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Through-life Management: The Provision of Integrated Customer Solutions
By Aerospace Manufacturers
Yvonne Ward and Professor Andrew Graves University of Bath
School of Management Working Paper Series
2005.14 This working paper is produced for discussion purposes only. The papers are expected to be published in due course, in revised form and should not be quoted without the author’s permission.
University of Bath School of Management Working Paper Series
School of Management
Claverton Down Bath
BA2 7AY United Kingdom
Tel: +44 1225 826742 Fax: +44 1225 826473
http://www.bath.ac.uk/management/research/papers.htm
2005
2005.01 Bruce A. Rayton Specific Human Capital as an Additional Reason for Profit Sharing
2005.02
Catherine Pardo, Stephan C. Henneberg, Stefanos
Mouzas and Peter Naudè
Unpicking the Meaning of Value in Key Account Management
2005.03 Andrew Pettigrew and Stephan C. Henneberg
(Editors)
Funding Gap or Leadership Gap – A Panel Discussion on Entrepreneurship and Innovation
2005.04 Robert Heath & Agnes Nairn
Measuring Affective Advertising: Implications of Low Attention Processing on Recall
2005.05 Juani Swart Identifying the sub-components of intellectual capital: a literature review and development of measures
2005.06 Juani Swart, John Purcell and Nick Kinnie
Knowledge work and new organisational forms: the HRM challenge
2005.07 Niki Panteli, Ioanna Tsiourva and Soy Modelly
Intra-organizational Connectivity and Interactivity with Intranets: The case of a Pharmaceutical Company
2005.08 Stefanos Mouzas, Stephan Henneberg and Peter Naudé
Amalgamating strategic possibilities
2005.09 Abed Al-Nasser Abdallah Cross-Listing, Investor Protection, and Disclosure: Does It Make a Difference: The Case of Cross-Listed Versus Non-
Cross-Listed firms
2005.10 Richard Fairchild and Sasanee Lovisuth
Strategic Financing Decisions in a Spatial Model of Product Market Competition.
2005.11 Richard Fairchild Persuasive advertising and welfare in a Hotelling market.
2005.12 Stephan C. Henneberg, Catherine Pardo, Stefanos Mouzas and Peter Naudé
Dyadic ‘Key Relationship Programmes’: Value dimensions and strategies.
2005.13 Felicia Fai and Jing-Lin Duanmu
Knowledge transfers, organizational governance and knowledge utilization: the case of electrical supplier firms in
Wuxi, PRC
2005.14 Yvonne Ward and Professor Andrew Graves
Through-life Management: The Provision of Integrated Customer Solutions By Aerospace Manufacturers
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THROUGH-LIFE MANAGEMENT: THE PROVISION OF INTEGRATED CUSTOMER SOLUTIONS BY AEROSPACE
MANUFACTURERS
Yvonne Ward1 and Andrew Graves
ABSTRACT
The demarcation between manufacturing and services, particularly in the business-to-
business environment, is believed to be growing increasingly blurred. This is particularly true
for the aerospace industry, where the concept of through-life management, a complex
combination of manufacturing and service operations, is being widely promoted. Although
certain sectors of the industry - the aero-engine sector for example - are quite advanced with
regard to the implementation of through-life management, there is no clear understanding of
how this approach is being implemented across the whole of the aerospace industry. This
paper presents the findings of an exploratory study undertaken as part of the UK Lean
Aerospace Initiative (UK LAI) which investigates the drivers for through-life management in
the aerospace sector, the development of strategies and services to support through-life
management and the transition of aerospace companies to through-life total service providers.
The paper highlights the significance of the findings of this study for the Irish aerospace
sector where many companies are engaged in support and aftermarket activities. The paper
concludes by highlighting the theoretical and practical implications of this research.
1 Tel: +44-1225-384001, Fax: +44-1225-386135, E-mail: [email protected]
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INTRODUCTION
It has been acknowledged that the demarcation between manufacturing and services,
particularly in the business-to-business environment, is becoming increasingly blurred
(Bowen and Youngdahl, 1998; Grove et al, 2003). However, a large body of literature
reinforces the distinction between manufacturing and support activities by differentiating
products and services and creating rigid divisions between manufacturing and service
operations. Consequently, there has been a call for additional research focusing on the
relationship between services and manufacturing, particularly with respect to the offerings
provided by organisations that would have traditionally been seen as manufacturing firms
(Grove et al, 2003). It is further recognised that research is required to assess the experience
and challenges facing companies that are already some way through the transition process
from product manufacturer to service provider (Oliva and Kallenberg, 2003).
The UK Lean Aerospace Initiative (UK LAI)2 is a national research programme aimed at
improving the competitiveness of the UK aerospace industry in the global market. Continued
cost reduction pressures and increased levels of competition in the industry have triggered a
fundamental shift in the operations strategies employed by aerospace manufacturers. The
concept of through-life management, involving the provision of a complex combination of
products and services over extremely long life-cycles, is being widely advocated throughout
the industry. The aero-engine sector is viewed as being highly advanced with regard to the
implementation of service offerings (Kerr and Ivey, 2001; Oliva and Kallenberg, 2003).
