LEAN SERVITIZATION: ADDING VALUE TO THE PRODUCT-CENTRIC AFTERSALES PROCESS IN LIGHT OF DIGITIZATION

University of Groningen

Faculty of Economics and Business

LEAN SERVITIZATION: ADDING VALUE TO

THE PRODUCT-CENTRIC AFTERSALES

PROCESS IN LIGHT OF DIGITIZATION

Martin Rudnick

S2943956

m.rudnick@student.rug.nl

A Master Thesis submitted to the Faculty of Economics and Business at the

University of Groningen in partial fulfillment of the requirements for the Degree of

Master of Science in the Technology and Operations Management program.

Groningen

20

June 2016

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© 2016

Martin Rudnick

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ABSTRACT

A shift from ‘pure product’ to integrated product-service systems for manufacturing firms is observable bearing benefits for both, the organization and the customer. In literature drivers and enablers of this change, such as servitization of manufacturing, lean, smart devices and the Internet of Things have been discussed extensively and receive growing attention of practitioners. New technology developments in combination with the advent of a growing amount of information, lead to a mind-shift across companies and opening up additional revenue streams for organizations in the aftersales market. Hereby, the lean thinking approach provides a promising mean to enhance value in the aftermarket by altering an organizations’ aftersales business model in the digitization era.

The purpose of the paper is to outline the current state of research and contribute to the growing discussing of lean in the digitization era. Thus, the paper follows a case research approach and aims to examine characteristics of the aftersales process of a customized products domain. Later on, it shall help to streamline and guide through an organizations’ product-centric aftersales process. Findings show, that in product-service systems lean maturity and collaboration across departments are crucial for success. The creation of innovative solutions in conjunction with support of higher management level is needed to be competitive. Surprisingly, organizations are also willing to increase initial sales when reshaping their current product-oriented service. Within the conducted case researches organizations point out their endeavor to deliver innovative solutions, but often struggle due to a missing link between ready-to-use technology and making the technology ready for release. A lean servitization framework has been sketched out to support organizations in their delivery of aftersales services. Further, a shift from reactive aftersales service activities towards a predictive approach is observable in delivering digital product-service system.

Keywords: Lean Service; Internet of Things (IoT); product-service systems (PSS); servitization of manufacturing;

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PREFACE

This thesis presents the final work of the master studies in Technology and Operations Management at the University of Groningen, Netherlands. It reflects the documentation of my undertaken research during the time from February 2016 to June 2016. Specifically, it presents the results of a study towards Lean Servitization within the digital era. In detail, a closer look is drawn to valuable information extracted from the product life cycle and subsequent implementation into a company’s aftersales business model.

Multiple persons have contributed in different ways to make this master thesis happen. Weather their contribution was of academic, practical or supportive nature, all deserve a huge “Thank You”. I would therefore first like to express my gratitude to my thesis supervisor Daryl Powell and co-assessor Jan Riezebos for their time taken, remarks and hints on the topic on hand. The weekly hold SCRUM meetings gave valuable input, clear advice, support and served as a roadmap throughout the entire master period.

I would also like to thank Ralf Wieland from Kendrion N.V. to make an explorative case research happen at their organization and being the contact person throughout the time. Furthermore I would like to thank Maarten van Cann and Saskia Scheffers from NedTrain for their time to show me their operations and being available for questions and interviews.

Finally I would like to express my deepest gratitude to my family and friends for being helpful and supportive during the entire. Without them as backbone this thesis would not have been possible in the way it is presented.

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LIST OF TABLES

Table 1: Overview of Case Studies ... 14

Table 2: Generic BMC Template Questions (adapted from Osterwalder & Pigneur, 2010) ... 20

Table 3: Roadmap towards Lean Servitization (own table) ... 23

Table 8: Business and Manufacturing Context of Case Company B – NedTrain ... 30

Table 9: Lean Context of Case Company B – NedTrain ... 30

Table 10: Aftersales Context of Case Company B – NedTrain ... 31

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LIST OF FIGURES

Figure 1: Business Model Canvas (Osterwalder & Pigneur, 2010) ... 8

Figure 2: Preliminary Conceptual Model (own figure) ... 11

Figure 3: Lean Digitization Canvas (own figure; based on Osterwalder & Pigneur, 2010) ... 19

Figure 4: Theoretical Framework for Lean Servitization (own figure)... 22

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LIST OF ABBREVIATIONS

Auto-ID – Auto-Identification BMC – Business Model Canvas B2B – Business-to-Business B2C – Business-to-Customer CIP – Continuous Improvement ETO – Engineer-to-Order IDS – Industrial Drive Systems IoT – Internet of Things

KPI – Key Performance Indicator LDC – Lean Digitization Canvas M2M – Machine-to-Machine

MIT – Massachusetts Institute of Technology MRO – Maintenance, Repair, Overhaul MTO – Make-to-Order

NS – Nederlandse Spoorwegen NTR – NedTrain

OE – Operational Excellence

OEM – Original Equipment Manufacturer PSS’s – Product-Service System’s

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CONTENT

LIST OF ABBREVIATIONS ... vii

1. Introduction ... 1

2. Theoretical Background... 4

2.1 Lean in the Product-Service Context ... 4

2.1.1 Servitization ... 4

2.1.2 Product-Service Systems ... 5

2.1.3 The Lean Philosophy ... 5

2.1.4 Business Model ... 6

2.2 Digitization ... 8

2.2.1 Smart Technology... 9

2.2.2 Internet of Things ... 9

3. Research Design ... 11

3.1 Methodology and Conceptual Model ... 11

3.2 Case Protocol ... 12

3.3 Data Collection and Data Analysis ... 12

4. Case Analysis ... 13

4.1 Kendrion N.V. – Germany ... 14

4.2 NedTrain – Netherlands ... 16

5. Discussion ... 19

5.1 Lean Digitization Canvas ... 19

5.2 Theoretical Framework ... 21

6. Conclusion, Limitations and Further Research ... 26

APPENDICES ... 27

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1. Introduction

In today’s environment agility and innovation of manufacturing firms are of strategic importance and provide new sources of income (Goldman & Nagel, 1993). Driven by globalization and digitization, a trend for manufacturing firms from ‘pure product’ operations to integrated solutions (Brax & Jonsson, 2009) and product-service systems (PSSs) is recognizable (Baines et al., 2009). Those systems are of great strategic potential and imply value-adding activities to the product. Thus, organizations have a chance to generate value by reshaping their aftersales business model. One philosophy to streamline operations within organizations is ‘lean thinking’, originating from manufacturing and adapted successfully in several domains. In lean value is created by reducing waste in the process (Womack & Jones, 1996). As Malmbrandt and Ahlstrom (2013) and Baines (2015) point out, lean services for manufacturing organizations are still in its beginning and little research has been done yet.

