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Integrated Product and Service Offerings Creates Logistical Challanges - The Problem and the Choice of Research Design

Svanberg, Jenny LU (2002) RIRL In [Host publication title missing]
Abstract
Yesterday’s sole hardware product is becoming more and more rare. Today, the

original products are increasingly surrounded by value adding services, software or

control systems, all bundled together to a “total offer”. Christopher (1998) states that

it is the totality of the offer which delivers customer value, and that adding value

through differentiation and/or service is a powerful means of achieving a defensible

advantage in the market. Norrmann & Ramírez (1994) takes this even further by

stating that it is no longer possible to draw a distinct border between products and

services, as all products includes services vital for their value. The ability to satisfy

... (More)
Yesterday’s sole hardware product is becoming more and more rare. Today, the

original products are increasingly surrounded by value adding services, software or

control systems, all bundled together to a “total offer”. Christopher (1998) states that

it is the totality of the offer which delivers customer value, and that adding value

through differentiation and/or service is a powerful means of achieving a defensible

advantage in the market. Norrmann & Ramírez (1994) takes this even further by

stating that it is no longer possible to draw a distinct border between products and

services, as all products includes services vital for their value. The ability to satisfy

the customer, especially in business-to- business relations, is much depending on

the ability to tailor-make a unique total offer that suites the particular customer. The

important differentiation will no longer be about the hardware, but rather through a

unique total offer including both tangible and intangible assets, such as knowledge,

financial offers, service deals, etc. (Nordström & Ridderstråle, 1999). This is further

supported by for instance Brännström et al (2001), who in a study on large Swedish

companies operating in business-to-business relations on an international basis,

found that the original product is becoming more the combination of different value

adding activities rather than a physical “thing”. The overall impression from the study

is that the companies, which ranged from large hardware manufacturers to

154

consultant companies, are all struggling to be unique in their traditional business by

bundling service and/or product components into offers that are unique.

The importance of logistics in the new market situation is indisputable. As the

complexity of the total offer; the integrated product and service offer, increases, the

demands on logistics management increases accordingly. Christopher (1998) argues

that behind every enduring example of differentiation through service excellence is

an example of a well thought through strategy for managing the logistics of service

delivery. Further, since the logistics become part of the total offer, it is given an even

more important role.

This marketing of total offers is sometimes described as selling functions, where the

focus is moved from the products and services to the actual function performed. This

is a different view on the “total offer”, that enables the customer to use the physical

products functionality without having to maintain, repair or, in its most extreme form,

even own it. Examples on this is the selling of solutions for materials handling

instead of trucks (BT Europe), selling of printouts instead of printers (Xerox), selling

of washing of clothes instead of washing machines (Electrolux). All the above

examples include a product (truck, printer, washing machine), and value adding

services (maintenance, updating, support etc), but the actual offer is a function

(printing, materials handling, washing). Another example is the selling of

maintenance of aircraft engines. Airline operators are today often paying a fixed

amount per engine flight hour for the maintenance, instead of paying for the

traditional “time and material”. Hence the function is thrust or an available engine on

the wing, the product is an aircraft engine and spare parts and the value adding

service is the maintenance, the scheduling of maintenance and the support etc. The

selling of this total offer to a fixed price as in this case, intensifies the importance of

logistics. The fixed price means that a large part of the business risk is transferred

from the customer to the seller, as the function (an available engine on the wing) is

guaranteed regardless the actual cost for the maintenance activities. The challenge

is thus to minimize and control the risks that causes the cost to exceed the income

generated by the fixed price. Hedberg at al. (2000) mentions the difficulties

associated with risk allocation in fixed price agreements and Norrman & Ramirez

(1995) argues that the redistribution of activities in business relations in order to add

value through for instance sharing or transferring of risks is increasing.

This reasoning, that the logistic complexity and the importance of logistics increases

with total offers, and that a great part of the business risk can be related to the