However, there is no clear understanding of how through-life management is being
2 The UK Lean Aerospace Initiative, established in 1998, is a research consortium comprising University of Bath, Cranfield University, University of Nottingham and University of Warwick. Programme management is provided by the Society of British Aerospace Companies (SBAC) and a wide range of aerospace companies are directly involved in research activity. The UK Lean Aerospace Initiative also formally collaborates with the US Lean Aerospace Initiative based at Massachusetts Institute of Technology (MIT).
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implemented across the whole of the aerospace industry and what stage of transition has been
reached by different companies within the industry.
This paper presents the findings of an exploratory study undertaken as part of the UK Lean
Aerospace Initiative (UK LAI) which investigates the drivers for through-life management in
the aerospace sector, the development of strategies and services to support through-life
management and the transition of aerospace companies to through-life total service providers.
The paper highlights the significance of the findings of this study for the Irish aerospace
sector where many companies are engaged in support and aftermarket activities. The paper
concludes by highlighting the theoretical and practical implications of this research.
RESEARCH DESIGN AND METHODOLOGY
An exploratory study has been undertaken as part of the UK Lean Aerospace Initiative (UK
LAI) to understand the drivers of through-life management in the aerospace industry, to
identify the associated strategy and service developments and to determine the stage of
transition of aerospace companies to through-life service providers.
This study comprised two distinct research phases. Initially, an extensive literature review
was conducted. The two categories of literature most relevant to through-life management are
(1) Customer support, aftermarket services and the service strategies of manufacturers, and
(2) Services marketing, operations and management.
This was followed by fieldwork in the aerospace industry. To date, 11 aerospace companies
have participated in this study over a six month period from October 2004 to March 2005.
Participating companies include both Original Equipment Manufacturers (OEMs) that are
4
increasingly providing through-life services, OEM-owned service providers and independent
support providers. Six of the companies predominantly serve the military market, two
companies carry out primarily civil work while the remaining three companies conduct a
mixture of civil and military work.
Semi-structured interviews were held on-site at each of the companies involved. Interviews
of this nature are believed to be valuable for exploratory studies as they provide rich data,
contribute to the understanding of contextual and situational factors, and enable the
exploration and clarification of complex issues (Saunders et al, 1997). Eighteen interviewees
have contributed to the study, their roles including Managing Director, Head of Integrated
Logistics Support, Business Improvement Director, Strategic Development Executive and
Service Centre Manager, among others.
THROUGH-LIFE MANAGEMENT
In order to investigate through-life management and its implications for customer support and
MRO, it is essential to understand how aerospace companies interpret the through-life
management concept and what they are trying to achieve by adopting this approach. Despite
the fact that the concept of through-life management is currently widely used throughout the
aerospace industry, there is no commonly accepted definition either in the literature or in
practice. The UK Ministry of Defence’s SMART Acquisition documentation provides
valuable guidance, proposing that through-life management includes:
• “deliver[ing] a fully integrated…..capability”,
• “manag[ing] the project throughout the life-cycle”,
• “managing the Cost of Ownership”, and
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• “tak[ing] full account of all the longer term implications of acquisition” (UK MoD,
2004, pp4-5).
This is reinforced by promotional material from Rolls-Royce plc which states,
“By harmonising our products and services we are stepping towards total service solutions,
ranging from traditional support such as spare parts supply to engine leasing and state of the
art predictive maintenance services, including real time engine health monitoring. These
services offer our customers the most economical and reliable way to acquire, manage and
maximise the value of their engine assets throughout the life cycle” (Flight International,
2004, pp146-147).
Recent developments in the lean literature propose the concept of “lean consumption” which
focuses on the whole cycle of buying and using a product, including “researching, obtaining,
integrating, maintaining, upgrading, and, finally, disposing of this purchase” (Womack and
Jones, 2005, p2). Through-life management is essentially the same concept but applied to an
industrial or business-to-business setting rather than to consumer goods. Given the absence of
a commonly accepted definition, through-life management is defined as follows for the
purposes of this paper:
“Through-life Management involves the life-cycle management of the products, services and
activities required to deliver a fully integrated capability to the customer, while reducing the
cost of ownership for the customer”. Figure 1 illustrates, in a simplified way, the scope of
through-life management.
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Figure 1: The Scope of Through-life Management
Through-life management aims to provide value to the customer over all stages of the product
life-cycle in a more integrated and holistic manner than in the past.
Customer Support, Aftermarket Services and the Service Strategies of Manufacturers
There is a wide range of literature relating to the integration by manufacturers of services into
their core product offerings (Quinn et al, 1990; Mathe and Shapiro, 1993; Anderson and
Narus, 1995; Wise and Baumgartner, 1999; Mathieu, 2001a,b). The term “servicization”
(Johnston, 1994) and “servitisation” (Lewis et al, 2004) have been used to describe the
increasing range of services offered by manufacturers. Research has also been undertaken to
classify these types of services (Mathieu, 2001). Distinct elements of through-life
management have also been examined, including customer support (Loomba, 1996, 1998;
Goffin, 1999), aftermarket support (Potts, 1988; Armistead and Clark, 1991) and design for
supportability (Goffin and New, 2001).
