Product–Service Systems for supply management of spare parts: Comparison
Please note this is a comparison between Version 3 by Conner Chen and Version 4 by Conner Chen.

A Product–Service System (PSS) can be considered as a combination of customer life cycle-oriented products and services that are provided by means of an extended value creation network. Such a business model fosters the transition from a tangible goods-dominant logic to an intangible goods-dominant one and accomplishes Circular Economy (CE) principles. In fact, the services interwoven with a product’s life cycle, especially those related to its use and End-Of-Life (EOL) phases, play a crucial role in the optimization of the environmental performances of a product through its whole life cycle. However, PSS solutions aimed at practically optimizing supply chain management have scarcely been addressed. In order to reduce this gap, here proposes a procedure based on the PSS Functional Matrix, the Screening Life Cycle Modelling (SLCM) method, and stock management theory to optimize aftermarket services based on market demand.

  • product–service system (PSS)
  • supply chain management
  • aftermarket services
  • PSS functional matrix
  • life-cycle engineering
  • customer demand
  • customization
  • screening life-cycle modelling

1. Background Analysis

A Product–Service System (PSS) can be considered as a combination of customer life cycle-oriented products and services that are provided by means of an extended value creation network [1]. Such a business model fosters the transition from a tangible goods-dominant logic to an intangible goods-dominant one [2][3] and accomplishes Circular Economy (CE) principles [4]. In fact, the services interwoven with a product’s life cycle, especially those related to its use and End-Of-Life (EOL) phases, play a crucial role in the optimization of the environmental performances of a product through its whole life cycle [5]. In particular, following the differentiation proposed by Tukker [6], it is deemed that use-oriented and result-oriented PSS models are considered to have the highest potential for CE because the manufacturer retains product ownership and is responsible for the product over its life cycle [7]. In other words, the more a manufacturer shifts from product business models (PBMs) to outcome business models (OBMs), the higher the possibility of achieving sustainability goals. This is in line with recent addressing of sustainable development goals (SDG) in the production sector [8][9], as well as with current environmental legislation affecting most industrial products [10]. When implementing a PSS business model, the provision of utilities to consumers through the use of services rather than products can reduce the consumption of resources, improving the environmental performances of a product life cycle and the achievement of manufacturers’ economic targets, which rely on the efficiency of the services being provided rather than on the number of products sold [11]. PSS providers can increase their productivity while reducing costs by means of value-added services; in order to achieve such a goal, they must increase both the value of the physical goods they offer and the level of services related to these products [12]. At the same time, it has to be stressed that there is substantial potential for PSS to provide customized solutions based on current and varying customer needs [13]. The latter issue is related to the augmented link between the PSS provider and the receivers, as well as to the higher possibility of customizing PSS solutions depending on the specific needs of customers [14]. This aspect is stressed by Visnjic et al. [15], who observed that shifting to OBM allows manufacturers to strengthen relationships with customers while growing revenue and profit. Along with its expansion, a large number of studies regarding PSS have emerged [16][17]; usually, its implementation processes are described at a high level of design structure [18], while the interwoven steps involved in each stage of the practical implementation processes remain undetailed [19][20][21]. In such a context, it should be noted that PSS solutions aimed at optimizing stock management in the supply chain are scarcely addressed. As noted by Kühl et al. [22], although supply chains play a critical role in enabling competitiveness, there is a gap between the theory and practice of green supply chain management and PSS implementation. In particular, as noted by Cavalcante and Gzara [23], there is a lack of research on details considering the aftermarket services aspects of PSS implementation compared to manufacturing issues. This type of activity, as remarked by Durugbo [24], usually includes both the product recovery processes and after-sale services such as:
  • Customer care (e.g., information and remote technical support);
  • Field technical assistance (e.g., maintenance operations); and
  • Spare parts distribution, which requires specific management of both inventory and spare parts flow.

