«Dynamic Business Models for Industrial Product-Service Systems Mario Bosslau Thesis Supervisor: Professor Dr.-Ing. Horst Meier Chair of Production ...»
Fig. 4: Business concept of the solution provider.
The respective company is a medium-sized solution provider in the field of tool management for machine tools and has currently more than twenty service contracts worldwide, especially with automotive manufacturers as well as with its components suppliers. We conducted a guided face-to-face interview with the top management (managing director and tool manager) to gain detailed information about the business model characteristics offered by the company. This guided interview was based on a guideline to structure the conversation, in which the respondent directs the flow of conversation and is enabled to add explanatory details to his response.
As explained above, a strategy can be implemented through multiple business models, because the company may choose a different model in cooperation with each customer.
This solution space is defined in the business concept. The business concept describes The 30th International Conference of the System Dynamics Society 13th PhD Colloquium 2012 St.Gallen, Switzerland which business models a company potentially offers, based on its strategy . To date, the business concept of the tool management provider is divided into five service levels. The first two levels basically concern the trade and readjusting of tools. In the third level a computer based tool-dispensing system is provided, and level four and five comprise an integrated and holistic tool management from developing, producing and procuring tools to prepare them for application in production. In this case, revenue streams are based on produced parts on the machine (cost per unit, CPU). Additional services are maintenance, repair, cleaning and readjustment of used tools and defective parts of the machine.
6.3.1. Business model design Problem articulation A second interview was conducted to analyze the requirements of the provider (managing director and tool manager) under consideration of the special demands of a specific customer (component supplier in the automotive industry). The management of the solution provider wished to expand its business concept by a sixth level with availability guarantee, but is uncertain about, how to develop such a level for tool management, especially if the provider is not the owner of the machine. The challenging question was, how to develop a business model with availability guarantee through the implementation of Total Productive Maintenance (TPM). Another important aspect was the development of the respective revenue model considering the risk distribution between the two partners. A availabilityoriented level is characterized by a very intensive cooperation between the customer and the provider. Furthermore, coordination necessities and customer integration are on a very high level (fig. 4).
Morphology To structure the problem, we described the new level by means of the business model morphology with focus on value, risk distribution, and revenue streams (table 2). The customer value is based on availability guarantee of the machine by means of tool management services and machine maintenance, even though the machine is in ownership of the customer. The value architecture is completely service-oriented. Nevertheless, there are multiple benefits integrated with each other due to a full machine service offered by the provider. Hence, level 6 comprises a holistic tool management from developing, producing and procuring tools to prepare them for application in production while integrating additional machine services, e.g. process consulting, training, maintenance, repair, cleaning and readjustment of used tools. The provider bears the risks for life cycle activities as well as the risks of machine and tool availability. The customer bears the market risks, the risk for the result of the use as well as the risk up until the product sale. The economic value is based on management of activities. Revenue streams are generated over the IPS² life cycle based on the availability index of the machine.
The 30th International Conference of the System Dynamics Society 13th PhD Colloquium 2012 St.Gallen, Switzerland
Qualitative mapping Following THUNS approach, a stock flow diagram has been derived, which includes central aspects of the above mentioned partial models (table 2). The overall objective of the provider is to raise the availability of the customer’s machine in order to achieve a high customer value. Thus, a key variable is the ‘availability index’, which is closely linked to the revenue model. In addition, different maintenance strategies are described by different modeling structures. In the case of reactive maintenance, actions for maintaining the machine are not undertaken before a machine breaks down. The approach of preventive maintenance aims at preventing machine breakdowns in advance. By training, simple maintenance tasks can be assigned to machine operators (autonomous maintenance).
Hence, the provider has more capacity to fulfill preventive maintenance tasks and, additionally, more time to analyze maintenance reports. Hence, an improvement of machine maintainability will decrease the need of maintenance tasks (maintenance prevention).  The 30th International Conference of the System Dynamics Society 13th PhD Colloquium 2012 St.Gallen, Switzerland
Fig. 5: Stock and flow diagram: availability-oriented revenue streams (based on ).