Design &Engineering Manufacturing In-Service
Operations
CustomerSupport
Post-design Services
Aftermarket Services
Through-life Management
DisposalDesign &Engineering Manufacturing In-Service
Operations
CustomerSupport
Post-design Services
Aftermarket Services
Through-life Management
Disposal
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The literature, however, appears to be fragmented due to the lack of consensus regarding the
definitions and terminology used. It is argued here, however, that this merely reflects the
complexities and inconsistencies in the use of terms such as product support, customer
support, aftermarket services etc. in practice. In addition, it can be quite difficult for
manufacturers to separate products from services due to the high levels of integration
between the two in many cases.
Services Marketing, Operations and Management
The literature with respect to service marketing, service operations and service management
has developed in response to the need for frameworks and models that were directly
applicable to service industries (Johnston, 1999; Brown et al, 1994). The proliferation of
research in this area was underpinned by one key premise – that services were fundamentally
different from products (Shostack, 1977; Zeithaml et al, 1985; Gronroos, 1990; Gummesson,
1991).
This reinforcement of the distinction between products and services and the subsequent
development of frameworks, tools and techniques applicable to service industries is not
particularly helpful when considering the concept of through-life management. Through-life
management requires the alignment of production and service operations to provide an
integrated solution to the customer and, therefore, a strategic approach that is applicable to
both manufacturing and services is the ideal.
Despite these theoretical limitations, many of the developments in services marketing,
operations and management have the potential to be very useful for manufacturing companies
in practice. Service quality, one of the key contributions of research in services management
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(Parasuraman et al, 1985; Gronroos, 1984), promises to be a valuable tool as it could be a
natural extension of product quality initiatives. In addition, services thinking is certainly
appropriate for the development of the service orientation, skills, capabilities and culture that
will be required right across organisations to support through-life management and associated
service enhancements.
DRIVERS FOR THROUGH-LIFE MANAGEMENT IN AEROSPACE
Through-life management is currently causing a fundamental shift in the strategies and
business models of aerospace companies. It is important to understand what is driving the
adoption of through-life management in the aerospace industry before analysing how
individual companies are implementing through-life management in practice.
Through-life management requires providing customers with a total solution, comprising a
mix of products and services. It is suggested by the literature that there are three primary
reasons for integrating services into core product offerings – (1) customer demand (2)
increased revenues, and (3) increased competitiveness (Mathe and Shapiro, 1993; Mathieu,
2001b; Oliva and Kallenberg, 2003). This study has revealed these to be the exact drivers for
the adoption of through-life management in the aerospace industry.
Customer Demand
The respondents reveal that there is significant customer pressure for manufacturers to
provide products and services in a different way than would have been the case in the past.
The customer’s focus has shifted away from the acquisition of products to the acquisition of
through-life capability. This is dramatically changing the way aerospace companies are
providing customer value. In contrast to the manufacturer selling a product and,
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subsequently, providing support, maintenance and repair services, through-life management
aims to satisfy all of these requirements in an integrated offering to the customer. On the
military side, support contracts are increasingly being linked to equipment availability targets
in a drive to transfer risk to the manufacturer or support provider and reduce total costs of
ownership. Similarly, airline customers are demanding cost and reliability guarantees. As a
result, customer requirements are driving improvements in equipment reliability and,
therefore, reducing the number of spares and the amount of maintenance, repair and overhaul
(MRO) required over the product life-cycle. However, this shift in customer requirements
opens up significant opportunities for manufacturers to develop new value-added services
(this will be further discussed in “The Service Revolution in Aerospace” below).
Paradoxically, although there is a drive from customers, both civil and military, to progress
towards through-life solutions, concerns have also been raised about moving in this direction.
Respondents reveal that there are customer concerns with regard to the transparency of
through-life costs or cost of ownership. In addition, respondents believe that customers fear
that they may lose capability if aerospace manufacturers or prime contractors take control of
tasks which the customer would previously have carried out themselves. Another key concern
relates to risk. Through-life contracts should transfer risk from the customer to the
manufacturer or contractor. However, respondents suggest that customers are concerned that
the ultimate operating risk still remains with them.
Many of these concerns are deemed to have stemmed from past relationships of distrust
between aerospace companies and their customers. However, the strong drivers for aerospace
manufacturers to pursue through-life management themselves – to protect revenues and
competitiveness – means that manufacturers are keen to address these challenges.
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Increased Revenues
In addition to customer pressure to move towards through-life management, aerospace
manufacturers themselves are keen to develop models for through-life operations.
Traditionally, aerospace manufacturers concentrated heavily on the design and manufacture
of aerospace equipment, with aftermarket activities being viewed as the “necessary evil”
suggested by Lele (1997). Over the past ten to fifteen years, however, aerospace
manufacturers began to recognise the financial opportunities provided by support and
aftermarket activities. The long aftermarket life-cycle phase, relative to that of design and
manufacture, provides significant revenue and profit opportunities with respect to in-service
support and maintenance, especially with regard to the provision of spare parts. Despite this
increased attention by aerospace manufacturers on aftermarket activities and services,
manufacturing and in-service support were effectively considered separate businesses, with
no real integration between the two. This resulted in a win/lose scenario, according to one
respondent, with the manufacturer gaining significantly, particularly with respect to spares
business, but the customer not receiving a comprehensive service over the life of the
equipment. Through-life management attempts to provide integrated customer solutions, thus
promoting a win/ win situation for both customers and manufacturers over the life of the
equipment. Respondents recognise that the shift to a through-life management approach has
the potential to threaten long-term revenues as a result of increased equipment reliability and
the subsequent reduction in demand for spares and repairs. However, manufacturers expect to
protect their revenue streams by capturing through-life business at the point where they sell
the equipment, thereby increasing market share and avoiding direct competition with
independent MRO and support providers to a large extent at a later stage of the life-cycle.