First described by Vandermerwe and Rada (1989) servitization promotes intense customer relationship and goes beyond a service strategy to the adaption of new technologies and a disseminated reshape of the business strategy. Regarding this background, the concept of servitization entails new value-adding opportunities for manufacturers within the aftersales process (Mathieu, 2001). In particular, this paper focuses on product-centric servitization. This terminology describes a set of services that is directly related to a product offering. Activities, such as maintenance, repair, overhaul and/or support are examples of service offerings and are applied to a centrally located product. Advanced services examples include Rolls-Royce Aerospace with their power-by-the-hour model, Xerox with its document management service strategy or HUK-Coburg with its newly motor insurance approach. Consequently, the innovation of product-oriented service strategies experiences growing interest among researchers and practitioners (Visnjic, Wiengarten & Neely, 2016; Resta et al., 2015). A prevailing challenge is to adapt lean principles in servitization and shape the product-oriented aftersales process accordingly.

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Aforementioned developments point out the strategic decision-making process and complexity that is involved by replacing one-time product sales with ongoing, value-adding approaches in the digitization era. As identified by Baines et al. (2009) and Resta et al. (2015) lean operations are still lagging behind in product-oriented PSSs. A clear linkage of how IoT and Lean can be incorporated into a digital PSSs is lacking. Within lean servitization, waste reduction is crucial in order to win in the aftermarket. Specifically, this paper takes a closer look at the current product range and customer base of a company and brings it in context with their aftersales business model. In light with this, following research questions are defined:

Research Questions

1a: What product-lifecycle information are of importance for lean servitization? 1b: What information level layers are touched upon?

2: How can the gathered information are brought into context with an organizations’ aftersales business model?

By following a case research approach, this study aims to examine characteristics and underlying factors that are of importance for winning the aftermarket for a customized product domain. Research question 1a (RQ1a) aims on identifying the nature of information that are of importance in lean servitization. Numerous perspectives within an organization are going to be looked at, ranging from an organizations business and manufacturing context to their aftersales context. In RQ1b, a separation of the usability of information is being made, by differentiate between strategic, tactical and operational information related to the lifecycle of the products and services. Further, it is a first step to separate between useful and useless characteristics to find out common patterns. Later, RQ2 focuses on the creation of a theoretical framework that incorporates aforementioned characteristics. The constructed framework aims to generate additional value to customers, eliminate waste, improve effectiveness and reduce time-to-market by making use of lean and IoT. Build upon the purely the suggested framework of Cohen, Agrawal, Agrawal (2006), it also serves as a guideline to provide effective product-oriented service, related to a customized product domain.

Against this background, the paper contributes to the emerging field of research in lean operations of PSSs as currently there is a lack of how to provide efficient aftersales service. The objective is to extract crucial information for product-centric services in a high variety, low volume domain and guide organizations on how they can assess and apply these information into their individual aftersales business strategy. Further, this study looks for constraints and influential factors that have effects on the lean servitization process.

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2. Theoretical Background

This section presents background information of the paper. The terms being elaborated more in detail are: lean in the product-service context and digitization. First mentioned reflects the lean thinking approach in relation to product-service systems (PSS). More specifically the terminology of servitization is examined carefully with its link to business models. The second part digitization then elaborates on smart objects and an example of itself - the Internet of Things (IoT). In both sub-chapters the current state of research is pointed, with respect to the integration of lean and IoT.

2.1 Lean in the Product-Service Context

2.1.1 Servitization

Servitization can be described as the capability and processes of organizations by selling products and associated services to create and add value (Neely, 2008). First defined by Vandermerwe and Rada (1989) in the European Management Journal article with the title ‘Servitization of Business: Adding Value by Adding Services’, servitization offers entire market packages or bundles that include goods, services, support, self-service and knowledge. The primary aim is to add value to the original product sale. Later, Wise and Baumgartner (1999) argued that the product sale only accounts for a small portion of the revenue. They summarize that in automotive and personal computers industries the ongoing costs are five times the initial purchase price and in the locomotive industry the total expenditures are even 21 times of the original purchase price. Although different research communities use a different terminology for the same concept (Germany: Industry 4.0; Scandinavia: Product-service systems; UK/US: Servitization) a change of the value downstream towards the customer is observable (Wise and Baumgartner, 1999). Therefore, servitization represents the mind change of organizations to change their business models from a ‘pure-product’ view towards integrated systems.

Barnett et al. (2013) refers to servitization as a rather strategic decision that has the aim to gain value from the service with associated products. They state that incremental changes are insufficient and instead an entire change of the strategy is needed. Hence, the concept of servitization provides a mean to organizations to find additional profit centers by adding ongoing service activities to its product. In order to make use of the extra source of income a paradigm shift of the aftersales business model is crucial.

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chain, i.e. prioritization rules for customers and attributes that are of importance for customer, such as speed, quality, security (vi) monitoring of service performance. The framework is being used as a base for the development of the proposed theoretical framework and is adapted in light with digitization. By following the argumentation of Baines et al. (2009), additional value can be generated by reshaping an organizations’ aftersales business model. Due to the fact that the framework covers a complete end-to-end view of the product-related service process, it has been found useful for this research.

2.1.2 Product-Service Systems

Parallel to servatization the term product-service systems (PSSs) has been established in a different research community. PSS is defined as ‘a marketable set of products and services capable of jointly fulfilling a user’s need. The product/service ratio in this set can vary, either in terms of function fulfilment or economic value.’ (Goedkoop et al., 1999). Later Mont (2000) expanded PSSs to a combination of product and services to fulfil customer’s needs while having a small impact on the environment. Thus, PSSs can be applied when a firm offers a mix of product and services and has great potential to achieve economic and environmental efficiency. Enterprises show growing interest in the past decade to implement PSSs into their business strategy (Tukker, 2013). In comparison to a ‘pure product’ environment, PSSs entails three sub-distinctions which are dependent on the level of service: (i) product-oriented, (ii) use-oriented and (iii) result-oriented (Tukker, 2004). First mentioned adds some services to the initial product, in the use-oriented context the product is still owned by the provider but offered in a differ form and finally in the result-oriented branch provider and client agree on a result regardless the involved product.

