Evaluation and optimization of Product/Service Systems within the development process

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Evaluation and optimization of

Product/Service Systems within the

development process

Johannes Matschewsky

LIU-IEI-R13/00161-SE

Department of Management and Engineering

Division of Environmental Technology and Management

Note: This report was submitted as a thesis to acquire the degree of Diplom-Ingenieur (FH) at the University of Applied Sciences Dresden (HTW Dresden). The research was conducted at Linköping University from March to September 2012. The degree was awarded on December 3, 2012.

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We are not going to be able to operate our spaceship earth successfully nor for much longer, unless we see it as a whole spaceship and our fate as common.

It has to be everybody or nobody. R. Buckminster Fuller

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Nomenclature

CAM Cambridge Advanced Modeller

CAPTOE Commercial, Affordability, Performance, Training, Operation

and Engineering Uncertainty

CUA Cost Utility Analysis

DfE Design for Environment

DSM Design Structure Matrix

EOL End of Life

FMEA Failure Modes and Effects Analysis

ISPE Integrated Product Service Engineering

KPI Key Performance Indicator

NPD New Product Development

NUSAP Numerical - Unit - Spread - Assessment - Pedigree

PSS Product-Service Systems

PV Producer Value

PVD Producer Value Determinant

QC Quality Control

QFD Quality Function Deployment

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NOMENCLATURE

SE Service Engineering

SPIPS Toward Solution Provider - Through Integrated Product and

Service Development

TRIZ Theory of inventive Problem solving

VBA Visual Basic Application

VE Value Engineering

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List of Figures

1.1 Structure of this thesis . . . 3

2.1 Design Paradox: Freedom of action vs. product knowledge . . . 8

2.2 PSS Business Models . . . 9

3.1 Linear NPD model . . . 12

3.2 Eco-Design methodology . . . 16

3.3 Steps of the SPIPS-method . . . 21

4.1 Value Engineering and PSS Evaluation . . . 27

5.1 Experience Curve with 90% Slope . . . 30

5.2 (Dis)Economies of Scale . . . 32

7.1 Categorization-Pyramid for producer value parameters . . . 46

8.1 Parallel DSM relationship . . . 58

8.2 Sequential DSM relationship . . . 58

8.3 Coupled DSM relationship . . . 59

8.4 Example of a DSM with unaltered data in CAM . . . 60

8.5 Clustered component-based DSM . . . 61

9.1 Description of the evaluation process . . . 64

9.2 Shortened NUSAP process to reduce uncertainty . . . 67

9.3 Example of DSM optimization by clustering . . . 69

9.4 PSS illustrated by Tablet and Sales-Platform offering . . . 72

10.1 Mockup of the general structure of the software . . . 76

10.2 Dialog for entry of components . . . 77

10.3 Selection and connection of producer values . . . 78

10.4 Mockup of the Uncertainty-Assessment-Tab . . . 78

10.5 Integration of cost-related data in the software . . . 80

10.6 Creation of offerings in a software . . . 80

10.7 Interface for inserting revenue-related data . . . 81

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LIST OF FIGURES 11.1 DSM matrix of woodchipper before clustering . . . 88 11.2 Clustered DSM matrix of the woodchipper . . . 89

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List of Tables

2.1 Specification of PSS Business Models . . . 10

4.1 Evaluation criteria used by Yoon et al. . . 28

6.1 Classes of Uncertainty . . . 35

6.2 Self-Assessment-Questions regarding uncertainty . . . 39

6.3 Example of Uncertainty assessment . . . 40

6.4 Pedigree Matrix for scoring uncertainties . . . 43

6.5 Color-codes for Pedigree scores . . . 44

7.1 Scoring Scale for Producer Value Assessment . . . 55

7.2 Example of the derivation of aggregate Producer Values . . . 56

9.1 Matrix of Components and PV-Scores . . . 66

9.2 Possible grouped components view . . . 70

11.1 Component Catalogue with product and service components . . . 85

11.2 Components with producer values assigned . . . 86

11.3 Uncertainty Assessment of example problem . . . 87

11.4 Experience Curve Data for Services . . . 90

11.5 Scale effects on Services . . . 91

11.6 Cost and Revenue for three and five-year contracts . . . 91

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Chapter 1 Introduction

1.1 Background

We live in a world that is evolving and changing faster than ever. Paradigms are set, and revoked the next day. One of these paradigms, that have fueled the prosperity of market economies all around the world in most of the 20th century, is growth. More production leads to more consumption and an increased standard of living. Today, hardly anyone in academia or politics sees a future of prosperity through the growth of production and sales of physical products alone. Scarcity of resources is a fact we are faced with today and even more so when looking ahead to the next 30 years or so. Different ways of creating value without destroying the very base of our existence must be contrived while attempting to maintain the standards of living in the developed world and providing emerging countries with a fair chance for prosperity in the future. Product-Service Systems (PSS) are one possible way of creating added value and thus growth, but disconnecting this growth from an increase in material consumption and therefore resource depletion (as discussed e.g. by Manzini et al., 2001). This issue will be discussed further in chapter 2.4. By combining products and services, developing them in an integrated manner and approaching their design and operation from a life-cycle perspective, offerings can be conceived that reduce the strain on the environment through different effects but allow for new sources of revenue, growth and prosperity to be discovered. As mentioned by Meier et al. (2010), the portion of the GDP created through service activities in Japan (69%), Germany (70%) and the USA (75%) surpasses that of the industrial sector by a large margin. Combining the two and making use of the resulting synergies is a main objective of the research on Product-Service Systems in roughly the past decade. Current research will be examined in the following chapter to fully explain PSS and why it holds such great potential, both from an environmental as well as an economic perspective.

One of the main focuses of research in the field of PSS is PSS development. Since an integrated approach of product and service development is the explicit aim of most PSS design strategies (e.g. Lindahl et al., 2006), traditional means of product development

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Introduction known and successfully applied in engineering design do not apply to the world of PSS or must be altered and adapted to do so. This issue is discussed in detail in chapter 3 of this thesis. The PSS-design method SPIPS (Toward Solution Provider - Through

Integrated Product and Service Development), introduced in Sakao et al. (2009) and

extended in Sakao and Lindahl (2012) is one possible approach to PSS design that is introduced and related to this thesis in chapter 3.5. At this point, although possessing a verified method for consumer-value assessment (Sakao and Lindahl, 2012), the method is lacking an approach toward the assessment of the producer-value of PSS components and offerings. This thesis aims to fill this void.