Additionally, they intend to generate increased revenues from associated value-added service
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developments. In parallel, aerospace manufacturers are continuing to engage in significant
cost reduction activities. The other factor to consider is that not all customers will choose to
participate in through-life contracts and, in the case of mature or legacy equipment, this type
of agreement is not deemed to be appropriate. Therefore, manufacturers still have scope to
generate revenues and profits on spares and repairs business in the traditional way for some
customers and/ or equipment.
Increased Competitiveness
In addition to protecting future revenue streams, aerospace manufacturers have expressed a
desire to maintain competitive advantage by protecting their intellectual property rights, their
product integrity and their reputation in the marketplace. Historically, the concentration of
aerospace manufacturers on design and manufacture resulted in the evolution of a strong
independent MRO sector. Although independent MROs are still heavily dependent on OEMs
for spare parts, there is an increased usage of PMA (Parts Manufacturer Approved; in other
words, non-OEM) parts which aerospace OEMs believe compromises product integrity.
Aerospace manufacturers are confident that they are best positioned to provide a
comprehensive through-life service due to high levels of investment in technological
development and an in-depth knowledge of their products. However, the large independent
MROs have already begun to counterattack with the introduction of total support solutions,
including maintenance planning and engineering (Pilling, 2005; O&M, 2005). While some
respondents believe that independent MRO and support providers will be squeezed out of the
market, the majority of respondents envisage a role for all. Aerospace manufacturers intend
to compete on the basis of technical knowledge and expertise. In many cases, it is expected
that collaborative business models, where independent MRO and support providers partner
12
with OEMs to provide a comprehensive through-life solution, will become more widespread.
However, this will only be done where the independent provider adds value to the OEM
offering. Respondents also believe that independent MROs will increasingly specialise in
niche markets, particularly with respect to legacy equipment. One respondent from an OEM-
owned MRO company argues that while their company may not be able to match OEMs with
respect to price, it will be capable of competing on turnaround time, for which many
customers are willing to pay a premium.
THE SERVICE REVOLUTION IN AEROSPACE
All of the drivers for through-life management are changing the environment within which
aerospace companies must operate and compete. The emphasis on the provision of total
customer solutions means that aerospace companies now view the manufactured product as
“incidental” and are attaching significant importance to the service and support activities
associated with their products. Although high quality, reliable products are still essential to
the overall offering, there is a need to seamlessly integrate products and services in order to
provide through-life total solutions. Consequently, aerospace businesses are adopting
strategies that emphasise service, re-organising processes to deliver the required levels of
service and introducing business models and contracting arrangements to reflect these
strategies and processes.
Service Visions and Ambitions
This study reveals that through-life management is the catalyst for the development of
advanced services, the adoption of service strategies and the promotion of a service culture in
the aerospace industry. It is clear that all of the companies involved in the study are actively
seeking to articulate their service visions, whether serving military or civil markets. Table 1
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illustrates the stated ambitions of aerospace companies with regard to service orientation and
vision.
Table 1 – Service Visions
Company Vision AviCo “Global Service Provider” MilSupp “Government Technical Support Solutions” EntCo “Total Service Solutions” ServCo “Customer Services and Support” MaintCo “Pro-active and Innovative Service to Customers” EngCo “Excellence in Customised Service” TransCo “Service-oriented Business” FlyCo “Total Capability Provider” ActCo “Excellent Customer Service” MilSupp2 “Integrated Systems Solutions” EngCo2 “Through-life Total Service Solutions” Source: Interview data supplemented by publicly available information.
However, having service visions and ambitions is not enough. It is important that companies
develop services that not only match their visions and ambitions but also meet the customer’s
through-life requirements. Furthermore, it is vital to design service processes and adopt
customer service skills that will enable seamless service delivery to the customer. In the light
of the through-life management concept, it is also important that the service dimension is not
divorced from the product dimension and that the focus remains on providing a fully
integrated through-life solution to the customer. This will require higher levels of co-
ordination and co-operation between different areas of aerospace businesses than ever before.
Service Developments
The service ambitions and visions of the aerospace companies involved in the study do
appear to be matched by innovative service developments. Mathieu (2001a) suggests that
services provided by manufacturers can be classified into two types:
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1. Services which support the product – fits the traditional view of a service offering
in the business market, the main goal of which is to ensure the proper functioning of
the product and/ or to facilitate the client’s access to the product.
2. Services which support the client – a more advanced perspective of the product
services offer, where the manufacturer explores how its services support particular
client initiatives and helps clients maximise their processes, actions and strategies
associated with their product.
