MSc Thesis

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MSc Thesis

Integral Fleet Management:

A Sophisticated Approach

‘COOPERATION IN FLEET MANAGEMENT’

P.C. den Bak (s1681435)

Dual MSc Operations Management

Final Version: 02-12-2013

Supervisors:

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Management Summary

Fleet management is about managing a company’s transportation or functional fleet (i.e. cars, ships, trains). Due to internal challenges (e.g. scarce technical personnel) and external influences (i.e. technological changes, budget cuts by shareholders or politics), organisations that own a fleet explore new ways of cooperation. This thesis aimed to provide support for managers in organisations that own or use a fleet and are interested for the critical factors they should consider in inter-firm cooperation. Therefore, the main research questions reads: How should organisations choose inter-firm cooperation in

fleet management? In this explorative research with multiple case studies at Wagenborg, NS, the Royal

Netherlands Army and NAM, the author develops a list of eight critical factors, codes them and shows the importance for the different cases.

Several conclusions are made on the results of this multiple case study. The first conclusion is that there is not a single answer to this research question. How an organisation should choose partially depends on whether the organisation is in the purchasing or in the maintenance phase. Moreover, a correlation between the two phases is showed by the different levels of integration found in the case studies. Organisations that are highly involved in purchasing and maintenance have a greater possibility to align the different aspects (e.g. increase maintainability) in fleet management and achieve a higher availability of the fleet and/or lower costs. The second conclusion includes a list of eight critical factors that to a certain extent influences the choice for inter-firm cooperation in fleet management (involvement in purchasing, involvement in maintenance, financial and informational risk, trust, asset specificity, rules and regulations and institutional factors). Cross case analysis showed relationships between several critical factors. This provides a reference point for any organisation that uses and/or owns a fleet on cooperation in managing that fleet.

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Acknowledgements

In the last six months I wrote this thesis, meet a lot of interesting people and visited many locations and activities. But above all, I had great fun in doing it! Therefore, I would like to thank the people who supported me in this individual project.

First of all I would like to thank Dr. Ir. Warse Klingenberg for his support from the start and his directions towards the basis of this thesis. I would also like to thank Dr. Ir. Wilfred Alsem for his help in the NAM case and Dr. Manda Broekhuis for her support in sharing her expertise on the research methods section. Also the unconditional support from Dr. Ying Yang from Newcastle University Business School is appreciated gratefully. After the sudden switch of supervision, Prof. Dr. Ruud Teunter took over with great enthusiasm and unconditional belief in me. I would like to thank Ruud for his continuous support and comprehensive supervision in the final two months!

From May 2013, I worked as a research intern at the Royal Netherlands Army at the Matlog department in Utrecht. This would not have been possible without the remarkable support by René Braam and Captain Jeroen Wierenga. They have inspired me to investigate the subject of cooperation in fleet management with their enthusiasm for and belief in the Land Maintenance Initiative. With his passionate and implicit mindset, René has been of great support in facilitating contacts and realising things which I was not able to realise. I would like to thank Jeroen for ‘everything’, especially his limitless enthusiasm for this research, his inspiring intellectual input in our conversations and his ongoing belief in me and in this thesis. Thanks to Jeroen I kept motivated to deliver a thesis with practical and scientific relevance.

Furthermore, I would like to thank Colonel Hans Damen and Cornel Lemmers for giving me the opportunity to gain experience as a research intern at the Matlogco department. Although Colonel Hans Damen set the priority on the delivery of my master thesis instead of the relevance for their department, he challenged me to aim for both.

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1. Introduction

Fleet management is about managing a company’s transportation or functional fleet (i.e. cars, ships, trains). In general, the total life cycle of a fleet lasts for 20 to 40 years. Due to often high investments and high interdependence between partners (Caniëls & Roeleveld, 2009), fleet management can be complex in practice. Moreover, due to internal challenges (i.e. scarce technical personnel) and external influences (i.e. technological changes, budget cuts by shareholders or politics), organisations that own a fleet explore new ways of cooperation (Koza and Lewin, 2000; Schmitt, 2000).

The aim of this research is to present critical factors for cooperation in fleet management that could help managers in organisations in deciding upon options to cooperate with others. Therefore it will focus on organisations where the fleet is related to the core business of the organisation and causing high availability as the key performance indicator. Despite the fact that the fleet is related to the core business, these organisations may still want to outsource some of their activities, leading to make AND buy relationships. This thesis will explore different types of cooperation for an asset owner, which could increase the availability of the fleet. Cooperation will then be defined as a relationship in which

individuals, groups and organisations interact through the sharing of complementary capabilities and resources, or leveraging these for the purpose of mutual benefit (Osarenkhoe, 20f10).