1.2 Objective of the Thesis and Research Questions

The primary aim of this thesis is to provide a structured method to assess the pro-ducer value (PV) of components and combinations of components (offerings) of Prod-uct/Service Systems. This goal is intended to be reached through answering the fol-lowing sub-questions or completing these tasks:

1. Provision of an introduction to PSS and current research as well as definitions for the most important terminology

2. Discussion of traditional product development, interfaces with PSS and review of literature relevant to this

3. Review of methods of producer value assessment and extraction of useful issues 4. Discussion of uncertainty, interdependency and cost within the scope of producer

value evaluation in PSS design, derivation of possible solutions and issues for further research

5. Finding a way to quantify producer value

6. Describing the structure of the method proposed

7. Outlining the possible realization of the method in a software environment 8. Applying the findings to an example of realistic nature

1.3 Structure of the Thesis

The thesis is structured along the lines of the tasks and questions listed above and is illustrated in Figure 1.1.

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Introduction

2. PSS Introduction, Definitions

3. Traditional Product Development

4. Traditional Producer Value Assessment

5. Uncertainty, Interdependencies and Cost

1. Introduction, Objectives

6. Quantification Producer Value in PSS

7. Introduction of the Producer Value Assessment Method

8. Suggestion of Method-Use in a Software

9. Application of Method to an Example

Review of re sear ch , ex aminati o n in r elati o n to P SS in ge ne ral and Pr odu ce r Value Asse ssmen t in p arti cular De velo pme nt an d de scr ip tion o f th e meth od and its e leme nts

Figure 1.1: Structure of this thesis

The thesis can be divided, as also shown in the illustration, into two large sections: In section one, the focus is on review of two types of literature: Either research di-rectly referring to PSS is listed and examined, or other literature referring to traditional engineering methods is put in relation to PSS. Whenever appropriate, conclusions re-lating to the proposed method have been drawn or cross-references made. This is visualized by the connections of the different topics as shown in Figure 1.1.

The second section explains the components of the method, how they were conceived and why they are intended for use in a certain way.

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Chapter 2 Product-Service Systems - An

Introduction

2.1 Introduction

In the following sections, the most important terminology used in this thesis will be explained and defined in the light of current literature and leading research in the field. A short but comprehensive introduction to this interesting type of offering that has received much attention in various fields of research and the industry will be given.

2.2 Products and Services - Definition

2.2.1 Products

In the papers reviewed for this section, the product-portion does not receive special attention with respect to a particular definition of the term. It is mostly just assumed to be the tangible/physical part(s) of an integrated offering of products and services. Goedkoop et al. (1999) define a product as “a tangible commodity manufactured to be sold. It is capable of falling onto your toes and of fulfilling a user’s need.”

2.2.2 Services

With services, the situation is quite the opposite. Many definitions and descriptions are given, some of them, if they add to the understanding of the issues discussed, will be reproduced in the following.

Meier et al. (2010) in their review of the state of the art in “Industrial Prod-uct Service Systems”, focusing on the business-to-business-perspective, cite a threefold definition of services as stated by McDonald et al. (2011):

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Product-Service Systems - An Introduction • Uno-actu-principle: Services are produced and consumed at the same time,

stor-ing them is not possible

• Direct contact between an external service provider and the customer is impera-tive

Other authors such as Kim et al. (2011) solely refer to the tangibility-criterion in order to determine the property of a component as a physical or service component.

2.3 Product Service Systems - Definitions

Within this section, different definitions and views of Product-Service Systems will be introduced. Eventually, a definition will be adopted for use in this thesis.

Goedkoop et al. (1999) According to Kim et al.(2011a), Goedkoop et al. (1999)

were first to introduce PSS as “a reflection of both ecological and economic issues.” They define a Product-Service System as follows:

A Product Service system (PS system) is a marketable set of products and services capable of jointly fulfilling a user’s need. The PS system is provided by either a single company or by an alliance of companies. It can enclose products (or just one) plus additional services. It can enclose a service plus an additional product. And product and service can be equally important for the function fulfillment. The researcher’s need and aim determine the level of hierarchy, system boundaries and the system element’s relations.

The authors go on to restrict their definition of the term service to services that have a “direct positive economic value in the market” (excluding free services), services that benefit the end-user (consumer or business), and exclude common distribution and sales channels. It appears that publications referring to PSS agree to this definition without explicitly stating this.

Meier et al. (2010) Meier et al. (2010), particularly focusing on the

business-to-business aspect of PSS, refer to them as “Industrial Product-Service Systems” (IPS2_).

Citing Meier et al. (2005), they define IPS2 as follows:

An Industrial Product-Service System is characterized by the integrated and mutually determined planning, development, provision and use of prod-uct and service shares including its immanent software components in Business-to-Business applications and represents a knowledge-intensive sociotechni-cal system.

The authors proceed to refine their definition even more; this is suggested for further reading.

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Product-Service Systems - An Introduction

Baines et al. (2007) Baines et al. (2007) in their review of PSS firstly refer to the

original definition introduced by Goedkoop et al. (1999). After reviewing a number of definitions found in Table 1 of their paper, Baines et al. (2007) come to the following conclusion with respect to finding a definition suitable to PSS:

A PSS is an integrated product and service offering that delivers value in use. A PSS offers the opportunity to decouple economic success from material consumption and hence reduce the environmental impact of eco-nomic activity. The PSS logic is premised on utilizing the knowledge of the designer-manufacturer to both increase value as an output and decrease material and other costs as an input to a system.

In their aggregation of a number of definitions, Baines et al. (2007) put stress on the environmental effects that are expected from the use of PSS. This stands in contrast to the aforementioned definitions focusing mainly on the economic aspects.

In this thesis, PSS is to be understood with mainly two things in mind, that are part of Meiers and Baines’ definitions: Firstly, a Product/Service System is to be developed, offered and used in an integrated manner; secondly, environmental benefit, though achieved indirectly, is a major focus of the development and use of Product/Service Systems.

2.4 Product-Service Systems and Environment

When research on PSS gained momentum, one of the main points of interest was the improvement of environmental performance of offerings.