Similar to servitization, the concept of PSSs show growing importance for a company and is critical to an organizations success in the future. Due to the growing competitive markets and a widespread decrease in margins, streamlining and improving the aftersales process offers a way of value generation and enhancement of customer satisfaction (Vandermerwe & Rada, 1989). One mean to improve the service process is the use of proven tools, such as lean. Although the lean approach emerged within the manufacturing context, several authors’ state that lean is applicable in the aftersales process (Ahlstrom, 2004; Baines, 2015). In light of this the lean approach is discussed and linked to current research in PSSs.

2.1.3 The Lean Philosophy

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consumption; and (v) the pursuit of perfection. They revealed that a general distinction between value-adding and non-value adding processes should be made. Examples of lean tools embrace Value Stream Mapping, Six Sigma, 5S, Kanban and the like. In manufacturing, lean tools support the visualization of the work flow and simplify the complexity of the operation. The desire to adapt lean in the product-service context is more difficult to realize because delivering services is more complex and requires different approaches in product-service design, the organizational strategy and transformation (Baines et al., 2009).

Generally lean has been linked a lot to aftersales process in recent years. Examples of forerunners are General Motors, Caterpillar or Saturn Corporation with its aftersales service business. By providing top aftersales service with making use of lean, it resulted in an efficient supply chain. Abdi et al. (2006) related the initially mentioned five principles of lean into the service context to point out main characteristics of lean services. They found out similarities between the lean approach and the service role models. Recent studies revealed characteristics and enablers of lean operations in product-oriented PSSs (Elnadi & Shehab, 2015; Resta et al., 2015). Overlapping results show that internal human resources, supplier and customer relation as well as work progress and management strategy are of necessity when designing PSSs more effectively. Therefore, the lean philosophy can be seen as a positive mean to improve the aftersales process. Following a lean servitization strategy bears several opportunities for a company to add value to their product-oriented PSSs and customer value. Consequently, lean plays a vital role within the service context. By investigating a company’s product-centric aftersales processes this study aims to make lean even more applicable in the context of digital PSSs.

Recently, lean experiences growing interest to combine it with digitization. Researcher within this field try to establish common pattern across different areas, for instance lean applied to digitize project management” (Nicoletti, 2010), lean applied to digitize procurement (Nicoletti, 2013), lean in combination with the smart factory approach (Radziwon et al., 2014) or lean in an IoT environment (Wang, 2015). Main findings of their researches include, that an organizations internal process have to be first streamlined, before applying digitization means. Further, they point out that a process has to be mapped out to make lean and digitization to a value added mean in an organization.

2.1.4 Business Model

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organization within the network and (vi) a formulation of how competitive advantage can be gained and hold over rivals. It can be concluded that business models intend to create sustainable competitive advantages in specific market domains. Business Models have been developed and applied successfully into different industries. A success story is the in 2003 introduced Apple iPod. Apple revolutionized portable entertainment and created new markets by combining a good technology with a great business model. Unless earlier companies, such as Diamond Multimedia or Best Data, they provided a mix of hardware, software and service in their innovative business model. Other examples include Wal-Mart and Target with their pioneering business model or the rapid increase of low-cost US airlines of the market share to over 50% (Johnson, Christensen & Kagermann, 2008).

The strength of business models is that they visualize the entire process of creating, delivering and capturing value. Kindström (2010) identified key aspects to consider when developing a service-based business model. The importance lies in the development of a holistic scheme with a strong link to the customer in order to offer dynamic services according to their needs. Driven by both – new customer demands and competition – product-based companies need to develop a concept in which they can sell their services at best. Amit & Zott (2012) came up with a set of questions that need to be tackled when inventing new business models. They state, that business model innovation provides an alternative cost saving tool compared to product or process innovation. Consequently, well-constructed aftersales business models provide significant benefits for organizations across industries.

Neely (2008) described the interplay of service business model innovations of manufacturing organizations with product innovation. Service business model innovation describes the shift from “pure-product” business models to a “service-oriented” model (Cusumano, Kahl, and Suarez, 2014). Visnjic, Wiengarten and Neely (2016) found out that a successful interplay between the service business model innovation and product innovation results in long-term profit. On the contrary, solely focus on the service business model innovation results in short-term gains and hinders long term success.

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Below figure depicts the BMC of Osterwalder and Pigneur (2010):

Figure 1: Business Model Canvas (Osterwalder & Pigneur, 2010)

Osterwalder and Pigneur’s (2010) definition of a business model is “the rationale of how an organization creates, delivers and captures value.” By taking into account the customer needs, it can be used for depicting existing or develop new business models and provides a strategic management tool. Since its publishing date, researchers have expanded the BMC to different settings and new canvases for specific niches appeared (e.g. Lean Canvas). Figure 2 presents the published template of Osterwalder and Pigneur with its labels. As the topic of this thesis is lean servitization the focus is drawn to the elements on the right side, namely “Customer Segments”, “Value Proposition”, “Channels” and “Customer Relationships”. The reasoning behind this approach lies in the provision and creation of revenue and more importantly Value Proposition reflects the most important segment (Gassmann, Frankenberger & Csik, 2014; Osterwalder & Pigneur, 2010). Similar to lean, it presents the market players and provides a visual tool of how revenue is captured.

2.2 Digitization

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combination with the available information are the driver for an organization’s competitive advantage. Therefore, the collection of information and data shows increasing importance for an organization. For example, within the automotive industry General Motors and Ford collect data about their car systems and use them to provide additional information to the customer. Similar, in maritime industries vessels are equipped with ‘smart’ devices and are able to provide real-time data about the location of the vessel, temperature inside of a container and historical data.