A fleet has several similarities with capital assets: a large investment, a long life cycle and an increasing urge for dependency at organisations to share financial risk. However, there are also important differences: a fleet can move and can therefore be used in different environments during the life-cycle and may need maintenance on different locations, while capital assets in production environments are specifically designed to operate and be maintained at one location. The scientific literature on maintenance of capital assets is very much biased towards such production environments.

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partners. So, the main research questions reads: How should organisations choose inter-firm cooperation

in fleet management?

For this thesis the main goal of fleet management is described as: ‘to achieve a sufficient availability of

the fleet at minimum costs’. Due to the lack of theory in literature, this thesis will use a descriptive

exploratory research method. To be able to analyse similarities and differences in different environments and settings this thesis uses a multiple case study in three different types of organisations and three different types of fleet. Next to that it presents a contrasting case with production assets in a special type of cooperation.

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2. Theoretical Background

This chapter will describe the theoretical foundation of this thesis. First, a general theoretical perspective of building relationships will be analysed. Subsequently, the focus will be on cooperation in fleet management. If organisations build relationships with multiple partners or build other types of relationships, it is necessary to manage these relationships properly. Therefore managing relationships will be discussed next. Finally, the criteria that organisations should take into consideration in cooperation regarding capital assets, will be the focus in the last paragraph.

2.1 Cooperation

As stated in the introduction, cooperation is defined as ‘a relationship in which individuals, groups and organisations interact through the sharing of complementary capabilities and resources, or leveraging these for the purpose of mutual benefit’ (Osarenkhoe, 2010). Relationships generally develop in three phases: contact or exploratory phase, the contract phase and the execution phase (van der Meer-Kooistra & Vosselman, 2000; Vosselman & van der Meer-Meer-Kooistra, 2006). The question regarding cooperation that follows is:

Q1. What is the reason that organisations build relationships concerning fleet management?

Inter-firm relationships or cooperation were first discussed by Coase in 1937, who asked fundamental questions about the raison d’être and the determinants of the boundaries of the firm (Vosselman & van der Meer-Kooistra, 2006). His contribution together with the insights of Williamson (1975) lead to the Transaction Cost Economics Theory (TCE). TCE describes the efficiency of various governance structures around transactions (Williamson, 1975, 1985). TCE’s main topic is cost reduction (Bolumole, Frankel, & Naslund, 2005) whereby the focus is on the cost of completing transactions by one institutional mode rather than another (Williamson, 1975). The primary assumptions are bounded rationality and opportunism which cause transactional difficulties. With these assumptions in mind, it is logical that the TCE approach emphasizes the (often short-term) transactional, arms-length nature of market governance mechanisms. The stability then alters from the controlling power at one party (Bolumole et al., 2005).

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ultimately gain a differential competitive advantage (Wernerfelt 1984; Day and Wensley 1988; Grant 1991; Peteraf 1993; Madhok 1997). Consequently, RBT emphasizes on longer-term relationships to improve their operational performance on the long run. Cánez, Platts, & Probert (2000) provide an overview of other recent theories that describe why organisations cooperate.

What can be concluded is that organisations in general build relationships or cooperate with others to reduce their costs or to manage their internal resources and capabilities. To be able to investigate why organisations cooperate regarding fleet management, the following section will expand more on this subject.

2.2 Fleet Management

First a definition of fleet management will be presented, then the stakeholders in fleet management will be mentioned and finally the potential benefits from integration in fleet management will be discussed.

A fleet can be seen as a group of capital goods which can be defined as ‘systems that deliver services in the form of transportation, power generation, water provision or defence, and are also used in the production of other goods by industrial processing or manufacturing’ (Puig, Hoekstra, Huisman, & van Dongen, 2011, p.1). In scientific literature, the focus has been on capital assets in production environments, which covers only the second part of the definition: “and are also used in the production of other goods by industrial processing or manufacturing”. Unfortunately, the literature lacks empirical studies on moving capital assets. Therefore this thesis contains three cases with moving assets to contribute to this theory.

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2.2.1 Stakeholders

The most obvious stakeholders in purchasing fleet are the user (owner), the Original Equipment Manufacturer (OEM) and the supplier of spare parts. The user or owner makes the initial investment and decides how to organise maintenance and refurbishment during the execution phase: the owner will maintain the assets itself or outsource the maintenance activities to a maintenance provider. The OEM supplies the user or owner of the asset, based on the given functional and/or technical specifications or is ‘just’ an assembler of parts supplied by 2nd tier suppliers.