2.4.1 Service Engineering and the move from Eco-Design

Sakao and Shimomura (2006), for example, see Service Engineering (SE) as a further de-velopment of Eco-design (exemplary of this is Fiksels “Design for Environment”, 2011). The authors go on to criticize that even though Eco-design has succeeded in bringing environmentally friendly products to market, “very few of those tools and methodolo-gies have succeeded in incorporating the needs of consumers effectively.” Sakao and Shimomura (2006) further introduce their concept of this engineering discipline and a newly-developed design tool, called Service Explorer. Cavalieri and Pezzotta (2012) have assumed service engineering to be a part of PSS design, as Sakao and Shimomura (2006) focus on combining customer requirements and value creation with environmen-tal efforts.

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2.4.2 Eco-Efficiency as a main focus of Product-Service

Sys-tems

In Goedkoop et al.’s (1999) introduction of PSS, environment and sustainability are, besides economy, the main focus of this major study on this type of offering. Results of this study go so far as to suggest a possibility of unlinking the toll on the envi-ronment that economic growth tends to take. In Baines et al. (2007), the shift in focus of PSS-oriented research becomes obvious. The main objective in achieving more sustainability is dematerialization. The idea here is to unlink the amount of value created for the customer from the amount of material delivered in order to create this value. Ehrenfeld (2001) states, though, that the objectives of dematerialization and sustainability should not be interpreted as synonymous. Baines et al. (2007) also point out that dematerialization is not part of any of the definitions of PSS reviewed in their paper. Manzini et al. (2001) clearly state a smaller environmental impact together with a higher added value as one of the main objectives of offering PSS.

2.4.3 Factors influencing Environmental Performance

In this paragraph, a recent publication by Lingegård et al. (2012) addressing factors influential on environmental performance of PSS will be examined and critical issues discussed.

Reference is made to Integrated Product Service Engineering (IPSE), which was first introduced in Lindahl et al. (2006). The concept was compared to common eco-design-practices (Design for Environment, DfE) in Lindahl et al. (2007). The conclusion drawn in this paper is that the environment-related requirements of DfE need to be intertwined with offering-related requirements. Further, an advantage is seen in the balance of focus between environmental and economic issues. The view of both products and services together with a Life-Cycle perspective are seen as a promising approach. In Lingegård et al. (2012), IPSE is regarded as a particular approach to PSS. As stated in Lingegård et al. (2012), IPSE “attempts holistic optimization from the environmental and economic perspectives throughout the life cycle.” In addition, not only design as the foremost engineering activity, but also maintenance, upgrade and remanufacturing are in focus. The biggest factors influencing environmental performance identified in this publication are:

Theory of Product Development Product development is nowadays often focused

on cost reduction. In many cases, this also leads to a reduced environmental impact, as e.g. material-consumption is reduced.

Also, the “design-paradox” must be considered: “The paradox is that when the gen-eral design information is needed, it is not accessible, and when it is accessible, the information is usually not needed” (Lingegård et al., 2012 referring to Ullman, 2009).

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Figure 2.1: Design Paradox: Freedom of action vs. product knowledge (Ullman, 2009) This relation is illustrated in Figure 2.1. Additionally, the implementation of an inte-grated approach between product and service development yields large opportunities to reduce the environmental impact of an offering.

Information Asymmetric between Provider and User The asymmetry in

knowl-edge about the use of a good for optimal energy efficiency, the best End-Of-Life (EOL)-treatment etc. are the main points made with reference to this issue.

Economies of Scale Economies of scale will be discussed in more detail farther

along this thesis in chapter 5.3. One example mentioned by Lingegård et al. (2012) is that the outsourcing of an identical process within a number of companies to a single one would increase the efficiency of production (Gao et al., 2009).

Risk Risk and Uncertainty is a major factor not only regarding environmental

per-formance, but the performance and profitability of a PSS-type offering in general. It is discussed in detail in chapter 6.

2.5 Business Models in PSS

2.5.1 Introduction

A new type of offering requires new business-models in order to properly and most efficiently market these offerings. In order to provide a broad introduction to PSS, the most common business models as listed in Meier et al. (2010) should be introduced and briefly explained in this section.

Figure 2.2 gives an overview of the three main business-models present in current research: function, availability and result-oriented.

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Figure 2.2: PSS Business Models (Meier 2010)

2.5.2 Discriminating amongst the different models

Meier et al. (2010) have developed an elaborate scheme to discriminate amongst the different business models present with respect to PSS-type offerings. The following table is taken from that publication and illustrates the responsibilities as they are divided between customer and supplier very well.

A Function oriented PSS-type offering is the “least servitized” form of a business model based on Product-Service Systems. Meier et al. (2010) mention a maintenance contract, guaranteeing the functionality of an offering for a certain period of time. Ownership of the offering is transferred entirely to the customer and he is also the only one initiating servicing etc. It is very easy to confuse a traditional product-offering with a service-contract added on top with a function-oriented PSS. It must be kept in mind that the intention and aim of a PSS, especially as it is interpreted by IPSE, is simultaneous and co-supportive development of products and services.

When looking at an Availability oriented PSS, the shift towards servitization and with respect to ownership becomes apparent. While production and the supply of the operating personnel still lie with the customer, the service initiative and the carrying out of the services, though, has shifted to the supplier. One example of this might be a remote maintenance program, which alerts the supplier of wear on one of his products, so that he is able to dispatch a service technician in advance of a possible failure, thus ensuring he meets the availability goals promised in the initial contract. The risks of operation are shared among the parties involved.

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Table 2.1: Specification of PSS Business Models (Meier 2010) Function oriented Availability oriented Result oriented Production

responsibility Customer Customer Supplier

Supply of operating

personnel Customer Customer Supplier

Service Initiative Customer Supplier Supplier

Ownership Customer Customer/

Supplier Supplier

Supply of maintenance personnel

Customer/

Supplier Supplier Supplier

Service turnover model Pay on service order Pay on availability Pay on production The shift from a producer of a physical product to the provider of a service using a product is completed with the Result oriented PSS. Here, no transfer of ownership is realized at all, the offering stays entirely with the provider and the risk is borne by the provider alone. In many cases, the supplier will set up his apparatus within the premises of the customer. Payment is only transferred per item manufactured. According to Meier et al. (2010), the number of customers willing to completely outsource processes is limited, and even though compensation-payments will be made in case the supplier is unable to provide a sufficient number or quality of parts, customers risk delays with their own products that they will be held liable for as well.