2.2.1 Smart Technology

Constant development in modern technology increases the use of smart devices in practice. Two components are of importance when talking about ‘smart products’ and shape this terminology – the physical product and the information product. Enablers of this change are advances in technology to a more favorable cost-effectiveness balance and therefore multiple industries get attracted by smart technologies (Mattern & Floerkemeier, 2010). Porter and Heppelmann (2014) strengthen this statement by arguing that smart products have the ability to change the value creation process for the customer and also the competition of organizations at the market. They conclude that smart and connected products have an even larger impact and commence the next era of IT-driven productivity, affecting different industries directly or indirectly.

New technology developments in combination with the advent of an enormous amount of information lead to a mind-shift across companies (Mattern & Floerkemeier, 2010; Kiritsis, 2011; Kagermann, 2015). Unless lean, digitization does not examine existing operations and takes action on waste generators, rather it builds a virtual counterpart to the real-world, implementing information of the product-life cycle. Kiritsis (2011) conducted a case study to investigate the importance of a closed-loop product lifecycle management. Findings show that a trend is observable in incorporating information from the extended product lifecycle (use and end-of-life phase) obtained through smart products. Similar, Främling et al. (2013) point out that smart products show growing interest in industry and in the everyday life. Especially in manufacturing, the use of smart technology to capture information, such as Big Data, radio-frequency identification technology (RFID) or Internet of Things (IoT) require companies to go beyond lean and being agile. Tao et al. (2015) addressed issues when shifting from product-oriented manufacturing towards service-oriented manufacturing. Similar to lean, findings show that modern technologies, such as IoT, provide a mean to positively contribute to a company’s mind-shift towards digital PSSs.

2.2.2 Internet of Things

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connect objects to computers to create a digital network. The most promising ‘Auto-ID’ application in practice is RFID, where a tag is placed on a physical object. Retrieving current and historical information about the product-in-use in real-time is promising to streamline manufacturing and distribution processes of a product (Welbourne et al., 2009). IoT is one concept that goes one step beyond RFID and envisions a future vision to integrate the physical world with the virtual one. During the industrial revolution machines learned to do, in the past decades they learned to think and with IoT machines shall learn to sense and respond (Miorandi et al., 2012).

Bearing new challenges and opportunities for various sectors, IoT assesses information of the extended lifecycle and the information flow within a company. The communication and information exchange between machines - machine-to-machine (M2M) - is the leading paradigm towards IoT (Wu et al., 2011). According to Atzori, Iera and Morabito (2010) this shift should focus on information as the core of communication and networking in order to be a viable option for an organization. However, current research shows struggle on implementing IoT into an organizations business model. At this moment no common IoT standard concept exists that can be used for IoT implementation (Chan, 2015; Kuber, Främling & Derigent, 2015).

Closely related to the terminology of smart devices, is the smart factory. A smart factory represents the future, in which devices are communicating on a M2M basis and making decentralized decisions. By making use of the IoT, real-time communication with humans is possible. Radziwon (2014) describe it as the future of manufacturing, which has not reached its full potential yet. While a clear linkage between IoT and lean is not established yet, researchers trying to figure out a way to integrate those two means. For instance, Nicoletti (2010) points out characteristics when applying lean to digitize project management. He suggests, that in an intangible environment, such as project management, an increase in digitization is essential for business process improvement. A second proposition of his work says, that it is important to streamline processes first before applying digitized means.

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3. Research Design

This section describes the method of use for the research. At first the methodology will be described, followed by the conceptual model. Further, the data collection protocol will be discussed, wrapped up by the collection and analysis approach for this research.

3.1 Methodology and Conceptual Model

The proposed framework is built upon a combination of existing theory in literature, an in-depth explorative onsite case research and two follow-up case researches. This sequential approach strengthens the robustness of the findings to other domains and enhances the generalizability. Since the focus of the study are ‘how-‘ and ‘what-type’ questions, a clear link between the modern phenomenon lean within digitization has not been established yet and it is on the verge of a new era. A suitable method to answer that type of research questions is case research, with its focus on developing and testing theory (Voss, Tsikriktsis, & Frohlich, 2002). In their paper Voss, Tsikriktsis and Frohlich (2002) further point out that a longitudinal case study enhances the opportunity to observe and identify mechanisms of the relation between cause and effect. The creation of a new artifact, namely Lean Servitization, shall frame the terminology that is being used throughout. This study aims to develop a contemporary approach for organizations with customized products to add value to their aftersales service business model by taking into account lean and digitization. Below figure represents the preliminary conceptual model that has been assumed before conducting the research:

Lean Aftersales Service

IoT

+

+

Figure 2: Preliminary Conceptual Model (own figure)

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organizations to detect pattern, which have not been seen before and come up with innovative solutions.

Multiple sources of evidence for data gathering have been used for triangulation in order to strengthen construct validity (Yin, 2009). The case studies were used to identify, evaluate and match patters from a within case analysis in accordance with a theory building approach. In a first step it was necessary to become familiar with each case and identify case specifics. Later, cross-case analysis has been applied to identify common patterns (Eisenhardt, 1989). The obtained results were used to build the theoretical framework for a customized environment in the lean and digitization era. Various theoretical perspectives have been used for the creation of the Lean Digitization Canvas and the theoretical framework in order to strengthen internal validity (Gibbert et al., 2008; Yin, 2009). Reliability and Validity are strengthened through the use of a well-defined case protocol (Yin 1994).

3.2 Case Protocol

Case study research is appropriate to investigate the context of phenomena in its real-life setting and meaningful insights can be gained through observing practice. Further, case research is applicable when variables are still unknown and the interconnection has not been fully understood (Meredith 1998). In order to standardize data collection and compare results, the creation of a case research protocol has been established. The case protocol serves as a guide to be followed for each of the case researches in which it describes the methods, instruments, procedures and general rules to be followed. It is divided in three phases – pre-visit preparation, on-site data collection and follow-up activities. Steps to be taken are explicitly described in the case protocol. Areas that are examined of each company are the business and manufacturing context, lean context, aftersales context and the digitization context. Later on, the case protocols shall be used as a base for the analysis of the obtained information and how companies can win in the aftermarket. The entire data collection protocol of each case can be seen in the appendices.

3.3 Data Collection and Data Analysis

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4. Case Analysis

A case study protocol has been created and later on it has been applied to two case studies: Kendrion in Germany and NedTrain in the Netherlands. Each case study has been investigated in terms of business and environment context, lean context, aftersales context and digitization context. In particular, those four areas represent the core of this research and make it possible to compare cases and come up with suggestions of how those companies can benefit from digital PSS solutions. Results of the observation are summarized in Table 1. The information have been obtained through company tours, informal conversations, semi-structured interviews (interview questions can be found in Appendix IV) and attendance at meetings.