However, other situations are possible: the OEM can also be the maintenance provider (with after sale/warranty contracts), or the maintenance provider could be ‘owned’ by the user (internally outsourced). On the other hand, several ‘knowledge suppliers’ can be involved during the design phase like architects & engineering firms, knowledge institutes and consultants (van Dongen, 2011). Since the availability of the fleet is extremely important for the core business of the organisation that owns the fleet, this thesis will be written from the owners/users perspective.

2.2.2 Purchasing

In fleet management the initial investment is often preceded with a long project of engineering and development that can even last more than 10 years. Besides the often large project expenditures, the people working for it come and go and a long-term mindset is therefore often hard to maintain. This aspect is even more important over the whole life-cycle, considering that the life-cycle generally exceeds the average employment period. Consequently, employees will experience the benefits and burdens attributable to their predecessors and moreover could lack responsibility to work and act for their future employees (van Dongen, 2011). Next to the responsibility, employees might be less motivated to work for a project of which they will not witness the end result, because they can lack a sense of achievement, feedback from work, or perceived equity (Dwivedula & Bredillet, 2010). Another problem that could arise are new technological developments during a project. Consequently, a better technological alternative can be present while an investment decision is already made. In conclusion, organisations have to cope with high costs, new technological developments, employee morale and short-term views.

But is purchasing a simple buyer-supplier relationship? Can organisations cooperate to reach a certain alignment and coordination to diminish the earlier mentioned side effects (i.e. high costs)? The research question that follows is:

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2.2.3 Maintenance and Refurbishment

After the initial investment an asset deteriorates and will need maintenance and/or refurbishment. Maintenance refers to the set of all technical and administrative actions intended to maintain a system in or restore it to a state in which it can perform at least part of its intended function(s) (British Standard Institution, 19841). In the past, different trends of maintenance have been developed and described in literature. In historical order: Preventive Maintenance (1950-1960s), Reliability Centered Maintenance (1960, breakthrough in 1990), Condition Based Maintenance (1970s) and Total Productive Maintenance (1970s). For additional reading: see Dekker (1996) and Garg & Deshmukh (2006).

Furthermore, maintenance can be categorized in two major categories: corrective and preventive maintenance (Pham & Wang, 1996). In general, corrective maintenance are all activities done after a system has failed and preventive maintenance are all maintenance activities that occur when the system is operating (Pham & Wang, 1996).

In fleet management ‘operating’ will have a different definition than in preventive maintenance of assets in a production environment. A moving fleet can for instance be used in different environments during the life-cycle and may therefore need maintenance on different locations, while capital assets in production environments are specifically designed to operate and be maintained at one location. Although most articles describe machines within a production environment, several aspects can be used in fleet management like the Overall Equipment Effectiveness as a performance measure and maintenance integration policies for more alignment. Furthermore, what can be learned from general (capital) asset management literature are the technical life-cycle parameters: Reliability, Availability, Maintainability and Safety, with recently added, Health and Environmental sustainability (RAMSHE) (van Dongen, Lutters, & van Houten, n.d.). To explore how organisations cooperate with others during the exploitation phase of their fleet a second research question is made and answered in chapter 4:

RQ2: How do organisations in practice cooperate with others regarding the maintenance activities of the fleet?

2.2.4 Integral approach

Since integral approaches in fleet management have not been described in scientific literature, literature on capital assets will discussed to explore the consequences for asset owners when they cooperate with others.

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The life-cycle approach in capital asset management is known as Total Cost of Ownership (TCO): the concept of considering acquisition, use and maintenance of an item: not just the purchase price. Since the initial investment typically accounts for 12-35% and the costs of maintenance for 50-75% of the TCO (Puig et al., 2011), it would be wrong to only consider the purchasing costs while investing in new assets. Since alignment between stakeholders could probably decrease TCO during the initial investment and the exploitation phase, cooperation between the different stakeholders in fleet management can be financially beneficial for the fleet owner. However, in reality the maintenance costs of assets are not always calculable. If the TCO can be calculated or can be estimated by comparing assets, fleet management can benefit from the TCO concept in which purchasing and maintenance are integrated.

If the user or owner has their own maintenance service, it could be beneficial to align their own maintenance process with the design of the capital asset, which can be designed by the OEM (Mulder, Basten, Jauregui Becker, & van Dongen, 2013; Puig, Basten, & van Dongen, 2013). Then the maintenance service includes among others: the infrastructure of the internal service provider (i.e. place and number of maintenance locations), the maintenance equipment and training for operating employees. To be able to optimize the maintainability, the owner of the asset should exchange information with the OEM about the asset and their internal maintenance service, prior to the initial investment. A concept that is recently appointed concerning this strategic alignment is Design for Maintenance (van Dongen, 2011).