Services such as maintenance, repair and overhaul (MRO), spares provisioning, technical
publications and technical support are traditional services that have been provided by
aerospace manufacturers for many years. However, the provision of such services was not
necessarily accompanied by a customer service culture. For example, long lead times and
high costs have traditionally been associated with spares and MRO activities.
Traditional services will continue to be offered by aerospace companies. However, it is clear
that many companies are enhancing the traditional services they offer. For example, MRO
services have traditionally been conducted on a time plus material basis for each individual
repair as it arises. This is viewed as being a reactive strategy where the manufacturer or
service provider has no real incentive to understand the customer’s operational needs and
requirements. Over the past five years or so, new types of agreements for MRO have become
more common in the companies involved in the study. These include fixed price repairs,
spares inclusive contracts and preventative maintenance contracts. In those companies that
have developed flight hour agreements - a key first step towards through-life management - a
fixed fee is paid by the customer per flying hour and includes MRO services. However, even
service providers who cannot necessarily control or participate in through-life strategies due
15
to their position in the supply chain or within their corporate group, are developing
innovative enhancements to their traditional services.
In addition to the enhancement of traditional services, the majority of participating companies
are also developing advanced, value-added services, including supply and support chain
management, integrated logistics support, asset management, equipment health monitoring
and reliability trend analysis. These services are specifically designed to align with the
operational needs of the customer, to reduce duplication of effort in both customer and
supplier organisations, and to reduce cost and risk. For example, in-service real-time
equipment performance monitoring enables pro-active MRO as components or parts can be
removed and replaced before failure occurs thus minimising maintenance cost and disruption
to the operating customer. However, these value-added services often depend heavily on the
provision of data by the customer. Respondents claim that this can often be difficult to obtain,
especially with respect to military equipment.
Through-life management is being developed for new aerospace equipment and is the most
sophisticated, complex and comprehensive method of delivering integrated customer
solutions, involving the delivery of a combination of product, traditional services and
advanced services. In the words of one respondent, the shift towards through-life
management is an “evolving service proposition” and is believed to be the “most efficient and
effective way of delivering value”. One of the respondents provided a valuable example of
how the service proposition evolves over time. For a certain product, the customer was
experiencing a large number out-of-service units, was holding the wrong spare parts and was
facing long lead times for repair from the OEM. Initially, the respondent company developed
a spares inclusive contract. This was then further developed to include logistics management.
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Finally, the company moved to a complete support chain management model where
unserviceable units are collected from the customer, repaired and send back to the appropriate
customer facility after repair. This approach simultaneously reduced the number of assets
required to be held by the customer and increased equipment availability.
Table 2 summarises the enhanced and advanced services currently being offered by the
participating aerospace companies as they move to support the through-life concept.
Table 2 – Enhanced and Advanced Service Offerings in Aerospace
Company Enhanced and Advanced Services AviCo Performance-based Logistics
Fixed Price Maintenance Agreements Flight Hour Agreements Inventory Management Obsolescence Management Reliability Trend Analysis
MilSupp Through-life Support Integrated Support Logistics and Asset Management
EntCo Asset Management Reliability Data Analysis On-line Databases
ServCo Spares Inclusive Contracts Preventative Maintenance Contracts
MaintCo Component Management Stock Exchanges Support Chain Management
EngCo Support Chain Management Total Logistics Support Fixed Price Repairs Project Management Spares Inclusive Contracts
TransCo Fixed Price Repairs Spares Inclusive Contracts
FlyCo Integrated Logistics Support Integrated Operating Support
ActCo Support Chain Management Logistics Management
MilSupp2 Integrated Systems Solutions Contractor Logistics Support Integrated Operating Support
EngCo2 Total Care Agreements Equipment Health Monitoring In-service Support Inventory Management Flight Hour Agreements
Source: Interview data supplemented by publicly available information.
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Despite a concerted effort by the participating companies to embrace through-life
management, or at least develop advanced services, it is recognised that different solutions
are required for different customers. The aerospace industry expects to continue to support
two different business models into the future – on the one hand, moving increasingly to a
through-life management approach and, on the other, maintaining traditional business models
for those customers that prefer it and for mature or legacy equipment. It is believed that
traditional business models are appropriate for mature or legacy products as their behaviour
and cost patterns are well understood. In addition, respondents with airline customers suggest
that certain airlines cannot afford to do business using a total service or through-life
approach. However, it is believed that all customers will benefit, either directly or indirectly,
from the enhancements to traditional services and from the advanced services being
developed to support through-life management.
Transition to Total Service Providers
It is evident from the stated ambitions of the aerospace companies involved in the study, the
widespread promotion of the through-life management concept, and the development of
business models and services to support through-life management, that a fundamental
transition is underway in the aerospace industry. Oliva and Kallenberg’s (2003) process
model for developing installed-base service capabilities is a valuable tool for understanding
the stages of transition of the participating companies. This model is shown in Figure 2.
All of the manufacturers involved in the study have engaged in support and aftermarket
services for many years. In all but one case, Customer Support, Customer Services and MRO
businesses operate separately from the rest of the enterprise. These entities are established as
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autonomous business units or as subsidiary companies which may even have to compete for
business from their parent company.
