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Integrated Product Service Offerings for Rail Infrastructure: Potential Benefits and Challenges
Linköping University, Department of Management and Engineering, Environmental Technology and Management. Linköping University, The Institute of Technology.
2012 (English)Licentiate thesis, comprehensive summary (Other academic)
Abstract [en]

Large amounts of different materials are used when building and maintaining railway infrastructure, and the environmental impacts from the upstream production stages are significant. Industry’s motivation to innovate is low, new products or methods are rarely used, and the lowest price is the main driver for selecting a tender.

Integrated Product Service Offerings, or IPSO, has been put forward in the research literature as a potential concept to, from a life-cycle perspective, reduce the environmental impact of products and services, increase cost efficiency and quality, and act as a driver for change. Therefore, this thesis attempts to answer to the aim: “Can the concept of Integrated Product Service Offerings improve the management of rail infrastructure and if so, what would such an implementation induce in terms of risk factors?” The Swedish rail infrastructure is used as a case to discuss the considerations and feasibility of such an implementation. Theories such as product development, information asymmetry and innovation are used to complement the literature focusing on IPSO. The empirical part of the thesis has been collected using individual interviews, group interviews and a survey approach.

The contracts currently used in the railway industry have several advantages, such as being a familiar business model that is straightforward to calculate for the contractors. However, they are not optimal for innovation due to e.g. detailed specifications, standards and technological and market lock-in effects. Technological and market lock-in, in combination with a lack of information transfer between different contracts and actors, are major disadvantages with the current practice. Furthermore, the buyer’s conservative business culture makes it difficult to implement new types of contracts since it is difficult to break old habits. Even though the providers are part of the same mature market, the organizational changes needed for them to fulfill IPSO contracts are not seen as a barrier.

A benefit with IPSO is the holistic life-cycle perspective that provides incentives for dematerialization, resulting in a more resource-efficient and durable infrastructure. IPSO requires improved information transfer, something which stimulates innovation as well as processes for evaluation of the contracts. Further benefits are potential incentives to get contractors involved in the design phase, where the major decisions about the life-cycle are made, in order to reduce the infrastructure's environmental impact and total life-cycle cost. The contractors hope that IPSO contracts will make the buyer focus less on e.g. the initial purchasing price and more on the total life-cycle cost in relation to quality in order to get the best solution.

The actors see themselves as parties with opposing interests. At the same time, IPSO will most likely imply more long-term cooperation, something that calls for common interests, shared risks and flexibility. The innovation possibilities with IPSO could benefit from loosening up the material handling monopoly that the buyer currently holds. Since the buyer is a dominant actor within the industry, this organization has major possibilities to introduce changes that the other actors would have to conform to.

Several challenges with IPSO are discussed, and most of them are derived from the risk and uncertainty aspects that come with long-term contracts and inexperience with a new business model. On one hand, the contractors request more flexibility; on the other hand, they are reluctant to take on more responsibility that could lead to increased risk. However, risk does not have to be seen as something completely negative, as it depends on how the contractors choose to deal with it. They can either develop the necessary skills and competence needed to identify and handle the risk in a strategic manner, foster a competitive advantage, or take the problems as they come in a more ad hoc way. A way to reduce risk and uncertainty seems to be to focus on transparency and information sharing between the actors and the contracts. This would also open up IPSO contracts for reinvestments, where the current lack of information concerning the condition of the facilities results in reluctance for IPSO contracts.

This research has focused on IPSO for rail infrastructure management, using the Swedish rail infrastructure as a case to discuss the considerations and feasibility of such an implementation. The conclusions, therefore, are valid for rail infrastructure in other geographical locations as well.

