to capture data for decision making within laboratory enterprises. There will also be a greater need to generate savings and improvements year over year, necessitating greater data utilization and the broader implementation of practical process improvement tools.