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Chapter 3 Product Development, PSS

development and integration of the

method

3.1 Introduction and Scope

The producer value assessment that is the goal of the method proposed within this thesis is part of a larger PSS design method called SPIPS (Toward Solution Provider -Through Integrated Product and Service Development), that was introduced in Sakao et al. (2009) and modified and developed further in Sakao and Lindahl (2012), a paper of particular interest, since it proposes a evaluation method focusing on consumer value, whereas this thesis attempts to deliver the counterpart to this from the producers view. In this chapter, the positioning of the proposed method within the development-process of an offering will be laid out. First, the design of PSS is located in the field of product development, then traditional engineering tools of evaluation and their impact on PSS are assessed, and lastly it will be explained, how this method integrates into SPIPS.

Also, focus will be on quality, since this is a much-discussed field in PSS-related research. Namely, findings on using Quality Function Deployment (QFD) and Failure Modes and Effects Analysis (FMEA) in PSS-design will be briefly discussed.

3.2 Locating PSS and Producer Value Assessment in

product development

3.2.1 Product development and PSS - a broad field

In order to put the method developed in this thesis into context and clarify its purpose and direction, it is important to shed light on the development of Product/Service Systems in relation to traditional product development in the engineering sector. In

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Product Development and PSS

Figure 3.1: Linear NPD model (Trott, 2012)

this chapter, techniques and methods of product development will be briefly explained, interfaces with PSS-development examined and put in relation to the method as laid out in the following parts of this thesis. The reference for engineering design is Pahl et al.’s “Engineering Design: A Systematic Approach” (2007, originally German: “Kon-struktionslehre: Grundlagen erfolgreicher Produktentwicklung”). Although of course only a few of the methods detailed in this book will be examined, focus will be on the most popular ones among engineering designers.

3.2.2 New Product Development and PSS design

New Product Development in most cases affects a company in its entirety, whether it is a small business selling handmade goods or it is a multinational corporation selling a highly developed technological product. The actual design of the offering, and, as explained here, the decision making as to what components the offering will be comprised of, is done mostly in engineering.

Figure 3.1 shows the linear model of NPD. Since this view is mostly utilized by managers and very business-focused, engineering is involved in only a few of the steps, especially when only PSS-design related tasks are considered. Mainly, the focus is on the following steps:

• Idea generation • Idea screening

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Product Development and PSS These points closely adhere to SPIPS as laid out in Sakao et al. (2009), of which the method proposed here will be a part.

Starting from these very general points, traditional methods and tools of product development in the field of product engineering will be reviewed for interfaces with the goals of Product/Service System-design.

3.2.3 Idea Generation: Brainstorming

Brainstorming is a method originating in the 1950’s and has been first formulated by Osborn (1957). Pahl et al. (2007) list it as a “method with intuitive bias”, and it is still one of the most popular methods of idea creation used today. In order to not unduly extend this part, only the most important factors in brainstorming will be listed:

• A group of ≤ 15 persons, possibly some of non-engineering background is formed • The moderator interferes only very little with the discussion, may occasionally

set stimuli etc.

• Nothing that can be imagined cannot be said, creativity is key, no criticism • All proposals are recorded; the meeting should last no longer than 45 minutes • Engineers review all proposals, evaluate their feasibility

Other common methods include Method 635, Gallery Method and Delphi Method. On these and related topics Pahl et al. (2007) and references mentioned therein are suggested if further information is desired.

Idea Generation, PSS Design and Producer Value Assessment Idea

genera-tion and brainstorming as a special incarnagenera-tion of this is an essential step in designing PSS. Brainstorming is specifically mentioned in Sakao et al. (2009) as a creativity-tool within the SPIPS-method. There is no large discrimination to be made between com-ponents of physical products and their function, which is the aim of Pahl et al. (2007), and components of Product/Service Systems, whether they are physical or services. Creativity is especially key in the development of integrated products and services, since the inspiration engineers can take from existing offerings that have been built in an integrated manner from the ground up is still limited. Because of that, idea creation is an essential step that must be completed before components and offerings can be evaluated from the producer’s viewpoint, as explained later in this thesis.

3.2.4 Idea Screening and Evaluation: Cost-Utility Analysis

Pahl et al. (2007) discuss two techniques of selection and evaluation in detail: Evalu-ation according to VDI 2225 and the Cost-Utility-Analysis (CUA) (German:

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Nutzw-Product Development and PSS ertanalyse), originally by Zangemeister (1976). Reichle (2006) has also given a short account of this type of analysis, the structure chosen here is along the same lines.

Cost-Utility-Analysis was chosen, since it is the most complex of the evaluation methods generally used in engineering design. Very simple evaluation-lists are the basic form; they often offer no more than a yes/no/maybe for all of the possible entries. Lists with a weighted evaluation are already more complex, the next step being the evaluation according to VDI 2225. The most sophisticated method is the Cost-Utility-Analysis. The steps to follow are very similar for both methods (Pahl et al., 2007), with CUA reaching farther than the VDI-evaluation:

1. Isolation of objectives/evaluation criteria

2. Examination of the criteria and weighting of the criteria

3. Selection of applicable criteria for particular offering (not included in VDI 2225) 4. Assign values to criteria (VDI: 0-4, CUA: 0-10)

5. Calculate an aggregate value (VDI: Sum without weighting, CUA: weighted) 6. Compare offerings

7. Evaluate possible uncertainty (not included in VDI 2225) 8. Find weak points to improve selected offerings

Idea Screening and Evaluation in PSS design It is clear, that this is the field

this thesis is directly addressing, although, of course, only a very small portion of it is of particular interest in this case. “Evaluation and selection” is point 7 of the PSS-design method introduced by Sakao et al. (2009). It also includes data being fed back into idea creation, since evaluation may lead to a new view on the data present. As one part of this, Sakao and Lindahl (2012) have introduced a method to evaluate the consumer value of PSS components. This thesis is part of the efforts to provide a counterpart to this, focusing on the producer side of things. Some of the steps introduced below are naturally quite similar to the methods described by CUA and VDI 2225, while for the most part, the nature of PSS design compared to product-focused engineering design leads to different approaches and solutions. Cost-Utility Analysis remains, after many decades of use, a very powerful tool nonetheless. For the design of the components that make up a Product/Service System, it is one of the most productive tools for engineers. Since there are a number of commercial and open software programs aiding engi-neers in cost-utility analysis, including this into a comprehensive PSS-design tool does not seem necessary.

