Clarifying the concept of performance‐based contracting in manufacturing industries

Abstract

Purpose -Although performance-based contracting (PBC) is gaining importance in manufacturing industries, corresponding research is still in its infancy. In order to provide a basis for future research on this emerging topic, thus paper aims to propose a specific conceptual model. Design/methodology/approach -Conducting a comprehensive literature review, 39 academic publications dealing with this topic in-depth were analyzed. To structure the various approaches of PBC in manufacturing industries, existing preliminary conceptual models in the form of morphological boxes were built upon and developed further. Findings -Focusing on manufacturing industries, the review reveals a comprehensive view on PBC, with three topics that are important to PBC but have been largely neglected in research: even though research considers PBC foremost regarding manufacturers, independent service providers can also offer PBC; closely related to ownership, financing constitutes an essential issue in PBC; and PBC may include maintenance as well as operation. Originality/value -First, the paper systematizes existing literature and clarifies the concept of PBC in manufacturing industries. Second, it presents a specific conceptual model for analyzing this topic in more depth. Third, it reveals promising avenues for future research.

Exploring the Role of Servitization to Overcome Barriers for Innovative Energy Efficiency Technologies The Case of Public LED Street Lighting in German Municipalities

“…We also confirm the view of previous studies (Hypko et al, 2010a(Hypko et al, , 2010b) that performancebased contracts lead to lower costs in the provision of energy services, although customers demand high flexibility during the contract duration as they fear a lock-in into unknown new technologies. In that case, scholars suggest an emphasis on the establishment of trusting relationships, particularly during the set-up of the contract (Backlund and Eidenskog, 2013;, which may again benefit a MUCo solution.…”

Explaining the effectiveness of performance‐based logistics: a quantitative examination

“…Within a traditional post-production logistics and support system, the operators (e.g. the airline or the rail company) manage a network of warehouses, inventory, equipment, and people that keep the system in service or return the system to service when it breaks (Hypko et al, 2010;Kim et al, 2010). Considering the complexity of determining routes and price, it can be argued that running, maintaining, and integrating the post-production logistics and support infrastructure is a secondary competency of the rail and airline operator.…”

“…Commonly called performance-based logistics (PBL), the objective of these strategies is to provide a contractual structure that encourages investments that controls cost, maintains profit margins, and decreases end-customer price . For the OEMs and their partners, the goal is to meet customer requirements in a cost effective, yet profitable manner, while also opening up new markets (Hypko et al, 2010).…”

“…Commonly called performance-based logistics (PBL), the objective of these strategies is to provide a contractual structure that encourages investments that controls cost, maintains profit margins, and decreases end-customer price . For the OEMs and their partners, the goal is to meet customer requirements in a cost effective, yet profitable manner, while also opening up new markets (Hypko et al, 2010).PBL offers a means to achieve these critical outcomes. It does so by laying out a multi-year contractual framework, typically a firm-fixed price (FFP) contract, that rewards suppliers when they make smart investments in material, technology, and logistics processes which drive down life cycle cost (Kim et al, 2010;Sols et al, 2007).…”

A through-life costing methodology for use in product–service-systems

“…'s move from selling aircraft engines to selling the availability of its engines has been has been acknowledged as a success story that "…could offer lessons for Britain's other industries" (The Economist, 2011). Similar agreements are also re-shaping the approach to procuring industrial machinery (Hypko et al, 2010), and the development of infrastructure projects through 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Page 2 An advanced service sustains the customers' core business processes and the service delivery system enabling the customer to attain specific beneficial outcomes becomes just as important as the offering itself Baines and Lightfoot, 2013). This construct is a knowledgeintensive socio-technical system referred to as Product-Service-System -PSS (Meier et al, 2010).…”