Integrated Product and Service Offerings Creates Logistical Challanges - The Problem and the Choice of Research Design
(2002) RIRL- 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:
https://lup.lub.lu.se/record/1149962
- author
- Svanberg, Jenny LU
- organization
- publishing date
- 2002
- type
- Chapter in Book/Report/Conference proceeding
- publication status
- published
- subject
- host publication
- [Host publication title missing]
- publisher
- RIRL
- conference name
- RIRL
- conference location
- Lisbon, Portugal
- conference dates
- 0001-01-02
- language
- English
- LU publication?
- yes
- id
- 9816b13a-9772-460a-92f9-ade531800af9 (old id 1149962)
- date added to LUP
- 2016-04-04 10:09:31
- date last changed
- 2018-11-21 20:57:07
@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 & 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 & 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 & 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}}, }