1. Consolidating product-related services
Triggers • Customer complaints • Competition
Goals • Improve efficiency,
quality and delivery time
Actions • Move services under one
roof • Monitor effectiveness and
efficiency of service delivery
• Add services to support quality initiative
2. Entering the installed-base service market
Triggers • Profitability potential • Competition • Customer satisfaction • Management change
Goals • Tap the revenues in the
installed-base service market
Actions • Definition and analysis of
the installed-base market • Create separate
organisation to market and deliver services
• Create infrastructure to respond to local service demands
3a. Expanding to relationship-based services Triggers
• Customer request • Utilisation of service infrastructure
Goals
• Increase utilisation of service infrastructure
Actions
• Assume operating risk: pricing in terms of availability
• Achieve cost advantage through: economies of scale, learning curve, network effects
3b. Expanding to process-centred services Triggers
• Customer request • Utilisation of product development
skills Goals
• Increase utilisation of product development and integration capabilities
Actions
• Develop consulting capability • Create new distribution network • Expanding to include other
manufacturer’s products
4. Taking over the end-user’s operation
Triggers • ????
Goals • ????
Actions • ????
Figure 2 – Process Model for Developing Installed-Base Service Capabilities
(Source: Oliva and Kallenberg, 2003, p165)
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The preceding analysis of the drivers for through-life management, the promotion of service
visions and the development of enhanced and advanced services demonstrates that aerospace
manufacturers have progressed through Stages 1 and 2 of this model. The focus for aerospace
manufacturers in recent years has been on Stage 3 of the model which requires changing the
focus from transactional to relationship-based services and from product-centred to process-
centred services. With regard to switching from transactional-based services to relationship-
based services, this involves, for example, moving from time and materials to fixed price
contracts covering all services over a fixed period. Maintenance contracts begin to be priced
in terms of operational availability and response time in case of failure, with the service
provider assuming the risk of equipment failure. Close relationships are required between
customer and service provider due to the need for high levels of data sharing. The key
incentive for end-users to engage in such contracts is higher equipment availability. For the
provider, profitability depends on accurate risk assessment.
Within the aerospace industry, it is clear from this study that all of the companies involved
are enhancing their traditional services and underpinning them with new business models
based on fixed price contracting and contracting for availability. Relationships have always
been important within the aerospace industry due to the complex nature of aerospace
equipment. However, the development of even closer relationships of trust between
operators, manufacturers, service providers and associated supply chains is becoming
increasingly important with the development of enhanced services.
The other dimension of Stage 3 is the move from product-centred services to process-centred
services. Essentially, this involves closely aligning with customer requirements and
understanding how advanced services can add value to the customer’s processes. This study
20
reveals that the majority of the companies involved in the study are focusing heavily on
providing comprehensive through-life customer solutions which combine products,
traditional services and advanced services. It is not possible for all of the companies to
deliver such a comprehensive offering due to their position within the supply chain or within
their corporate group. However, all companies recognise the need to engage in partnerships
and networks aimed at proving through-life customer solutions.
The through-life management concept requires expansion into Stage 4, where the
manufacturer or service provider assumes operating risk and takes entire responsibility for the
end-user’s process. Oliva and Kallenberg (2003) suggest that this is “largely uncharted
territory for manufacturers in most industries” (p170). This is, however, what several major
aerospace manufacturers are currently undertaking. For example, Integrated Operating
Support and Contractor Logistics Support contracts being introduced by the UK Ministry of
Defence involve contractors, either manufacturers or independent support organisations,
moving forward into their customer’s operations and taking responsibility for activities that
would have been previously done by the customer. This enables the support provider to better
understand the product operating environment and customer processes, thereby providing
integrated customer value over the product life-cycle and identifying opportunities to reduce
cost of ownership. Other examples include manufacturers and support providers taking
responsibility for their customers’ engineering processes, maintenance planning and
information systems for asset management.
Factors Affecting Transition
This study indicates that the aerospace industry as a whole is at Stage 3 of the Oliva and
Kallenberg model, expanding both relationship-based and process-centred services, with a
21
small number of large manufacturers and support providers moving to Stage 4, assuming
responsibility for end-user processes. One respondent argues that all of the aerospace
manufacturers are improving their service levels at same rate and, therefore, no benchmark
company exists. To some extent, this is true as all are facing similar customer demands, all
are responding by developing value-added services, deploying process improvement
initiatives and re-aligning their organisations to support the transition. However, this study
reveals that the companies are not all in the same position with regard to the actual delivery
of through-life management solutions. There are differences among the companies with
respect to the sophistication of the communication of their through-life management service
visions, the level of business that is currently based on the through-life concept and the
maturity of lean implementation to deliver through-life value to the customer. In addition,
complex organisational and group structures have been identified as a potential barrier to
seamless through-life operations and can adversely affect customer service.
Communicating the Through-life Service Vision
Some of the companies are hugely pro-active in promoting a service culture, with their
internal actions mirroring their publicly stated ambitions. One of the companies, for example,
has embraced the through-life concept with conviction and is actively implementing a service
strategy. This message is being effectively communicated both externally and internally. The
company has a highly sophisticated web-site and all its advertising material promotes total
service solutions. This is matched internally by a training programme aimed at introducing
service theory and knowledge which is further reinforced by recruitment policies
emphasising service skills.