2. Case study Overview

The following case study takes place at a medical equipment manufacturer specializing in the production of haemodialysis products. Medical equipment is reputed to have a short life cycle, leading to heavy economic costs as well as significant negative environmental impacts [25]. In detail, the development process is the most impactful, as many prototypes are produced and, after meeting regulatory requirements and passing rigorous qualification phases, only a handful are released on the market [26]. Accordingly, this sector presents great potential for the implementation of end-of-life (EoL) approaches aimed at improving the environmental performances of the overall equipment life cycle and putting into practice circular economy strategies [27]. Increasing the reuse, refurbishment, and remanufacturing options can, together with a proper maintenance service, allow the transition from a single life cycle to a multiple product life cycles approach [28]. Moreover, the provision of this type of equipment usually includes services (e.g., installation, maintenance, supply of consumables) which can be assured by the manufacturer itself or by third-party companies, suggesting the implementation of a PSS business model that goes beyond the life-span of a single piece of equipment [29]. In line with this goal, better supply chain management can lead to better “down-stream” management, e.g., end-of-life schemes such as disposal, recovery, and reconditioning, as pinpointed by Gabriel et al. [30]. According to the information provided by the manufacturer, the product chosen for this case study lasts approximately four years instead of its intended five, with several interventions taking place to ensure maintenance, replacement of parts, and upgrades. Given the current business model these interventions take place at irregular intervals, heavily affecting the availability and management of spare parts. Hence, response times are not always respected and delays occur, which results in customer dissatisfaction and further degradation to the product in certain cases, e.g., faulty pressure sensors, unwanted stress on mechanical components, etc.
It is made of approximately two thousand components, including:
  • Hydraulic components, i.e., those parts that come into contact with the dialysis fluid
  • Mechanical and electromechanical components, e.g., the motors necessary for correct functioning and operation
  • Electronics and controls, e.g., electronic boards, processing units, monitors and keyboards
  • Structural metallic and plastic components which form the chassis
  • Blood components, e.g., the arterial–venous pump, probes, and exchangeable components such as filters, needles and dialyzer.
In detail, the main parts of the equipment are represented by the following:
  • The dialysis filter constitutes the most important part of the artificial kidney. It contains a semipermeable membrane that allows the exchange of solutes and water between the blood and the dialysis fluid, and its main functions are to pump blood and keep circulation under control, to cleanse the blood of waste substances, and to control fluidic pressure and the rate of removal of waste substances from the body.
  • The extracorporeal blood circuit consists of vascular accesses (needles or catheters) along with a set of cables and accessories for blood circulation. Most dialysis centers use two cannulas, one to make the blood flow towards the dialyzer and one to bring clean blood back to the body.
  • The dialysis fluid circuit consists of a solution composed of renal water, mineral salts, osmotically active substances, and buffer substances.
  • The control monitor is the instrument that prepares the dialysis liquid in compliance with the appropriate physio-chemical characteristics, controls the blood circulation in the extracorporeal circuit, and supervises the entire hemodialysis process.
Despite the continuous need for such products and the continuous growth of this market sector [31], manufacturers’ revenues are hindered by frequent replacements and interventions which weigh heavily on their current business model, i.e., sales and supplementary maintenance service contracts. In detail, customer surveys collected over the past 24 months, of which 79 were returned in full, point out concerns regarding the intervention response time, the reliability of the product, and its hampered lifespan. For instance, customers pointed out that the delays for a technician to intervene and carry out repairs are long and replacement parts undergo significant lead times, causing substantial downtime. The key requirements collected from customers allowed to pinpoint the critical-to-quality features, i.e., the CTQ tree, related to the product and its complementary services. Figure 1 portrays an excerpt of the maintenance operations.
Figure 1. Excerpt of the CTQ tree related to maintenance activities.

3. Current Business Model

Based on the manufacturer’s current business model relying on sales and supplementary after-sale services, the main service processes are:
  • Product installation, including all activities for preparing the use of the device and its configuration
  • Customer interaction, consisting of phone calls between the customer and the customer service operator, remote monitoring of product performance, and diagnosis activities
  • Spare parts stock management, including stock planning, operational management of warehouses and shipments, and the management of return flows of materials
  • Field service management, consisting of repairs and maintenance interventions which can be carried out either directly through internal technicians or indirectly via authorized third parties.
Concretely speaking, the manufacturer has a central warehouse where all manufacturing processes (assembly, sterilization, packaging, storage, and distribution) are integrated by means of cross-docking. Additionally, critical components and particular parts are stored there. The customer has access to these components via this central warehouse. The manufacturer is responsible for delivering the device to the customer and training the customers, i.e., laboratory technicians and medical staff, on its use. Regarding ordinary and extraordinary maintenance, these tasks are shared with authorized and qualified suppliers based on the geographical area and distance from the customer. Based on the data collected, a radius of 300 km dictates intervention activities; within this range, the manufacturer itself provides them through the central warehouse, and when the distance exceeds it, authorized suppliers use the customer’s warehouses to provide them. A call center centralizes requests by managing communication with the customer. At the end of its lifecycle, the product is recovered by the manufacturer (Figure 2).
Figure 2. Spare parts management configuration according to the current business model.