Place, publisher, year, edition, pages
Linköping: Linköping University Electronic Press , 2012. , 70 p.
Series
Linköping Studies in Science and Technology. Thesis, ISSN 0280-7971 ; 1515
National Category
Engineering and Technology
Identifiers
URN: urn:nbn:se:liu:diva-73901Local ID: LIU-TEK-LIC-2011:54ISBN: 978-91-7519-997-9 (print)OAI: oai:DiVA.org:liu-73901DiVA: diva2:478536
Presentation
2012-01-18, ACAS, A-huset, Campus Valla, Linköpings universitet, Linköping, 10:00 (English)
Opponent
Supervisors
Available from: 2012-01-16 Created: 2012-01-16 Last updated: 2012-01-16Bibliographically approved
List of papers
1. PSS Contracts for Rail and Road Infrastructure
Open this publication in new window or tab >>PSS Contracts for Rail and Road Infrastructure
2011 (English)In: Functional Thinking for Value Creation. Proceedings of the 3rd CIRP International Conference on Industrial Product Service Systems, Technische Universität Braunschweig, Braunschweig, Germany, May 5th-6th, 2011 / [ed] Jürgen Hesselback & Christoph Herrmann, Springer Berlin/Heidelberg, 2011, 291-296 p.Conference paper, Published paper (Refereed)
Abstract [en]

The productivity development for rail and road infrastructure has been weak a long time; and explanation can be found in the traditional contracts used, with little room for incentives for innovation. This literature study investigates the use of the few realized PSS contracts within the rail and road infrastructure. The descriptions and the scientific reports are on a synoptic level and a majority of the reports are funded by the involved actors, showing that there is an interest for PSS contracts in the industry and indicating significant potential for further research in the area.

Place, publisher, year, edition, pages
Springer Berlin/Heidelberg, 2011
Keyword
Rail infrastructure; Road Infrastructure; Literature review
National Category
Engineering and Technology
Identifiers
urn:nbn:se:liu:diva-70261 (URN)10.1007/978-3-642-19689-8_51 (DOI)978-3-642-19688-1 (ISBN)978-3-642-19689-8 (ISBN)
Conference
The 3rd CIRP International Conference on IPS2 2011, May 5th-6th, Braunschweig, Germany
Available from: 2011-08-29 Created: 2011-08-29 Last updated: 2014-09-03Bibliographically approved
2. PSS Contracts for Rail Infrastructure
Open this publication in new window or tab >>PSS Contracts for Rail Infrastructure
2011 (English)Conference paper, Published paper (Other academic)
Abstract [en]

Increased costs and little incentives for technical development within the rail infrastructure industry has resulted in an increased interest for new contracting types such as PSS. This paper examines the current situation, investigates benefits and challenges when using PSS contracts and attempts to develop a model for traditional contracts and PSS contracts. The results show that advantages such as incentives for development and potentially lower costs are challenged by a conservative buyer in combination with reservations due to inexperience and insecurity working with this business model making the actors questioning the feasibility. The models developed clearly show the different phases of the contracts and states what actor that is responsible for the each phase. This is useful when comparing different contracts and also when to determine responsibility and issues related to the interface between different phases and actors.

National Category
Engineering and Technology
Identifiers
urn:nbn:se:liu:diva-70260 (URN)
Conference
The R&D Management Conference 2011, June 28-30, Norrköping, Sweden
Available from: 2011-08-29 Created: 2011-08-29 Last updated: 2012-01-16Bibliographically approved
3. Theoretical Environmental Comparison of Integrated Product Service Offerings vs. Traditional Sales
Open this publication in new window or tab >>Theoretical Environmental Comparison of Integrated Product Service Offerings vs. Traditional Sales
2011 (English)In: Systems Engineering / [ed] Boris Cogan, IN-TECH, 2011Chapter in book (Other academic)
Abstract [en]

The book "Systems Engineering: Practice and Theory" is a collection of articles written by developers and researches from all around the globe. Mostly they present methodologies for separate Systems Engineering processes; others consider issues of adjacent knowledge areas and sub-areas that significantly contribute to systems development, operation, and maintenance. Case studies include aircraft, spacecrafts, and space systems development, post-analysis of data collected during operation of large systems etc. Important issues related to "bottlenecks" of Systems Engineering, such as complexity, reliability, and safety of different kinds of systems, creation, operation and maintenance of services, system-human communication, and management tasks done during system projects are addressed in the collection. This book is for people who are interested in the modern state of the Systems Engineering knowledge area and for systems engineers involved in different activities of the area. Some articles may be a valuable source for university lecturers and students; most of case studies can be directly used in Systems Engineering courses as illustrative materials.