Cases were selected based on a set of criteria. Most importantly the case companies are located in a customized domain – high variety, low volume. The application of lean principles and lean methods for their operations reflect a fundamental prerequisite. Companies operate in their business for more than 50 years and are well established in their domain. Further, an aftersales service offering for their customized product has to be apparent. In general, the selected cases are eager to apply digitization instruments to further increase their revenue streams, provide innovative solutions and retain/gain customers. For the case selection procedure the company shall also represent a large sized company.

Characteristics Description Kendrion Nedtrain Business &

Manufacturing Context

Lean Context

An overview of the company’s products and services shall be given. This section deals with a company’s main products to service, their hierarchy, and business environment and to which degree customization does happen. Further, the degree of innovation is investigated.

To which extent does the company support and apply lean principles? Particularly, coaching and guiding of employee’s towards lean principles, corporate lean programs, the areas of lean application and maturity of lean is described.

On a supplier pyramid the company can be considered as TIER I-TIER II (component supplier to OEM) with customized electromagnetic breaks and clutches for industrial applications. The organization is divided by function and operates in a MTO environment. The competitive market requires them to constantly look for new solutions for their product-service offerings. With 22 facilities worldwide and a workforce of 2700 people they generated 440M revenue in 2015 and their main focus lies on the European market. Use of lean principles mostly applies to production but also in management areas. English classes to staff, feedback rounds and on-job training helps employees to grow further. The use of 8D (Eight disciplines – process to solve complex problems) shows a strive towards process stability

On the supplier pyramid the company provides service to OEM products. They are the service company of NS, their parent company. The area NS operates in belongs to an ETO environment, as trains usually first need to be designed and are of high investment. The market requires NedTrain to constantly provide running trains with an increasing amount of features, such as A/C, WI-FI, screens, plug in solutions etc. NedTrain employs 3500 people and they perform MRO (Maintenance, Repair, Overhaul) to NS trains.

14 Lean Context (cont.) Aftersales Context Digitization Context

How close is the interaction with the customer? A careful examination of the channels of contact, KPI’s, surveillance of service activities and the importance of the aftersales service is being done.

This part presents the data sharing/use of real-time information of the case studies, the possibility to apply digitization means and if awareness of the potential benefits across the company is recognized.

(important for lean) and the awareness of lean is apparent in key departments. Unlike in another business unit of their company, no augumented reality (short video of how to do the task) is apparent.

Distinction of the aftersales service in warranty vs. non-warranty products. Customers mostly contact customer service via phone or submit their claim online. Departments lack in collaboration in the process which results in long processing times of service claims. Although service is a strategic pillar of the organization, it bears potential.

Pilot study of performance surveillance at lifts is currently done. A shift from mechanical solution to sensors is observable to add value to the products and attract additional customers. However, cost-effectiveness needs to be considered. Traceable attributes such as performance, switch cycles, temperature, life time duration are of interest

measures and regular training sessions enhances this process. With the “Pit-Stop” program (service within 24h) they were able to cut service time by far more than 50% - This is a so called Kaikaku approach (make radical changes to the system instead of tiny steps) Close collaboration with NS to determine date & time of arrivals of train. 24 hour target for “Pit-Stop” train. Order for product-service is security of passengers, quality of service & speed. Close collaboration between departments and after every shift a feedback and transition time slot is reserved to update the following shift.

NedTrain currently works closely on a pilot project to make use of real-time data information to sense potential failures in advance – success rate 50%. Management can also see status of trains on smartphones. Lead time reduction and common understanding helps them to extract potential benefits.

Table 1: Overview of Case Studies

Table 1 represents the summarized representation about operations at the case companies, following the described research design in chapter 3. The entire data can be found in Appendix I-III. A short description of the companies with an extensive within-case analysis to clarify why and how the companies could benefit from digital PSS solutions is carried out in the following sub-chapters.

4.1 Kendrion N.V. – Germany

DESCRIPTION

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Germany. A minority of the production and assembly is performed elsewhere around the world. Strategic pillars for a long-lasting, sustainable relationship with its customers are the provision of solid know-how, a service-oriented approach and reliability. With their 2.700 personnel, Kendrion achieved sales of EUR 442 million in 2015. Kendrion's shares are listed on Euronext's Amsterdam market.

Kendrion is subdivided into five business units and operates on 22 locations worldwide. The main market is in central Europe. Their headquarters of the business unit Industrial Drive Systems (IDS), a full-line provider of customized electromagnetic brakes and clutches for industrial applications, is located in the southern part of Germany and employs more than 200 people. Within their process they apply lean methods in production and perform aftersales services, such as replacement, repair and customer support. Their business activity and location within the industrial sector according to predefined criteria, makes this case reasonable to conduct an in-depth case research for customized products. Customization is being performed on a make to order (MTO) business production strategy. The MTO manufacturing process implies that manufacturing of the end product is released upon a customer’s order. Finished goods are typically customized to buyers’ specifications with minor variations. This creates additional waiting time for the customer but flexibility and a lower inventory level are the benefits (Gupta & Benjaafar, 2004).

ANALYSIS

While the organization applies lean in production, other sectors are barely affected of it. Within production common lean practices, such as 5S or 8D (Eight disciplines – process to solve complex problems) are performed to streamline the process. Extending the lean thinking to other areas of the organization could bring possible benefits and related competitiveness, such as faster processing of claims and related customer satisfaction or cost saving. Through discussions and interviews different employees emphasized following:

 Back and forth between departments to process a customer claim

 Lack of centrally located customer center to share expertise

 Stash away newly developed technology rather than making use of it

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the SIPOC method (Supplier, Input, Process, Output, and Customer) can help to understand the process and come up with improvements.

Management recognizes the benefit that customized product-service support bears and research and development (R&D) is being performed. Digitization plays a vital role in that process, as new technologies enable the provision of additional value to its customers and hence, make the product more attractable. However, this process is at Kendrion in its beginning and further work is needed. Although pilot testing of IoT related technology is being done on Kendrion products to surveil operations and get real-time information, the entire potential is not utilized yet. Newly developed technology by R&D is partly in the drawers due to staff turnover and scarce collaboration across departments. Various solutions to prevent this situation are conceivable. For instance, short weekly meeting with specialists of all departments about the current state of operations or performing tiny improvement steps at a time by actively involve employees can be applied. Currently, this approach exists, namely the existence of a Kenny mailbox system, but is underutilized. Rather than doing a Kaikaku (a radical change) a step-wise approach to improve operations is possible.

