Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

1.1.4 The Industrial Product-Service System IPSS (or IPS2)

Intended learning outcomes: Present the industrial product-service system. Explain product-oriented, use-oriented, and result-oriented services as well as their degree of intangibility.

According to [MeRo10], an industrial product-service system IPSS (or IPS2) is characteri­zed by the integrated and mutually determined planning, development, provision and use of product and service shares including its immanent software components in Business-to-Business applications and represents a knowledge-intensive socio-technical system.

An IPSS is thus focused on capital goods such as machinery and equipment which are produced and sold by classical industry, and which are used over a long time period. In that model, customers are businesses, rather than individuals. In addition, although the service recipient is a tangible (core or primary) product, this definition shows that in an IPSS there are no “add-on” services to this product. To create value for the customer and to sell well, the original equipment manufacturer (OEM) network and their suppliers must design the services with the customer (beneficiary) right from the start, as shown in Figure That is the thinking behind the term value co-creation (see also [KaNi18]).

Fig.         Industrial product-service system stakeholders (copied from [MeRo10])

Industrial product-service systems have become more important particularly in classical industries, since quality and costs of the core product from many OEM have become almost indistinguishable from the customer's perspective. Offering something different in terms of additional services can be the distinguishing feature that makes what a company is offering stand out, especially in competitive markets.

Product-service systems can be categorized into product-oriented, use-oriented, and result-oriented product-service systems. Across these three categories, the degree of integration in the customer’s process is increasing. Figure assigns possible services in an industrial product-service system for packaging machines to these categories.

Fig.         Categories of possible industrial services (cf. [Lang09])

Some product-oriented services are of a material nature. As an example, there is no real distinction between the simply supply of spare parts without any additional services and supplying and charging for some form of material goods. Other product-oriented services tend to be of an intangible nature and are usually charged for in time units, whereby (material) consumable materials or components can also be charged for. Examples of this would include commissioning the machine, maintenance and repair, retrofit, or upgrading.

Use-oriented services are generally intangible. Examples include process consulting, train­ing, audits, monitoring, and usability of the machine. Such processes are normally charged for in time units or on the basis of a performance indicator that is measured as a percentage.

The degree of intangibility for result-oriented services can be high or low, depending on the agreed result. As an example, for cleaning services, the result could be an agreed upon level of cleanliness, which is an intangible result. Photocopier manufacturers supply the machine, paper and consumables. As a result, they can determine the number of copies produced. Whether the result counts as a tangible or intangible will depend on whether attention is focused on the photocopy that is produced, or whether the significant fact is simply that a copy has been taken. For industrial services, the focus for contract work (an external manufacturer executes just one or more operations for making a product) or the operator model (the manufacturer not only supplies but also operates the machine under contract to the customer) is on the items that are produced, which the customer assesses the quality of and pays for accordingly. Those are tangibles. In the case of the packing machines, the manufacturer of the packing machines as well produces packaging.

Conclusion: The oft-formulated distinction between “product = tangible” and “service = intangible” is becoming ever more blurred. What the customer actually perceives as value-added depends on a number of tangible and intangible elements that work together as a system and offer the customer the desired benefits. The elements and the system as a whole may be perceived to be a product or a service, depending on the customer's focus (cf. [Schö19]).

Course section 1.1: Subsections and their intended learning outcomes