The 30th International Conference of the System Dynamics Society 13th PhD Colloquium 2012 St.Gallen, Switzerland 6.3.2. Business model engineering Quantitative modeling and simulations An important issue for quantitative modeling was the structure of revenue generation. For the solution provider this aspect is closely linked to the value and risk model. The revenue is not just a payment for the value generated for the customer, but also a compensation for the risks the provider bears. Therefore, the revenue model is based on an availability index (figure 6). A table function was used to represent the relationship based on the Fig. 6: Revenue based on availability-index provider’s experiences with the existent (graphical function).
Szenarios and what-ifs By analogy to THUN, five simulation runs were conducted . In the first test run, the model runs with 100% maintenance-free machines and tools (run 1, figure 7). Hence, availability and revenue streams reach their equilibrium at the maximum level after some periods. In the second run, defects will occur and the model runs with reactive maintenance only (run 2, figure 7). In a third run, preventive maintenance is introduced (run 3, figure 7) and, in the fourth run, training is added (autonomous maintenance, run 4, figure 7). Finally, maintenance prevention is considered and all approaches of TPM are simulated simultaneously (run 5, figure 7). Hence, this comprehensive TPM-oriented service level results in the highest revenue, but also require the most coordination necessities.
6.3.3. Transfer of insights In phase 3 the SD model was transformed into a ‘learning laboratory’ for a better understanding of a generic availability-oriented business model in tool management through the implementation of Total Productive Maintenance (figure 7). An important insight for the provider was the need of a comprehensive consulting and training plan, which considers the actual competencies and the qualification of the customer’s machine operators. Another significant aspect is the consistent definition of the key performance indicator ‘availability index’, which have to be included in the IPS² contract. It is much more difficult to measure this index and to connect it to a revenue model, than to define a result-oriented business model, which is simply based on produced units. Accordingly, a reliable monitoring procedure for this indicator has to be provided in practice.
The 30th International Conference of the System Dynamics Society 13th PhD Colloquium 2012 St.Gallen, Switzerland Fig. 7: ‘Learning laboratory’ for availability-oriented business model.
7. Conclusion and future prospects The research focus in this paper was the development of a comprehensive business model concept in which neither a specific industry nor a specific kind of business model has been specified. A comprehensive survey of the technical literature revealed that business models have been considered from a restricted perspective and, thus, uniform definitions and structuring are still lacking. As a foundation for further empirical analyses, a definition for IPS² business models has been developed that permits a uniform understanding of the term.
Furthermore, a morphology of the attributes and characteristics of business models has been developed and associated partial models have been derived, which form a reference framework for classifying existing business models and for designing new business models.
These relate to various sections of the business model that must be established between the partners and can take various forms, to adapt the business model to the individual situation of the customer. Based on this framework, further scientific work can be developed, for instance, an empirical review of the benefits of various business models under different framework conditions. Based on the findings from the literature review, two in-depth interviews with a solution provider have been conducted to develop an availability-oriented business model for tool management. The conceptual understanding of business models in practice as well as the risk and task distribution between customer and provider were key aspects of the interviews. The described team modeling approach considerably simplifies the design and engineering process of dynamic IPS² business models. Strategic modeling methods, such as System Dynamics, represent an essential contribution for developing new and for adjusting existing business models. Hence, the provision of such methods and the associated decision support tools is extremely important for managers in industry.
The 30th International Conference of the System Dynamics Society 13th PhD Colloquium 2012 St.Gallen, Switzerland
8. Acknowledgments We express our sincere thanks to the German Research Foundation (Deutsche Forschungsgemeinschaft, DFG) for financing this study within the Collaborative Research Center CRC/ TR 29 on Industrial Product-Service Systems – dynamic interdependencies between products and services in the production area.
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