Other distinctive features that were observed during this longitudinal case study include the support of higher management and contact channels. Top management level realizes that additional profits can be realized through an increase of engagement in the aftersales service. For instance, personalized features or different customer support levels (platinum, gold, silver) can help to increase the customer intimacy. Also, the creation of an online platform to document the customer claim and upload failure data of the serviced product provides an opportunity and new ways to apply lean and IoT to the company. With learning by doing the company can further utilize the potential of their personnel. Motivating the workforce to personally produce new ideas, e.g. an award system, helps the company to do better and achieve sustainability in the aftersales process. When providing aftersales support, the safety for the user of the product is most important to the company (e.g. electromagnetic break in a lift). Thus, it is crucial that products are functioning well and potential errors can be perceived in advance to grant safety. Quality of the product is then also assured. Speed as a measure is ranked behind safety and quality, as it is less important than those.

4.2 NedTrain – Netherlands

DESCRIPTION

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operational and 1000 administrative work. Generally NTR can be seen as a large sized company that is operating independently of their parent company NS.

The ratio of planned maintenance and unplanned maintenance is about 70:30 (percentage of all maintenance activites). Planned maintenance occurs in intervals of three months to ensure safe travels. Unplanned maintenance, such as breakdowns, A/C problems, engine problems, is performed as a reactive measure. The range of maintenance activities reaches from small bolts for replacement up to complete engines. Maintenance is often subject to regulations of the Dutch Government. In the location at Onnen four tracks are used for maintenance service. Maintenance personnel works in three shifts, each eight hours and after every shift discussion rounds and feedback for improvement are being done. Within the last few years they introduced and implemented successfully lean measures in operations. The recent introduction of “Pitstop” can be seen as a Kaikaku approach to radically change operations. “Pitstop” means that once a train enters the facility the target is to perform repair within 24 hours on one dedicated track. They were able to cut down the needed repair time by far more than 50% by doing this change. Visual equipment, such as the lean board or time system on a TV, supports them to monitor their performance and see the current status in operations. On top, executives have access to the current maintenance status of all trains on their smartphones. Similar to Kendrion, NedTrain follows the order of safety, quality and speed, meaning that all attributes have to fulfilled in mentioned order in their aftersales process. Safety for passengers, quality of their products and lastly time needed to perform aftersales service.

ANALYSIS

While the aftersales process of trains has experienced immense improvement through the Kaikaku approach, it still holds room to perform better. The current predictive maintenance accuracy of about 50% of engines is not satisfactory and pursuing a higher percentage bears potential for further improvement. R&D is crucial to utilize the current state of technology and connecting it to new IoT solutions. Hereby, the connection between the original product and the latest technology plays an important role. Transmission of the real-time data and analysis are follow-up steps, but they are highly dependent on the IT infrastructure.

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5. Discussion

This chapter discusses the findings and presents the developed Lean Digitization Canvas and related theoretical framework.

5.1 Lean Digitization Canvas

This section describes the development of the Lean Digitization Canvas (LDC), a suggested business model that can help companies to depict their current aftersales service. It is also applicable to the production process and other areas of interest. After describing and analyzing the aforementioned cases to identify common patters (Eisenhardt, 1989), the LDC has been developed to incorporate the two pillars lean and digitization. It also serves as a first step to answer RQ1 and RQ2 of how lean servitization can be brought into context of a company’s aftersales business model. Restating the research questions, shall help the reader to follow the line of thought:

1a: What product-lifecycle information are of importance for lean servitization? 1b: What information level layers are touched upon?

2: How can the gathered information are brought into context with an organizations’ aftersales business model?

Figure 3 shows the suggested LDC, a modification of the BMC template of Osterwalder and Pigneur (2010:

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Above figure includes findings of the case analysis and serves to help companies to depict and improve their current aftersales service process. Sequential-case analysis was carried out in order to improve understanding and increase generalizability of the suggested business model. In terms of lean maturity, both companies scored medium to high (subjective observation) leading to the conclusion that “Lean” is one key element to succeed in aftersales services. While teaching the workforce that lean concept, they should be actively involved in doing the changes. Findings are underpinned through an employee’s understanding of lean and implemented corporate lean programs. Especially in NedTrain this has shown immense improvement in operations. This is in line with Bortolotti, Romano and Nicoletti (2009), where they investigated the process improvement of pure service-providing companies by applying lean. In particular, an organization shall have developed a mature lean thinking approach and score high on lean implementation across departments.

As mentioned before, the BMC of Osterwalder and Pigneur (2010) build the fundament with the four attributes customer segment, channels, value proposition and customer relationship. Those four attributes represent ways to deliver value to the customer and shows the company’s interaction with the customers. Specifically, a company shall ask below example questions when investigating their current operations:

CATEGORY EXAMPLE QUESTIONS

Customer Segments

Channels

Value Proposition

Customer Relationship

For whom are we creating value? Who are our most important customers?

What will your customer experience when they buy your product or service?

Through which Channels do our Customer Segments want to be reached / status now? How are our Channels integrated?

Which ones are most cost-efficient?

How are we integrating them with customer routines? What value do we deliver to the customer?

What bundles of products and services are we offering to each Customer Segment? Which customer needs are we satisfying?

What type of relationship does each of our Customer Segments expect us to establish and maintain with them?

How are they integrated with the rest of our business model?