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3.3 Quality and implications on PSS-Design

3.3.1 Quality Function Deployment - Introduction

As said above, quality and the customer’s perception of it are critical elements of the design of any product. PSS as a new type of offering requires a slight change of perspective to accommodate all elements of products and services. Quality Function Deployment (QFD) as a means of translating customer requirements to product design parameters and Failure Mode and Effects Analysis as a failure-assessment tool have been applied to PSS in the past and should serve as a short introduction within this thesis.

Quality Function Deployment was originally introduced by Yoji Akao in 1966 (Akao, 2004). QFD “provides specific methods for ensuring quality throughout each stage of the product development process, starting with design: [...] [It] is a method for developing a design quality aimed at satisfying the consumer and then translating the consumers demands into design targets [...].” (Akao, 2004).

Quality Function Deployment is a set of techniques and methods that have evolved over almost half a century and produced tools that are crucial to modern day engineer-ing. With regard to brevity, only the three major steps of QFD as Akao (2004) defined them will be listed and described, disregarding particular tools and incarnations such as the House of Quality. A comprehensive introduction to QFD may be found in Akao (2004) and literature referenced therein.

Developing the Quality Plan and Quality Design This step involves the

gathering of information regarding consumer demands, market characteristics, compe-tition etc. Important quality elements to focus on must be isolated, quality assurance secured etc.

Detailed Design and Preproduction (Subsystem Deployment) This step

involves turning the product quality as identified above into quality characteristics that can be measured and quantified. Unit and component functions must be clarified and quality assurance items, function characteristics and safety characteristics need to be introduced and tolerances applied.

Process Deployment Process techniques to optimize process capability need to

be implemented and quality control (QC) processes must be planned and defined. Akao introduces QC process charts and includes subcontractors into the QC processes.

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3.3.2 Quality Function Deployment and Product Service

Sys-tems

In their current review of the state of the art in Product Service Systems Engineering, Cavalieri and Pezzotta (2012) attribute QFD to the following stages of PSS design:

• Requirements generation • Requirements identification • Requirements analysis

This correlates to Step 5 in the SPIPS-method as shown in figure 3.3.

Masui et al. (2003) have introduced a method for the application of QFD onto environmentally conscious design: QFDE (QFD for environment). The goal is to simultaneously focus on requirements of both customers and the environment in an integrated tool. This method states a number of parameters for designers to concentrate on in early stages of product design. This approach was extended in Sakao (2007a) through adding Life Cycle Assessment (LCA, ISO 14040, 2006) and TRIZ (Theory of inventive problem solving, see Altshuller and Altov, 1996) and is shown in figure 3.2 from that publication. TRIZ on its own and in combination with other methods has also been applied to PSS and has been the topic of extensive research. It is also discussed in Cavalieri and Pezzotta (2012) along with other methods that may be of interest if more information is desired.

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Product Development and PSS This procedure shown in figure 3.2 now has received ongoing development, being included in a service design method (Sakao, 2009) and now as a part of SPIPS as mentioned in Sakao and Lindahl (2012).

As said by Sakao (2007, 2009) and Cavalieri and Pezzotta (2012), QFD and alter-ations thereof is a well-suited method to “translate requirements from customers and the environment into design parameters.” (Sakao, 2007).

The method proposed within this thesis complements QFD within a larger set of methods. The focus on quality and its perception of the customer is crucial for the success of any offering and therefore also in the case of PSS. QFD sets the parameters for the components and offerings that will be evaluated in a later step of the SPIPS procedure as it is suggested in this thesis. It is conceivable that, after a PSS-type offer-ing has been formed, the design team returns to the QFD step to re-verify the accuracy with which parameters and requirements have been met. Producer and customer value and quality are mutually dependent and therefore an essential part of a PSS design method.

3.3.3 Failure Modes and Effects Analysis - Introduction

Failure Modes and Effects Analysis originates from procedures within the US Armed Forces Procurement with descriptions of procedures as early as 1949 (now-canceled procedure MIL-STD-1629, 1980). As stated by Pahl et al. (2007), FMEA is a means of systematically recording possible failures and an assessment of the associated risks. Performing this assessment before bringing a product to market can be essential in order to discover critical faults that place customers and subsequently also the company at risk.

Should a closer look into the field of FMEA be desired or necessary, the literature mentioned and further references in Pahl et al. (2007) are suggested for further reading. Generally according to Pahl et al. (2007), the following steps are followed:

1. Risk Analysis and consideration of parts/process steps with regard to • Potential failures

• Effects of these failures • Causes for failures

• Planned measures for failures avoidance • Planned measures for failures discovery 2. Risk Assessment:

• Assessment of likelihood of failure

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Product Development and PSS • Assessment of the likelihood of discovering the failure before delivery

3. Determination of the Risk-Priority-Number 4. Risk Minimization

FMEA may be applied to a number of processes and products, the most common types of FMEA are: Design-FMEA dealing with optimal fulfillment of customer re-quirements, and Process-FMEA ensuring proper production processing. Other, more detailed types are mentioned in literature, Service-FMEA being of particular interest in the context of this thesis.

3.3.4 Failure Modes and Effects Analysis and PSS

FMEA has received some interest in the service-engineering-world, although not as broad and exhaustive as QFD. Thomas et al. (2008) in their broad article on de-sign and development with respect to PSS mention FMEA as a means of analyzing the “present properties of the PSS”. Schneider et al. (2006), along with discussing the morphological box, QFD, Cost-Utility-Analysis and Service-Blueprinting, have also ex-amined the applicability of FMEA on Service Engineering. The authors explain FMEA and its application within the world of services and in conclusion find that FMEA is a “mathematical-deterministic method of engineering that holds a high potential in the world of services.” They further state that the “application of FMEA in the service-sector is virtually identical to that of physical goods [...]”. This statement is particularly helpful, since PSS is an integrated product. Concluding from this, one may say, that a Failure Modes and Effects Analysis may be performed on an integrated PSS offering without the split into physical- and service components. This further helps the process of integrating the development of products and services, blurring the divider between the two and moving closer to a fully integrated PSS development.

Cavalieri and Pezzotta (2012) also incorporate FMEA into their review. They make reference to Luczak et al. (2007), who utilize a Service-FMEA as a means of assessing “potential risks associated with [the] service delivery process.” This view is still rather focused on the separation of products and services and the individual assessment of possible failures while in operation. A more integrated approach to this topic seems worthwhile for further research.