22
For others, however, the approach is more one of reaction to customer demand for change
and there appears to be confusion with regard to the design of service processes to deliver
customer value in this new environment. Take the case of one of the manufacturers
participating in this study. The manufacturer’s primary customer is exerting significant
pressure with regard to the adoption of through-life management. The manufacturer is
making efforts to respond positively and realign its processes to deliver customer value.
Internally, the Customer Support organisation has increased communications to promote the
through-life message and has begun to adopt lean tools and techniques. However, there does
not appear to be a consistent, enterprise-level drive for the adoption of a service strategy to
support through-life management. This lack of integration and focus appears to be making it
difficult for Customer Support employees to design appropriate service processes and to
envisage delivering services in a new way. In addition, there is no strong evidence that the
through-life message is being promoted externally by the company.
The Level of Business Conducted under Through-life-type Contracts
There are different levels of business being done through the use of through-life-type
contracts. Through-life and integrated support contracts are currently in place only on a
limited number of aerospace programmes. However, it is expected that the through-life
approach will continue to extend to other programmes in the future as new equipment comes
on stream. For one company, over 50% of its revenues are generated from aftermarket
services, a significant proportion of which are being done under through-life-type contracts,
and the company has a policy that agreements evolving towards a full through-life approach
will be used where possible with respect to the sale of new equipment. Another company
states that 20% of its Customer Services revenue is generated from performance-based
logistics contracts.
23
Maturity of Lean Implementation
The move to a through-life management business model and the accompanying service
developments requires a new approach to service delivery by aerospace manufacturers. This
study shows that the extension of lean principles beyond manufacturing to encompass
Customer Support and MRO activities is the primary route that aerospace manufacturers are
taking to enhance the delivery of value to the customer. All of the companies involved in the
study are adopting lean principles and practices, with one respondent describing lean as “an
essential part of the move to an integrated service business”. In general, lean practices have
been widely applied to manufacturing activities. Due to the close parallels between
manufacturing and MRO activities, lean principles have also been successfully applied to
maintenance and repair, although the specific tools and techniques were often adapted to suit
the MRO environment. Two of the companies are also in the process of establishing new
MRO facilities designed on the basis of lean principles. Developments with respect to the
application of lean principles to Customer Support are less advanced. For example, in the
case of one large manufacturer, lean ideas have been adopted by the manufacturing part of
the business over many years. In addition, its subsidiary company which manufactures,
maintains and repairs critical components, has adopted lean practices across both
manufacturing and MRO activities. However, the Customer Support part of the business is
only now seeking to adopt lean ideas, driven by the military customer’s requirement for
Integrated Operating Support.
Organisational Structure to Support Through-life Management
The complex organisational and group structures of the participating companies appear to be
a potential barrier to the seamless delivery of services and support to the customer. In some
24
cases, a full range of services is provided by an individual aerospace manufacturer and its
supply chain. However, Customer Support and MRO businesses are usually heavily reliant on
their own manufacturing businesses to provide spare parts and technical information. In
addition, the part of the business providing services or support may be different to the part of
the business acting as the interface to customers and suppliers. This results in complex
interactions - and often conflict and delays – between different parts of the organisation.
Where partnering is required with other companies within a group, other manufacturers or
independent MRO and support providers, some of whom may be competitor organisations,
the picture becomes even more complex.
THE IMPLICATIONS FOR THE IRISH AEROSPACE INDUSTRY
The Irish aerospace industry is dominated by maintenance, repair and overhaul (MRO)
activity. In addition, there is a highly developed international services sub-sector, including
aircraft leasing and finance, software development and personnel services. Aerospace
manufacturing activity occurs on a very small scale. Furthermore, the industry focuses
exclusively on the civil aerospace market and does not undertake military-related work. Table
3 shows the most recently available Irish aerospace industry statistics.
Table 3: The Aerospace Industry in Ireland (2002 figures)
Sector No. of Companies No. of Employees Gross Revenues Manufacturing 15 800 n/a MRO (Aircraft) 6 2,550 MRO (Engines and Components)
9 1,450
570m euro
International Services 15 800 n/a Total 45 5,600 > 570m euro Source: Federation of Aerospace Enterprises in Ireland (FAEI), 2004
25
Although this study has been conducted in the UK with companies involved in both civil and
military markets, the findings are highly relevant to the Irish aerospace industry. Given the
heavy reliance of the Irish aerospace industry on MRO, the trend towards through-life
management by aerospace manufacturers represents a significant challenge, on the one hand
posing a substantial threat and on the other hand opening up new opportunities.
The majority of Irish MRO providers are now part of larger, independent MRO groups, such
as Lufthansa Technik and SR Technics. In some respects, this provides a level of protection
to Irish MRO businesses in that they are included in global MRO networks, can share
technological and process know-how, and benefit from economies of scale. However,
respondents involved in this study believe that the overall MRO market is declining. This,
together with the increasing engagement of aerospace OEMs in the MRO arena, means that
competition will become even fiercer. With the evolution of through-life approaches,
independent MRO providers may find it more difficult to win MRO business on new
aerospace equipment. Respondents to this study expect that independent MRO providers will
become niche specialists with respect to mature and legacy equipment. However, this will
still require the enhancement of service offerings, the introduction of lean processes and the
development of comprehensive solutions to satisfy customer requirements. A recent report on
the proposed strategy for the future of the Irish aerospace industry emphasises leveraging the
combined strengths of the MRO and international services sub-sectors in order to provide
more integrated offerings (FAEI, 2004). The findings of this study support this view.