Table 2: Generic BMC Template Questions (adapted from Osterwalder & Pigneur, 2010)

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The value proposition part in figure 3 is highlighted yellow and implies the actual value generation activity to the customers. Fleisch, Weinberger and Wortmann (2014) present in their work a five layer value creation model in IoT-solution with a physical and a digital world in order to achieve customer value. These five layers are also apparent in the Lean Digitization Canvas, when linking back their findings to this case research. The physical world includes two layers, namely the physical entity (the product) and the sensors/actuator (current technology). On the opposite the digital world includes the layers of digital services (i.e. mobile services for smartphones or front-end) and analytics (i.e. analyzing, synchronizing of data or back-end). In particular, security, structure and content management are related to the back-end, whereas the users interface and continuous monitoring are related to the front-end. Both, physical and digital world should be connected to leverage existing functions with the opportunity of new services. In both research cases differences are apparent in the activities of aftersales services provided and size of the serviced products. The applicability and use of digitization means differs between the two companies. Whereas Kendrion currently is testing a shift from mechanic collection of data to sensors with pilot testing, NedTrain appears to be one step ahead already receiving some real-time information about their fleet, shifting towards preventive maintenance. Generally, in both case researches this seems to be a prevailing challenge and is the core to deliver value to the customer.

Also, Value Proposition is the area where RQ1 comes into play. Information are captured from the utilization phase (growth, maturity, decline) of a product’s lifecycle, depending on the five layers mentioned before. The better a company connects the physical and digital stream, the more information can be gathered. This affects all management layers and has to be communicated from top to bottom. Especially, information about performance, temperature, activity (on-off) wear & tear, geography and application area (car vs. truck) are of interest.

5.2 Theoretical Framework

In combination with literature review, the comparison and analysis of the two cases, served as the base to build the theoretical framework for Lean Servitization, as shown in figure 4. Based on the article of Cohen, Agrawal and Agrawal (2006), it presents an extension and updated version in light of digitization and aims to answer the research questions in this paper. Specifically, a process is presented to achieve lean servitization, mentioning information of importance and relate them to different phases. Finally the sub-steps are brought into context with an organizations’ aftersales business model.

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Customer Relationship

Value Proposition

Customer Segments

Operational/ Tactical Level

1. Identify Products

2. Customer Intimacy

3. Determine Operating

Domain

PRE-PHASE

SERVICE-PHASE

POST-PHASE

A) INDIVIDUAL SERVICE STRATEGY

4. Type of Service

6. Access Ressources

8. Monitoring

Channels

9. Coaching & Guiding

Cross-Departmental Collaboration

7. Interim Period

Strategic Considerations

5. Commercial Value

of Information

Lean Maturity

Figure 4: Theoretical Framework for Lean Servitization (own figure)

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GROUP STEP # EXPLANATION

C UST OM E R S E GM E NT S 1. Identify Products (Innovation) 2. Customer Intimacy 3. Determine Operating Domain 4. Type of Service 5. Commercial Value of Information 6. Access Resources 7. Interim Period 8. Monitor Performance 9. Coaching & Guiding

Questions to be asked should include: which products are going to be supported/ discontinued for service; how critical is support; are there synergies between products? Management should look out for current innovative business solutions that could be applied to the service process. Customer needs are described and a strong customer relationship is determined. Personalization (e.g. customer’s logo) on products if possible. This generates additional value to a company’s products.

B2B or B2C environment? Does the company provide support for customized or standardized products? Are there any procedures/processes of similar companies available?

Determination of after-sales organizational structures, e.g. does the company have warranty-related support and non-warranty-related support? By gathering / processing this information, the user/producer might benefit during the after sales period. For instance, information about the products behavior in use could be beneficial for component suppliers to improve their aftersales process and/or initial sales offerings.

This step includes processing the claim from ramp-to-ramp, provide the actual aftersales service by using internal resources.

Provision of a certain time frame to check and see if service was completed successfully for a pre-determined time (e.g. two weeks)

This step includes visualization of performance through continuous monitoring equipment and communication of those to employees.

The last step enhances employees for an effective and efficient provision of aftersales service in topics such as lean and digitization through discussion rounds. This improves the motivation of staff and results in higher quality of the aftersales service.

VA L UE P R OPOS IT ION C UST OM E R R E AL T ION S HI P S

Table 3: Roadmap towards Lean Servitization (own table)

Treacy and Wiersema (1993) point out three principal dimensions that are of importance for customer value:

i) Product Leadership: an organizations focus on innovation and product performance

ii) Customer Intimacy: describes the satisfaction of customer needs and a strong customer relationship is determined

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A vital link is depicted by the “Channels”. More specifically, in which way does the organizations in a customized domain interact with their customers. A possible innovative solution is the creation of an online platform where customers can state their claim and give details about the product that needs service, i.e. product/order number, failure area, details about failure, performance, temperature development, usage pattern (RQ1a). In this process employees from all levels are involved, as a change in the channels could result in higher initial costs with different process sequence. Required skills are proper planning and scheduling and change management has to be communicated to the workforce (RQ1b). Other ways to interact are via phone and/or mail but have the disadvantage of a longer processing time.

Following the framework, the next sub-steps belong to the “Value Proposition” section. This section mainly belongs to the carry-out phase, as the physical and digital streams are combined to provide lean servitization. The importance of value proposition is widely described as the most important segment (Gassmann, Frankenberger & Csik, 2014; Osterwalder & Pigneur, 2010). Most of the time operational staff is involved in this area as they deal with the product-oriented service. Especially for Kendrion step 5 (commercial value of information) could be of great importance as they are a component supplier. By having information available about the extended lifecycle of their products (i.e. electromagnetics breaks in lift and/or engines) they could generate additional value. Utilizing and applying sensitive information, such as reliability or performance, can be of great advantage. For instance, the company could be interested in purchasing specific data of users that are using the product to detect patterns and enhance value of their products. For NedTrain it can be of importance to get or keep information from competitors (e.g. maintenance service of trains in other countries or reliability of trains in other countries) to see why they do better. NedTrain might be interested in selling specific data to their component suppliers in order to provide them with user patterns, resulting in a higher quality of their products. After completion of the aftersales service an interim period of a predetermined time generates value, as the customer has some security that the product is as-good-as-new.

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from executives to service personnel, see the flow in their operations and are able to solve problems by themselves, eventually leading to business growth.