155

logistic operations, is the basis for this research project. The research is performed in

close connection with the Swedish aerospace company Volvo Aero, a situation that

allows deep insight into the company’s processes and business. (Less)
Please use this url to cite or link to this publication:
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subject
in
[Host publication title missing]
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conference name
RIRL
language
English
LU publication?
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id
9816b13a-9772-460a-92f9-ade531800af9 (old id 1149962)
date added to LUP
2008-05-27 14:47:16
date last changed
2016-04-16 07:32:26
@inproceedings{9816b13a-9772-460a-92f9-ade531800af9,
  abstract     = {Yesterday’s sole hardware product is becoming more and more rare. Today, the<br/><br>
original products are increasingly surrounded by value adding services, software or<br/><br>
control systems, all bundled together to a “total offer”. Christopher (1998) states that<br/><br>
it is the totality of the offer which delivers customer value, and that adding value<br/><br>
through differentiation and/or service is a powerful means of achieving a defensible<br/><br>
advantage in the market. Norrmann &amp; Ramírez (1994) takes this even further by<br/><br>
stating that it is no longer possible to draw a distinct border between products and<br/><br>
services, as all products includes services vital for their value. The ability to satisfy<br/><br>
the customer, especially in business-to- business relations, is much depending on<br/><br>
the ability to tailor-make a unique total offer that suites the particular customer. The<br/><br>
important differentiation will no longer be about the hardware, but rather through a<br/><br>
unique total offer including both tangible and intangible assets, such as knowledge,<br/><br>
financial offers, service deals, etc. (Nordström &amp; Ridderstråle, 1999). This is further<br/><br>
supported by for instance Brännström et al (2001), who in a study on large Swedish<br/><br>
companies operating in business-to-business relations on an international basis,<br/><br>
found that the original product is becoming more the combination of different value<br/><br>
adding activities rather than a physical “thing”. The overall impression from the study<br/><br>
is that the companies, which ranged from large hardware manufacturers to<br/><br>
154<br/><br>
consultant companies, are all struggling to be unique in their traditional business by<br/><br>
bundling service and/or product components into offers that are unique.<br/><br>
The importance of logistics in the new market situation is indisputable. As the<br/><br>
complexity of the total offer; the integrated product and service offer, increases, the<br/><br>
demands on logistics management increases accordingly. Christopher (1998) argues<br/><br>
that behind every enduring example of differentiation through service excellence is<br/><br>
an example of a well thought through strategy for managing the logistics of service<br/><br>
delivery. Further, since the logistics become part of the total offer, it is given an even<br/><br>
more important role.<br/><br>
This marketing of total offers is sometimes described as selling functions, where the<br/><br>
focus is moved from the products and services to the actual function performed. This<br/><br>
is a different view on the “total offer”, that enables the customer to use the physical<br/><br>
products functionality without having to maintain, repair or, in its most extreme form,<br/><br>
even own it. Examples on this is the selling of solutions for materials handling<br/><br>
instead of trucks (BT Europe), selling of printouts instead of printers (Xerox), selling<br/><br>
of washing of clothes instead of washing machines (Electrolux). All the above<br/><br>
examples include a product (truck, printer, washing machine), and value adding<br/><br>
services (maintenance, updating, support etc), but the actual offer is a function<br/><br>
(printing, materials handling, washing). Another example is the selling of<br/><br>
maintenance of aircraft engines. Airline operators are today often paying a fixed<br/><br>
amount per engine flight hour for the maintenance, instead of paying for the<br/><br>
traditional “time and material”. Hence the function is thrust or an available engine on<br/><br>
the wing, the product is an aircraft engine and spare parts and the value adding<br/><br>
service is the maintenance, the scheduling of maintenance and the support etc. The<br/><br>
selling of this total offer to a fixed price as in this case, intensifies the importance of<br/><br>
logistics. The fixed price means that a large part of the business risk is transferred<br/><br>
from the customer to the seller, as the function (an available engine on the wing) is<br/><br>
guaranteed regardless the actual cost for the maintenance activities. The challenge<br/><br>
is thus to minimize and control the risks that causes the cost to exceed the income<br/><br>
generated by the fixed price. Hedberg at al. (2000) mentions the difficulties<br/><br>
associated with risk allocation in fixed price agreements and Norrman &amp; Ramirez<br/><br>
(1995) argues that the redistribution of activities in business relations in order to add<br/><br>
value through for instance sharing or transferring of risks is increasing.<br/><br>
This reasoning, that the logistic complexity and the importance of logistics increases<br/><br>
with total offers, and that a great part of the business risk can be related to the<br/><br>
155<br/><br>
logistic operations, is the basis for this research project. The research is performed in<br/><br>
close connection with the Swedish aerospace company Volvo Aero, a situation that<br/><br>
allows deep insight into the company’s processes and business.},
  author       = {Svanberg, Jenny},
  booktitle    = {[Host publication title missing]},
  language     = {eng},
  publisher    = {RIRL},
  title        = {Integrated Product and Service Offerings Creates Logistical Challanges - The Problem and the Choice of Research Design},
  year         = {2002},
}