4. The PSS Alternative

Given the information above, the manufacturer is opting to change its current business model and adopt a PSS model instead, i.e., a use-oriented solution focused on leasing the product and providing the necessary services for its installation, operation, and retirement. On the one hand, this enables the manufacturer to ensure that customers are correctly trained on its use and can carry out maintenance operations in due time, replace defective components with qualified genuine parts, and monitor usage and deterioration of the modules (and hence be proactive to reduce downtimes), as well as recover the product once the contract reaches its end, ensuring the recovery of certain reusable elements and reducing production costs. On the other hand, this allows for offering customized solutions to customers, whose use patterns can vary from one to another, and provides them with the capacity to adapt to changing demands in the future. In addition, it relieves them from the burdens of planning maintenance activities. reassures them by knowing that the latter are carried out by qualified personnel, and eases disposal activities, as the manufacturer handles them. Focusing on aftersales activities, the logistics network (which consists of a variable number of levels based on the strategic and operational needs of the company) was analysed. Networks with two or more levels (i.e., networks where the central warehouse is flanked by one or more peripheral warehouses, which in turn serve customers in their own area of expertise) guarantee a quicker response time, as interventions must be carried out quickly and the related breakdown has a direct impact on the product’s functioning. In Table 1, an excerpt of the analysis of the main aftermarket services is provided based on the scheme proposed by Martinez et al. [32].
Table 1. Extract of the aftermarket service organization.
Area Decision-Making Alternatives
Table 2. Application of the PSS concept matrix to the haemodialysis solution (excerpt).
EF Product or Service Enablers PSS Provider
Base Scenario (BS)
Year 0 1 2 3 4 5 6 7 8 9
Distribution and territorial coverage of aftersales support Service provision coverage based on geographical areas

Segmentation based on type of customer
1.1 Online form Call centre / Customer Manufacturer Third party
MO1   x x x x x x x x x
Technical assistance network ownership Direct intervention by the manufacturer’s technicians of each branch

1.2Indirect assistance through dealership workshops

Secondary network of authorized and controlled workshops

Indirect assistance through independent workshops
Customer survey Technical expert visit / Customer Manufacturer
MO2
Third party
    x   x     x   x
Spare parts distribution network: number of levels One level: supplier-central warehouse-customer.

Two levels: supplier-central warehouse-peripheral warehouse-customer

Two levels (mixed): supplier-central warehouse-customer OR peripheral warehouse-transit point-customers

Three levels (mixed): supplier-central warehouse-peripheral warehouse-distribution center-customer
2.1 Purchase Leasing Temporary rental Customer Manufacturer Third party
EM1   x x x x x x x x x
Logistics operations outsourcing Transport

Inventory

Spare parts planning and management

Full outsourcing of logistics operations
Once the most suitable logistics network for supporting aftermarket activities has been defined, it is necessary to identify the planning and management choices for carrying out the services. Accordingly, the leasing solution is addressed from a functional point of view where the function tree deployment is applied to identify the main haemodialysis functions and decompose them into Sub-Functions (SFs) and then Elementary Functions (EFs) that the PSS will have to fulfil (Figure 3).
Figure 3. Functional decomposition of the PSS.
Then, the PSS concept matrix is used to identify the possible products and services required to fulfil each sub-function (Table 2).
2.2
EM2
Forecast-based delivery service
 