Lean PSS‘s

IoT

+

+

Aftersales Service

+

Figure 5: Revised Conceputal Model (own figure)

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6. Conclusion, Limitations and Further Research

Investigations of different product–service offerings at the German headquarters of customized electromagnetic breaks and the Dutch locomotive and rolling stock maintenance company, lead to new insights of how an organization’s aftersales business model is affected by digitization. This work reflects a Lean Digitization Canvas with a distinction of value proposition into five layers. By presenting a newly developed business model, companies can apply it to their current operations in aftersales process to visualize it in the context of digitization and streamline their business processes. With respect to the research questions, crucial information have been found on different management levels and brought into context of an organizations’ aftersales business model. The subsequent, proposed theoretical framework reflects the principle dimensions for customer value and provides key activities to follow when engaging in the aftermarket. The sequential case study approach in a customized product aftersales service environment revealed that an organizations aim is to provide safety for the user first, followed by quality of the serviced product and then speed of the process. Cost describes an end result, rather than a primary goal. Also, findings show that in product-service systems lean maturity and collaboration across departments are crucial for success. The creation of innovative solutions in conjunction with support of higher management level is needed for success.

The model may serve different needs for researches and practitioners. The proposed Lean Digitization Canvas and the theoretical framework can be used for researchers to understand how to add value to the product-centric aftersales process within the digitization era. By following this approach, crucial information can be extracted (e.g. performance, application area and wear & tear), latest technology is considered and organizations innovativeness can be depicted on a guided path. For practitioners the value of the research is that it presents a way towards an efficient and effective aftersales process, by making use of lean methods and business innovation. It could enhance the overall performance of the organization by considering the areas of interest and applying innovative solutions. Lean is a prerequisite in digital PSSs and later on digitization means, such as IoT, adds additional value to it.

As a follow-up the presented findings give directions and questions for further research, moving beyond the reshape of an organizations aftersales business model and addressing the applicability of the proposed findings. Due to the limited cases involved, it cannot be considered extensive and implies limitations that can be overcome by further research.

i) Application to standardized products aftersales service, i.e. high volume, low variety domain to see if findings are in line with the presented ones in this thesis

ii) Enlarge the number of companies to generalize findings

iii) Test the applicability of the framework in start-up organizations or small- and medium-sized companies and investigate if the outcome shows the same

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APPENDICES

Appendix I: Case Study Protocol

Case Study Protocol

Lean Servitization: adding value to the product-centric aftersales process in light of digitization

Martin Rudnick University of Groningen

Groningen, Netherlands

m.rudnick@student.rug.nl

This protocol serves as a guide to be followed for each of the case researches and is divided in three phases – pre-visit preparation, on-site data collection and follow-up activities.

Pre-Visit Preparation

Before the actual company visit a primary contact person of each company has to be identified. Initial information shall be asked/researched about their domain they operate in (low volume – high variety), their current lean program and use of internet of things. Further information about each company shall be used to determine the suitability of the company for the case research.

A brief summary of the research to be conducted shall be given as executive summary to the primary contact person in order to give them a heads-up about the case research. Leading persons, such as production manager, quality manager or business unit manager of departments/plants should then receive notification about the research with a phone number and e-mail provided for possible inquiries.

Once a contact person has been identified, regular/multiple company visits and discussions should be mediated before gathering information about the company and their industry.

On-Site Data Collection

As this research is subdivided into two parts – longitudinal case research and sequential case research – different on-site data collection methods take place.

i) Longitudinal Case Research

Hereby the first step is the assistance of a contact person to get to know people within the company that are relevant for the research. The establishment of a friendly environment with key stakeholders (sales, quality, management, production, service) is beneficial for the case study. Following that, the current lean program is pointed out with a link to service activities.

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ii) Sequential Case Research

Opposite to the longitudinal case research, a sequential case research is subject to time limit. Hereby the findings of the aforementioned study serve as base to generalize findings. First step is a short company tour through their aftersales service process and their current lean program. This shall give an impression about their lean program and what kind of service activities they perform. Following that, an interview is going to be conducted with a management person of the company. A semi-structured interview, mainly about the three pillars lean, aftersales service and internet of things, shall help to strengthen the findings of the longitudinal case research. The questions that serve as base can be seen in Appendix IV.

Following areas shall be examined in detail:

i) Business and manufacturing context – in particular the context area of the research and their environment. Hereby, general information about the company are captured.

ii) Lean context – in particular the application of lean principles the company’s maturity of lean. Hereby, the extension of lean is captured.

iii) Aftersales context – in particular areas/operation of service activities. Hereby, information about the current aftersales process is captured.

iv) Digitization context – in particular the current/intended future use of internet of things. Hereby, information about the company’s use of up-to-date technology within the aftersales service is provided.

Follow-up activities

This section applies only to sequential case research. Upon the data collection a filled in case protocol will be send to the contact person(s) for review to ensure correctness of the data obtained. Once received, a comparison with the findings of the longitudinal case research is being done.

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Appendix III: NedTrain Analysis

Table 4: Business and Manufacturing Context of Case Company B – NedTrain

Context Area Questions to be answered Notes

Main products Defined as the most important product to the company (module) with highest occurrence in production, aftersales service and or sales.

Trains, only MRO organization

Business Environment

Key characteristics of the business environment (e.g. area of operations, industry type)

NedTrain are the locomotive and rolling stock maintenance and repair company of the Dutch Railways company, Nederlandse Spoorwegen (NS)

Organisational structure

Hierarchy, Roles and Responsibility, Number of employees, Clear structures, hierarchical, 3500 employees, Degree of product

customization

Nature of customization, type of manufacturing (ETO; MTO; ATO; MTS)

ETO – according to request of customer, long life time of trains 40-50 years

Financial Performance

What is the company’s yearly turnover? N/A Main service

activities

Determine what kind of aftersales services are apparent (warranty vs non-warranty) and product-centric activities (repair, maintenance, support)

Non-warranty – maintenance and repair of train  if A/C is broken, transmission, breaks etc…

Innovation How does customization work?

Has there minor or major changes to be made?

N/A – Innovation needed in order to stay competitive, for small bolts a 3D printer could be useful

Table 5: Lean Context of Case Company B – NedTrain

Context Area Questions to be answered Notes

7 wastes Does the company perform/pay attention to the 7 wastes? (TIMWOOD)

Yes

Value stream Is the current value stream in operations depicted? No, but not necessary as only 4 tracks available Qualification Does the company qualify employees and train them? Regular training sessions and feedback rounds

Empowerment Does the company empower employees through rotation? Employees move every shift to another train with different service aspect – hence, unlike in production no

empowerment applied

Standardization Does the company standardize processes and procedures? Yes – lean board and tables for improvement potential/feedback/service performance

5S Is 5S applied within the company? Yes – marks on the ground