Since FMEA is a mechanism that is applied very late in the development process on practically ready-for-market goods, the interconnections to the producer value assess-ment proposed here are scarce. There may possibly be feedback from early prototypes or predecessors fed back into the evaluation process. Nonetheless, FMEA can be a vital step of PSS development, especially if executed in an integrated manner.

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3.4 Life-Cycle Perspectives, PSS and Producer Value

3.4.1 Introduction

In this section, life-cycle perspectives in product design will be briefly introduced. Further will its relations to Product-Service Systems and PSS design be examined by discussing literature relating to the life-cycle perspectives of PSS. Lastly, the possible impact of life-cycle-related thoughts on the producer value assessment in PSS design will be discussed.

One of the most well-known tools in Life-Cycle engineering is Life-Cycle Assessment (LCA). For that reason, it is briefly introduced and defined in the following subchapter. LCA is outlined in ISO 14040:2006 pp.

3.4.2 Life-Cycle Assessment - An Introduction

Life-Cycle Assessment is one of the main approaches to measuring the environmental impact of an offering over its lifespan (“Cradle to Grave”). Since LCA is a very well-established method and is a method often used in relation to optimization of products with regard to the environment, it will be briefly introduced in this section, literature on service engineering and PSS relating to LCA will be presented and the relation to the producer value assessment discussed.

The Life-Cycle Assessment-method is utilized mostly by producers for the sake of optimizing their offerings and also to facilitate marketing efforts.

According to ISO 14040:2006, LCA is fit to assist in the following tasks:

• Identifying opportunities to improve the environmental performance of products at various points in their life cycle

• Informing decision-makers in industry, government or non-government organiza-tions

• The selection of relevant indicators of environmental performance, including mea-surement techniques

• Marketing

The definition of Life-Cycle Assessment in ISO 14040:2006 is: “[A] compilation and evaluation of the inputs, outputs and the potential environmental impacts of a product system throughout its life cycle.” Generally, the assessment is split into four sub-steps as listed in ISO 14040:2006:

1. The goal and scope definition phase 2. The inventory analysis phase

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Product Development and PSS 4. The interpretation phase

3.4.3 Life-Cycle Perspectives in PSS research

For obvious reasons, LCA is an integrate part of a number of environment-focused engineering research-activities. As mentioned above, the eco-design methodology pro-posed by Sakao (2007a) puts a large focus on Life Cycle Assessment, since it is seen as a main source for suggestions regarding the optimization of offerings with respect to environmental issues.

Komoto et al. (2005) have performed a life-cycle simulation on PSS. The focus here was, rather than on the environmental impact of the offering in question, on isolating the required conditions for a PSS to function to its full capabilities.

Lanza and Rühl have dealt with a major issue mentioned in chapter 2.5: Long term contracts and the associated uncertainties (see chapter 6). The particular focus was on the simulation of service costs throughout the lifetime of a production facility delivered and operated as a PSS. This is achieved through accruing deterministic and stochastic factors of facility operation and performing a Monte Carlo Simulation.

Aurich has published a number of papers on the relation of PSS and life-cycle perspectives. In Aurich et al. (2006), a design methodology for PSS with particular focus on the life-cycle perspective was introduced.

Sundin (2009) provided a summary of the state of the art in life-cycle perspectives on PSS. For that purpose, the life cycle was divided into the steps of manufacturing, usage, delivery, maintenance, recycling and remanufacturing. In conclusion, the author specifically stresses that providers should maintain a broad view of the entire life cycle to “avoid sub-optimizing any specific life-cycle phase”, which could put a strain on the other phases. An example of this could be streamlined manufacturing using adhesives instead of screws, which leads to adverse effects in recyclability. This would be a negative effect for the producer in case the ownership of the PSS still lies with him and he is therefore in charge of recycling.

3.4.4 Life-Cycle Perspectives in Producer Value Assessment

The review of literature linking life-cycle perspectives to PSS indicated that life-cycle-related considerations can provide great benefit to the environment, the user and the producer of a PSS. Especially the relation between better overall environmental perfor-mance and increased producer value becomes apparent: One major issue in this realm is marketing, as customers become increasingly focused and conscious of their eco-footprint. Additionally, improvements in recyclability, materials used or preparation for remanufacturing in the design stage can be addressed from a life-cycle perspec-tive and provide a direct increase in producer value through the decision to include a higher-scoring component.

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3.5 Producer Value evaluation and SPIPS

As said above, the SPIPS-method is a comprehensive method for Product/Service-System design. The most recent published version of this method can be seen in figure 3.3. Legend Step b) Satisfaction from the provider and competitors a) Importance of CV c) information for products/services i) information of costumer value 1. Qualitative analysis of customers d) Existing PSS in the/other sectors Input to Step Output from Step 2. Customer Segmentation ii) Customer Segments 3. Extracting Customer Value (CV) iii) CV per Segment 4. Importance/Satisfaction Analysis on CV iv) Promising areas in CV 5. Translation to design parameters v) Importance of PSS charact. 6. Idea Creation vi) potential PSS Components 7. Evaluation and Selection vii) feasible PSS offerings Producer Value evaluation

Figure 3.3: Steps of the SPIPS-method (modified from Sakao and Lindahl, 2012) The customer-focused PSS-evaluation method discussed in Sakao and Lindahl (2012) constitutes one part of step seven of this method. In order to provide a more complete view of the driving forces behind the selection of PSS components and the eventual decision to bring an offering to market, the method developed within this work will complement this part and serve as the second part of step seven of this design method-ology. Producer value is an often overlooked part of product and service design and this method aims to fill this void in the SPIPS PSS design methodology. A focus of future work may be the integration of both producer and consumer value methods to create a tool capable of optimizing PSS offerings for both viewpoints.

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Chapter 4 Traditional approaches to Producer

Value and the relation to PSS

4.1 Introduction

The goal of this chapter is to introduce and briefly discuss traditional approaches towards producer value and producer value improvement. Further, approaches to pro-ducer value assessment in literature regarding PSS will be reviewed. Value Engineering as a method has been used for more than half a century to increase producer value through alterations in the function/cost relation. This method will be discussed in depth as an example of a traditional approach towards the improvement of producer value.

4.2 Producer Value in Literature

While traditionally the approach towards the consumer value has been multidimen-sional, producer value is, if at all, assessed by just a single measure: Profit. This is summarized by Fukuda (2011), saying:

In the past, the producer developed products from their own perspective. Thus, value meant nothing other than profit to the producer [...].