However, it is clear that a sustainable long-term strategy for the growth and development of
the Irish aerospace industry requires pro-active engagement with aerospace OEMs, a factor
also acknowledged by the future strategy report (FAEI, 2004). To date, partnerships between
26
Irish aerospace companies and global aerospace OEMs have been extremely limited. The
OEMs participating in this study are open to the creation of collaborative ventures and
partnerships with independent MRO and service providers as long as value can be added to
their overall through-life customer solutions. A concerted effort is, therefore, required by the
Irish aerospace industry, supported by Government initiatives, to engage with aerospace
OEMs and become involved in through-life initiatives at the earliest possible stage.
CONCLUSIONS
A number of key conclusions can be drawn from this exploratory study. It is clear that the
aerospace industry is experiencing a period of fundamental change as a result of its transition
to through-life management, an increased emphasis on service orientation and the provision
of integrated, long-term customer value. The through-life management concept is acting as a
catalyst for innovative, value-added service developments, the promotion of service visions
and the adoption of service strategies. While all aerospace companies are exposed to the
drivers of through-life management, there is evidence that individual companies are in
different positions with regard to their ability to effectively deliver through-life customer
solutions. This ability to deliver is influenced by whether or not the company is responding
proactively or reactively to customer demands, by their maturity with respect to the
implementation of process improvement or lean initiatives, particularly within their service
and support businesses, and by the complexity of their organisational and group structures.
This study has significant academic and practical implications. From a theoretical
perspective, there is an opportunity to consolidate existing knowledge regarding product
services, customer support, aftermarket services and services management into a body of
literature to support the through-life management concept. In addition, further work is
27
required to define through-life management. There is a need, also, for the development of a
conceptual framework for through-life operations which integrates both manufacturing and
service operations. As the aerospace industry is currently extending lean manufacturing
principles for this purpose, the applicability of lean as a model of through-life operations,
and, in particular, its applicability to the support environment, should be investigated.
Another valuable contribution would be the re-orientation of services management models
and tools for application to manufacturers’ service businesses.
This research also has widespread practical implications. The adoption of through-life
management and the development of advanced services needs to be matched with appropriate
skills and capabilities in service design, service delivery, service quality and customer
service. It also requires an acceptance of the strategic importance of customer support and
aftermarket activities as an integral part of through-life offerings. Increased levels of
integration and closer relationships of trust will also be vital, both between the various
divisions within aerospace companies and throughout their supply chains and collaborative
networks. The evolution of through-life strategies and business models may also result in
structural change within the industry, with new alliances and partnerships forming to provide
integrated customer solutions.
ACKNOWLEDGEMENTS The authors acknowledge the Society of British Aerospace Companies (SBAC) and the EPSRC Innovative Manufacturing Research Centre, Grant Ref. GR/R67491/01, who have provided the funding for the UK Lean Aerospace Initiative. The authors would also like to thank the aerospace company participants.
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University of Bath School of Management Working Paper Series
Past Papers
School of Management Claverton Down
Bath BA2 7AY
United Kingdom Tel: +44 1225 826742 Fax: +44 1225 826473
http://www.bath.ac.uk/management/research/papers.htm
2004
2004.01 Stephan C. M. Henneberg
Political Marketing Theory: Hendiadyoin or Oxymoron
2004.02 Yi-Ling Chen & Stephan C. Henneberg
Political Pulling Power. Celebrity Political Endorsement and Campaign Management for the Taipei City Councillor Election
2002
2004.03 Stephan C. Henneberg , Stefanos Mouzas & Pete
Naudé
Network Pictures – A Concept of Managers’ Cognitive Maps in Networks
2004.04 Peter Reason Education for Ecology: Science, Aesthetics, Spirit and Ceremony
2004.05 Yvonne Ward & Andrew Graves
A New Cost Management & Accounting Approach For Lean Enterprises
2004.06 Jing Lin Duanmu & Felicia Fai
Assessing the context, nature, and extent of MNEs’ Backward knowledge transfer to Chinese suppliers
2004.07 Richard Fairchild The effect of product differentiation on strategic financing decisions.
2004.08 Richard Fairchild Behavioral Finance in a Principal-agent Model of Capital Budgeting
2004.09 Patrick Stacey & Joe Nandhakumar
Managing the Development Process in a Games Factory: A Temporal Perspective
2004.10 Stephan C. M. Henneberg
Operationalising a Multi-faceted Concept of Strategic Postures of Political Marketing
2004.11 Felicia Fai Technological Diversification, its Relation to Product Diversification and the Organisation of the Firm.
2004.12 Richard Fairchild and Ganggang Zhang
Investor Irrationality and Optimal Open-market Share Repurchasing
2004.13 Bruce A. Rayton and Suwina Cheng
Corporate governance in the United Kingdom: changes to the regulatory template and company practice from 1998-2002
31
2004.14 Bruce A. Rayton Examining the interconnection of job satisfaction and organizational commitment: An application of the bivariate probit
model