An analysis of industrial practice for estimating the in-service costs of a product service system

An extensive range of companies have moved from providing a tangible product to offering long-term integrated product service solutions. The revenue from such offerings, in particular at the in-service stage of a product service system, has become a key area for profit generation within some companies. However, estimating the cost of providing such a service is one of the major challenges that companies encounter. The research in this paper presents a new framework for estimating the cost of in-service provision for a product service system. Within this framework the service cost factors are identified through a review of the literature and an analysis of industrial practice. Analysing seven years data of the service demanded by customers for a Chinese machine manufacturer and service provider, the key relationships are identified and described. The service provider in this study offers repair and maintenance services to ensure the machines are available for use at the customer's sites. The results from the study found that there is not a strong correlation between the distance from the service provider to customer companies and the number of call outs for after-sales service. It was also found that there was no strong evidence to show that when there is convenient and economical transportation links between the service provider and the customer, the demand for after-sales service increases. However, there was a strong correlation between machine failure rate and the number of years in service. It was also found that preventative maintenance, which occurred after the second year of machine service, did not improve the reliability of the machine during the in-service phase. Based on the initial findings and outcomes of the study the next stage of the research is then discussed, describing how the framework will be used to estimate the cost of the in-service provision for a product service system. Copyright © 2011 by ASME.