Without pointing it out explicitly, methods such as cost-utility analysis (see chapter 3.2.4) address producer and customer value in parallel. Concurrent with what was said before, the side of the producer is mainly represented through optimizing the profit margin achieved through the sale of a good. Other possible non-monetary factors that might contribute to producer value are not discussed.

More recently, a diversified approach to value assessment on the provider side is notable. Schäppi et al. (2005) note a list of factors that contribute to producer value, leaving the realm of just profit alone. Still, the direction of the factors mentioned is clearly and one-sidedly leaning to direct monetization (time-to-market, cost, strategic

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Traditional approaches to Producer Value conformity, realization potential etc.). Herrmann (2009), assessing life cycle manage-ment, also refers to Schäppi et al. (2005) and the factors pointed out by them.

Beyond mentioning factors contributing to producer value, a procedure to explicitly assess it and determine components to optimize producer value is not present. As stated before, it is a natural part of the assessments performed in design engineering, but a more focused and explicit approach is required. This thesis attempts to fulfill this task with special focus on Product-Service Systems.

4.3 Value Engineering

4.3.1 Definition

Since it was first developed by Lawrence D. Miles of General Electric during the Sec-ond World War, Value Engineering (VE) has been one of the major tools in product development and cost optimization. Due to the shortage of materials during times of war, Miles and his colleagues were forced to focus on the function of products and components and on how to create a functional product at minimal cost. In his book “Techniques of Value Analysis and Engineering”, Miles (1972) defines value analysis and engineering as follows:

Value analysis [engineering] is a problem-solving system implemented by the use of a specific set of techniques, a body of knowledge and a group of learned skills. It is an organized creative approach that has for its purpose the efficient identification of unnecessary cost, i.e. cost that provides neither quality nor use nor life nor appearance nor customer features.

The means of cost reductions that Miles points out include the use of alternative materials, process chances, and specialized suppliers.

A more recent definition is given by Cooper and Slagmulder (1997):

It is a systematic, interdisciplinary examination of factors affecting the cost of a product so as to find means to fulfill the product’s specified purpose at the required standards of quality and reliability and at an acceptable cost. It accomplishes this objective by analyzing products to find ways to achieve their necessary functions and essential characteristics.

In order to provide clarification with respect to terminology, it is necessary to mention that Miles coined the term “Value Analysis”. The term “Value Engineering” is used by Miles synonymously to value analysis (compare Miles 1972, 1), while he mostly refers to value analysis. As Fang and Rogerson (1999) point out, Value Analysis/Engineering is originally a “re-engineering tool”.

Since this thesis is focused on the process of designing PSS, the term value

engineer-ing will be used to describe the implications of this method to the design of physical

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Traditional approaches to Producer Value

4.3.2 The focus-points of Value Engineering

Miles and thus most authors referring to his work emphasize the relation between value, function and cost when examining a product from the provider’s point of view. Miles’ (1972, p. 5) definition of value can be summarized using the following formula, as done by Kaufman (1997):

V alue = F unction

Cost

Hence, there are two scenarios in which the value increases in the provider’s per-spective:

1. Decrease of costs 2. Increase of function

The first point, ’Decrease of costs’, is easily explained: Cost-reductions are in almost any case achieved by leaving something out or exchanging it for something more af-fordable. That might be material, labor, a certain property etc. Cost is a factor that is the easiest to influence for the producer of the good.

On the contrary, the ’Increase of function’ is much harder to explain and also much harder to quantify. Usually, a customer expects a product to work in a certain way, or to possess certain properties: it serves its function. In order to illustrate this, an example from Miles (1972, 3) will be used and extended:

An appliance knob, like they used to be installed on radios or televisions, has the function of de- or increasing the volume, depending on the direction, in which it is turned. In Miles’ example, the knob has a red indicator showing the volume currently set. By leaving out the red indicator, the cost of producing the knob was reduced by 75%. There would have been a way of increasing the function of the knob at the same time: If the knob was used not only to increase the volume, but also to turn the device on and off when turned all the way counterclockwise, its function would have increased dramatically. Additional cost-saving opportunities would arise, as the on/off-switch could be omitted. Still, the manufacturer cannot be sure, whether he made a wise decision: Maybe people like it much better to have their device set to the same volume at all times without the need for re-adjustment after turning it on?

While cost-improvements are mostly easy to quantify, improvements in the per-ceived function of a product are not, as this factor is hard to quantify in general.

4.3.3 Value Engineering and Services

The fundamental questions of value engineering The following five questions

capture the main points of the value-engineering-process as laid out in Miles (1972), adapted from Kaufman (1990):

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Traditional approaches to Producer Value 1. What is it?

2. What does it do? 3. What does it cost?

4. What else will do the job? 5. What does that cost?

Value Engineering and Services Miles et al. and authors referring to him

(Kauf-man, Cooper etc.) have discussed at length the implications of value engineering on physical products. The focus of the discussion here is on how the five questions posed can be related to service engineering.

Question one is quite easy to answer with respect to physical products. Technical terminology provides a clear and one-to-one description of parts or components, and in the case of entirely new developments, a new name is assigned. Since service engineering as a discipline has risen only in recent years (Sakao and Shimomura, 2007), terminology and definition is much more difficult with services. One-word-terms describing all facets of a service are hardly found. A clear definition and mutual understanding can nevertheless be easily achieved, so that this step in the value engineering process can be applied to services without troubles.

To answer the question “What does it do?”, Miles proposes the paradigm of de-scribing all function with two words, one being a verb and one being a noun. This description must be as broad as possible in order not to exclude any side-function and thus value the product might have. A lighter may be described using the words “provide flame”, since the description “light cigarette” would exclude the lighting of candles, stoves, wood etc. When examined closely, though, even in this broad descrip-tion, not all function of a lighter is included. It may also serve as a bottle-opener, even though the engineer might not have intended this use. Since answering question two is already tough for physical components, it gets even tougher for services. Someone might argue, that virtually all services within a PSS may be correctly described with the term “ensure operativeness”, and this claim is hard to disprove. The approach of value engineering is insufficient with respect to service in this case.

Again, the cost of a physical product is easy to determine. With services, though, there is much more uncertainty involved. This makes pre-contract costing very difficult (Erkoyuncu, 2011). Cost-determination is a major focus of PSS development and evaluation; therefore it must be examined thoroughly.