On-demand delivery service
 
Purchase and pickup
 
Customer
x
Manufacturer
 
Third party
x     x  
2.3 Product manual Training / Customer Manufacturer Third party
Alternative Scenario (AS)
2.4 Haemodialysis product / / Customer
Year 0 1 2 3
Manufacturer
4
Third party
5 6 7 8 9
3.1 Preventive maintenance Predictive maintenance Risk-based maintenance Customer Manufacturer Third party
MO1   x x x   x x x   x
3.2 Customer interaction Online form Manufacturer recommendation Customer Manufacturer
MO2     x  
Third party
    x      
3.3 Deferred corrective maintenance
EM1
Immediate corrective maintenance / Customer
 
Manufacturer
x x x
Third party
  x x x   x
3.4 Customer interaction Online form / Customer
EM2    
Manufacturer
 
Third party
x
4.1 Shipping by customer Field service intervention None (scrap) Customer Manufacturer Third party
      x    
4.2 Engineer report Computer-run diagnostic Product disassembly Customer Manufacturer Third party
4.3 Worn parts replacement Systematic replacement of all wearable parts None (no wear and tear) Customer Manufacturer Third party
Based on the PSS concept matrix, an alternative solution to can be defined: a leasing service where the manufacturer provides the customer with the product and its consumables and offers the training required for its proper use. Upon consultation with the manufacturer’s group of technical and marketing experts, a “4 + 4” lease option was proposed and evaluated. During the lease period, the manufacturer carries out the required maintenance activities, installs software updates, and collects feedback from the customer and information regarding any deterioration of components. Once the end of the first period is reached, the product is recovered by the manufacturer or a qualified and authorized third party for end-of-life treatment, and the customer is given a new or reconditioned product for the second period of the lease.
Given the impact on the inventory of components and parts required to carry out ordinary and extraordinary maintenance activities, the SLCM method was used to evaluate the feasibility of this solution. Accordingly, the first step in assessing the hypotheses and the details of the maintenance interventions (Table 3) was to compare the Base Scenario (BS), i.e., the current model, to the Alternative Scenario (AS), i.e., the PSS leasing solution:
Table 3. Maintenance activities comparison (MO = Ordinary maintenance; EM = Extraordinary maintenance).
  • Yearly production: 700 products
  • Product lifespan: 5 years
  • Operational hours per year: 3000–3500 h (~15,000 to 18,000 h over five years)
  • Yearly average of hemodialysis treatments: 624 h
−0.29
  • Ordinary Maintenance operations 1 (MO1) after 3000 h: connectors, joints. and solenoid valves
Mechanical
  • Ordinary Maintenance operations 2 (MO2) after 6000 h: filters, connectors, joints, and solenoid dialysis valves
−0.05
Contractual
  • Extraordinary Maintenance (EM1): fluid pumps and inlet connections failing before their normal operational hours limit; the manufacturers’ information obtained via the customer services team shows an occurrence trend every 2800 to 3300 operational hours
  • Extraordinary Maintenance 2 (EM2): pressure sensors and pressure valves; in this case, the information gathered indicates an average value of 7000–7500 h before occurrence
  • Yearly number of ultrafilters: 18,000
  • Operational duration of ultrafilters: 400 h. These are produced and maintained by the manufacturer; an authorized third party handles distribution and recovery, whereas the customers are responsible for their replacement during the use of the equipment.
End products are stored in a central warehouse, and hospitals and medical laboratories possess and manage their own warehouses. SLCM was applied using Eco-Indicator 99 [33], a well-known life cycle assessment tool that considers the raw materials and associated processes during production, transportation, and disposal. It is expressed in damage points (Pt) to reflect damage caused to the environment, human health, and natural resources. SLCM enables assessment of the environmental impact of the base and alternative scenarios and takes into consideration all of the main activities (described above) related to the production and distribution of the equipment, as well as maintenance and end-of-life activities (Figure 4).
Figure 4. Comparison of the base and alternative scenarios using the Eco-Indicator 99 method [33].
In collaboration with the company’s experts from the technical and financial departments, addressing the costs related to each phase of the equipment lifecycle, including the inventory and spare parts required for manufacturing, distribution, ordinary maintenance, extraordinary maintenance, and end-of-life activities (i.e., recovery, reconditioning, disposal, etc.). Due to a non-disclosure agreement, the costs are expressed as percentages of the market value of one piece of haemodialysis equipment. Accordingly, the computation of all costs related the lifecycle of a piece of equipment can be higher than 100%. In Table 4, an excerpt of the lifecycle cost analysis is reported.
Table 4. Extract of the embedded costs.
Category Unitary Cost (%) *
Manufacturing
Packaging 0.5
Transport 1
Assembly 1.5
Maintenance
Spare parts replacement 11.9
Transport 4
Labor 3
End-Of-Life
Recovery 1.5
Transport 1
Electronic −0.62
Hematic −0.12
Structural −0.24
Hydraulic
−1.5
Labor 2
Other costs 76.42
* In this excerpt, the cost of each activity is calculated as a percentage of the cost of the whole piece of equipment due to a non-disclosure agreement with the company. The negative costs reflect the ‘benefits’ that emerge from end-of-life activities such as the recovery of components that can be used in the production of new equipment.