Place, publisher, year, edition, pages
IN-TECH, 2011
National Category
Other Mechanical Engineering
Identifiers
urn:nbn:se:liu:diva-73895 (URN)10.5772/2121 (DOI)979-953-307-410-7 (ISBN)
Note

Hittar inte linken???

Available from: 2012-01-16 Created: 2012-01-16 Last updated: 2015-06-02Bibliographically approved
4. Identification of Risks Related to Integrated Product Service Offerings of Rail Infrastructure
Open this publication in new window or tab >>Identification of Risks Related to Integrated Product Service Offerings of Rail Infrastructure
2014 (English)In: Through-life Engineering Services / [ed] Louis, Rajkumar Roy, Springer, 2014Chapter in book (Other academic)
Abstract [en]

Among construction companies in Sweden, incentives for development, increased efficiency and raised competence are low. In Sweden, construction contracts are currently used to a large extent, and have shortcomings concerning weak incentives for development of procedures. The over-detailed specifications cause major obstacles for the rail infrastructure industry in terms of technical development. There is clearly a need for change, and it is now in the strategy of the Swedish Transport Administration (STA) to get as much railway as possible for the money it spends. This includes increased productivity, level of innovation and competition, as well as a will to think more from a life-cycle perspective and increase cost efficiency. Changes in the business model is one of the strategies mentioned to reach these goals.

Performance contracting could increase the drivers for change within the industry and thereby increase cost efficiency and quality from a life cycle perspective. This type of contracting is also known as an Integrated Product Service Offering, or IPSO, and implies that one actor has the responsibility to deliver a result and therefore has incentives to optimize the use of energy and material. An IPSO has a lifecycle perspective, and the combination of products and services can be combined into an optimized solution for the customer, as well as give the manufacturing company the possibility to have control over the product throughout its whole life-cycle. PSS provides the supplier with the opportunity to increase the value of the solution for the customer by integrating components in new ways, as well as incentives for the supplier to realize a more economical and environmental development when considering the whole lifecycle. More money spent on the construction, and thereby improved quality, could result in reduced cost for maintenance work. On the other hand, too high a cost for construction can never be motivated by future savings for the maintenance cost.

New business models such as IPSO contracts create challenges such as uncertainty concerning forecasting costs at the bidding phase of the contract. With a business model focusing on delivering a result, a lot of the risk previously carried by the user is now assumed by the provider, and it can be difficult rededicating and controlling the risks and uncertainties. In this case the term “risk” is defined as the threat of loss from an unwanted event, to include financial, performance or timescale loss. Risk assessments, including forecasting and economic development, are very important for these long-term contracts and both the supplier side and the buyer side have to be considered. For longterm performance contracts risks caused by uncertainties arise in the bidding stage. Key uncertainties for a IPSO contract are performance, operation, training, engineering, affordability and commercial uncertainties.

In cooperation with the STA, the DORIS (Development of integrated product service Offerings for Rail Infrastructure Systems) project investigates the potential use of IPSO contracts for rail infrastructure. So far, only one such contract has been realized; this was partly funded by private capital, and no such initiatives are currently planned. This limited experience in the industry calls for more thorough research. In line with this, the aim of this paper is to identify potential risk components when using IPSO for rail infrastructure for both the provider and buyer perspectives. Furthermore, the paper seeks to investigate how these risks can be potentially reduced or avoided.

Place, publisher, year, edition, pages
Springer, 2014
Series
Decision Engineering, ISSN 1619-5736 ; 2014
National Category
Engineering and Technology
Identifiers
urn:nbn:se:liu:diva-73900 (URN)978-3-319-12110-9 (ISBN)
Note

On the day of the defence date the status of this article was Manuscript.

Available from: 2012-01-16 Created: 2012-01-16 Last updated: 2015-01-07Bibliographically approved

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