In the world of physical products, there is almost always an alternative for the product currently used. In services, it requires much more work and research to isolate alternative solutions. The same is valid for costing alternatives: Without thorough examination and calculation, a meaningful solution is hard to achieve.

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Traditional approaches to Producer Value It is also important to shed light on the way the questions above are posed and how this way of examining a task applies to service engineering. All questions are “What”-questions. This seems appropriate for physical products, since their existence is dependent on neither time, nor location nor means of use. Services, though, must be addressed in a different manner. As said above, services are dependent on several additional factors: Time is very important. The questions that must be asked here may be:

1. When will the service be executed? 2. How often is servicing needed? 3. How many persons are needed? 4. Are special skills required?

5. Is there a chance rush-servicing is necessary?

Since these questions all have an impact on cost and producer value, they must, at least at the surface, be addressed by the evaluation-tool.

Conclusion The questions posed in the process of value engineering may be helpful

when trying to formulate and define the exact purpose of a service when its inclusion into a PSS is contemplated. Regardless, the depth of the method is insufficient with respect to the complex environment of services, especially when considering questions three, four and five. An engineer may have the principles of value engineering in mind when designing a PSS, but more sufficient and profound methods are needed, particularly with respect to cost.

4.3.4 Value Engineering and PSS evaluation

As explained in the previous section, evaluations based on the value engineering tech-nique are not sufficient for the assessment of product value. Products and services are increasingly offered in an integrated manner, rather providing functionality than mere ownership. It is clear, that the value and cost of such offerings must also be assessed in an integrated way. Furthermore, large companies of the manufacturing sector have high standards regarding documentation and traceability of decisions, so a computer-aided decision-making process can be of very high value through providing transparency. Still, it is important to ensure such tools do incorporate or leave room for decisions based on experience and skill of the engineer using it.

Value engineering, by setting its focus entirely on the ratio between function and cost, omits other factors that may lead to the depletion or creation of value. Addi-tionally, both factors are very hard to quantify in the field of service engineering. It is nevertheless vital to address cost and value in the decision-making process while

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Traditional approaches to Producer Value designing a PSS. The decision-maker must be aided in his elaboration of possibilities by a fact-based support. The tool proposed in this thesis is intended for that purpose. By no means are the tools of value engineering obsolete in the efforts to optimize the value of modern PSS-type offerings, although support for decision-makers is needed to assess the cost and value of service-offerings as part of a PSS. Additionally, the offering must be evaluated as a whole, since an optimization of a single part with a subjective improvement in value may lead to a decreased value when the entire offering is considered from a life-cycle-perspective; e.g. through reduced maintainability.

It is also important to note that value engineering, as Miles saw it, focuses very much on the smallest possible scale, in which changes lead to large scale-improvements due to the high quantities produced/bought, cp. Miles (1972; p. 33, 39). When discussing components of a PSS, these mostly consist of many parts themselves, which may be optimized using VE. When examining possible components of Product/Service-Systems, as illustrated in Figure 4.1, this approach is in most cases no longer feasible-hence a different method must be developed.

Figure 4.1: Value Engineering and PSS Evaluation

It must again be noted, that value analysis as intended by Miles is focused on re-engineering. This is especially true with services in mind. Once the process of quantifying a service has been completed in its entirety and there is data from a working PSS available to the supplier, it is much easier to identify weak links and opportunities for improvement. The tool proposed, through its ability to re-cycle through the process with changed figures, may help identify critical factors in advance and spare some “trial and error”, that value analysis generously accepts as part of the improvement process. The focus of the tool is nevertheless on the design stage of the product development process. As shown in Figure 4.1, rather than improvement and optimization, the focus

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Traditional approaches to Producer Value is on deciding what will be a part of the eventual offering, be it physical products or, even more so, services.

While value engineering has its place in development and improvement of compo-nents and products, a tool to help evaluate which services and physical compocompo-nents to include in order for the provider to optimize his cost and value is needed.

4.4 Existing Research in the PSS-Field

After a review of current literature, only Yoon et al. (2012) have investigated the issue of producer-value within the area of Product-Service Systems. When evaluating a PSS from the provider’s viewpoint, Yoon et al. focus on “finding the potential risk in the designed PSS model when it is applied in the market [...].” The focus of said paper is thus the evaluation of the entire PSS, compared to the investigation of all of its components, as proposed by this thesis. Further, Yoon et al. take a more qualitative approach to the evaluation of PSS with respect to producer value. The criteria used in the article are shown in Table 4.1.

Table 4.1: Evaluation criteria used by Yoon et al.

Criterion Evaluation

Macro effects Environment effect

Economic feasibility Service location, scale of investment, market size,_{market growth}

Technological

feasibility Field test

Political-legal

feasibility Trend survey of government regulation etc.

Relationship to current competitive

providers Simulation

Nevertheless, some of the evaluation-measures used may be helpful also on the component-level- in particular these related to economic feasibility (see Table 4.1).

In contrast to Yoon et al.’s approach, the methodology proposed here focuses on quantitative data supplied by the PSS-engineer directly rather than a measurement of the effects induced by the PSS once it is brought to market. The focus is to directly assess and measure the potential benefit for the provider through including a certain set of components in a PSS. In that sense, both approaches complement rather than substitute one another, since they are also applied in different phases within the design process.

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Chapter 5 Cost Calculation Parameters as part

of the Producer Value evaluation

5.1 Introduction

The input of provider cost for the components and services included into an offering is an important step within the process in the PSS-evaluation tool. Retrieving the costs is, at first sight, simple: For buying parts, just put in the cost of a single component and the number of components, for self-produced parts, just add labor- and material-related costs and multiply them by the number of components used. For services, the calculation is much harder, since many factors such as labor, education, transport, response time etc. must be addressed. Additionally, there are various uncertainties, concerning how often a service will be used, how high future costs will be, and if supplier costs might rise while the initial contract is still in place.

Even in the environment of reduced information, for which the evaluation tool is intended, some important effects of cost-calculation must be taken into account. Two ways of gathering and processing cost-related information will be discussed out in the following sections, whereas the exact implementation of these methods will be laid out in chapter 9.

It must again be stressed, that the factors discussed and examined here all serve as factors for the evaluation of components of PSS. Even just considering the factors mentioned within the process of design and development may unknowingly lead to an improved result without the assistance and the possible restrictions of an automated software or spreadsheet.

Evaluation and optimization of Product/Service Systems within the development process