5. Supply Chain Analysis

Once the most suitable logistics network has been defined to support after-sales activities, it is necessary to identify the planning and management choices required in order to carry out the services. The choice of the most suitable spare parts management policy depends on both the characteristics of the market and the general strategy of the company, as well as on the characteristics of the component to be managed, most notably criticality, specificity, and value.
Specifically, the manufacturer brought to light the importance of managing the supply of the haemodialysis ultrafilters, as these are the most significant in terms of use frequency and costs. The ultrafilter is the filter used to keep clean the liquids inputted in the equipment; its lifetime duration is about 400 h, and its replacement is included in ordinary maintenance operations. As all pieces of equipment do not function for the same number of hours per year, the optimization of the number of ultra-filters distributed by the manufacturer can lead to optimization of both stock and supply management, which can be beneficial for both manufacturer and customers considering, e.g., the storage of the spare parts. With this goal in mind, the possibility of variable usage from one customer to another had been taken into consideration , calculating the lognormal distribution of ultrafilter use given that the yearly use of a piece of equipment ranges from a minimum of 156 treatments to a maximum of 936, with the average number of treatments equal to 624. Then, by simulating the use of 10, 11, 13, 15, 17 and 19 filters per piece of equipment in order to bring forward the financial impact of customizing the PSS to varying requirements vis-à-vis its traditional model, i.e., the BS (Figure 5). It has to be noted that in this analysis the distribution was considered as follows:
Figure 5. Cost simulation using the base and alternative scenarios.
  • For a distance up to 300 km from the central warehouse, the distribution of both spare parts and maintenance operations is provided by the manufacturer
  • For distances greater than 300 km from the central warehouse the distribution is entrusted to third parties, whose costs are minor or at least equal to those borne by the manufacturer.
In addition, as schematized in Figure 6, it was foreseen that a stock of critical parts such as ultrafilters were stored in a specific warehouse at the customer. This allows for shorter lead times and increased dependability.
Figure 6. Distribution and storing of critical components according to the PSS model.

6. Conclusive Rremarks

The case study brings forward the positive effects of transitioning from a traditional sales model to a leasing solution such as a Use-Oriented PSS. In fact, the PSS allows for extension of the lifecycle of the equipment from four years to five while maintaining its correct functionalities through the improvement of aftersales services via better management of both maintenance activities and the supply of spare parts. In detail, effective management of the needed spare parts enables the carrying out both ordinary and extraordinary maintenance tasks in due time while reducing the risk of the client, as no original components must be acquired and equipment performance is not jeopardised. Additionally, the risks related to over/underestimation of the reordering quantity of critical components can be reduced. From an environmental perspective, the AS allows for a reduction in the environmental impact by 13.8%. This takes place through the extension of the product lifespan as well as through the facilitation of end-of-life activities such as product recovery, reconditioning, and refurbishment. Moreover, tailoring the quantity of the ultrafilters to the specific needs of the hospital can allow a reduction of waste (expired filters). Similarly, the costs embedded by the ensuing inventory and inventory management are reduced by 13.3% on average when considering the variable number of filters required to meet the increasing or decreasing use patterns of customers.

In short, the current evidence contributed to demonstrating the effectiveness of the PSS approach in integrating CE with supply chain management, balancing economic benefits with customer value and environmental performance in line with the call for practical research. The proposed morphological approach, enables engineers to combine the two ‘souls’ of a PSS, i.e. the product and service characteristics, in a general and hands-on manner to obtain a comprehensive and unified solution.

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