Without any alignment, several things could occur: the supplier can lack knowledge on how the asset performs; the maintainer has insufficient knowledge on architectural characteristics; and every stakeholder has a stock of (redundant) spare parts.

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Figure 1: Integration approach for performance during life-cycle (depicted from Puig et al., 2011; van Dongen, 2011)

A supporting tool that has been developed in the military to analyse trade-offs decisions in investments is the Integrated Logistics System (ILS). ILS follows the concept of integrating the requirements for the performance of a system with the optimization of its through-life support costs (Galloway, 1996). The four drivers of system downtime according to the ILS framework are facilities, manpower and personnel, support equipment (i.e. equipment requirements) and supply support (i.e. repair parts) (Galloway, 1996). If one or more of the four drivers do not perform as required, an organisation could consider to cooperate with others to align the logistic system and decrease downtime.

In conclusion, according to the literature, cooperation in capital assets can support the owner of the assets by increasing knowledge, maintainability and innovation and decreasing TCO. However, due to the explorative type of research, the following research question remains regarding fleet management in practice:

RQ3: How do organisations in practice cooperate with others in integrating purchasing & maintenance activities?

2.3 Managing relationships

As described earlier, cooperation will require more relationships with multiple partners or other types of relationships. Therefore managing relationships will be discussed in this section. Literature has provided several option to contract out management. These options will be described in detail (2.3.1). Furthermore, the focus will be on the different relationships like dyadic relationships, supply chains and networks (2.3.2). Finally, the practical implications of the different relations will be described in 2.3.3. However, the question that will be answered first is:

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2.3.1 Contract types

Martin (1997) discusses three types of maintenance contracts an organisation can offer to a contractor:

a work package contract, performance contract and facilitator contract (figure 2). The work package contract is the most basic type of contract because it states what activities have to be carried out and

when. The performance contract is a contract wherein the contractor guarantees a certain availability in return for a set budget. In the facilitator contract the ownership is no longer at the organisation, whereby the user will gain financial flexibility.

Figure 2: Three Basic types of maintenance contracts (depicted from Martin, 1997)

The three contract types described here are extremes and therefore it is not unlikely that in practice different intermediate forms of contracts can exist. For additional reading on contract types (i.e. Performance Based Contracting, Unit or Activity Based Contracting) interested readers are referred to (van Rhee, Kaelen, & van der Voort, 2009) and appendix 7.3.

2.3.2 Relationship types

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downstream relationships (Christopher, 1998; Lambert, Cooper, & Pagh, 1998). Finally, a network has a non-focal focus, vertical and horizontal relationships and also indirect relationships (Miemczyk et al., 2012). Others define networks as ‘a structure where a number of nodes are related to each other by specific threads’ (Håkansson & Ford, 2002, p. 133). Ever since Jack Welch, CEO of General Electric, wrote a memo about ‘the boundaryless organisation’, many theories have been developed about organisations building relations with multiple players. In the Social Exchange Theory for instance, business networks can be defined as ‘a set of two or more connected business relationships, in which each exchange is between business firms that are conceptualized as collective actors’ (Chetty & Eriksson, 2002). The practical implications for organisations managing networks, will be described in the next section. First one example from practice will be described.

Figure 3: Three levels of sustainable purchasing and supply analysis (depicted from Miemczyk, Johnsen, & Macquet (2012).

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between the market and the organisation become more and more flexible and subject to constant redefinition (Bonazzi & Antonelli, 2003).

As we have seen, cooperation with multiple players can have many benefits. However, organisations will require more communication and monitoring skills and like Fiat, increased coordination skills. Relationship management seems to be a relevant topic and will be described in the next section.

2.3.3 Relationship management

Transactional relationships (dyadic, supply chain or networks) can be seen as a relationship between one or multiple actors in which a transaction takes place. Transactional relationships generally develop in three phases: the contact or exploratory phase, the contract phase and the execution phase (van der Meer-Kooistra & Vosselman, 2000; Vosselman & van der Meer-Kooistra, 2006). Transactional relationships can be long-term or short-term. However, in supply chain literature a trend is set from arm-length relationships towards longer-term collaborative strategic partnerships (Bensaou, 1999).

A relationship does not develop without effort and it is certainly important that someone believes in it and is prepared to work for it (Håkansson & Ford, 2002). However, when an organisation has multiple relationships with suppliers, it can be very complex to manage them all. Bensaou (1999) analysed how organisations can manage their supplier portfolio by classifying all potential contexts in four context profiles: captive buyer, captive supplier, market exchange and strategic partnership. The higher the investments made on both sides, the more strategic the relation will become.

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perspectives of a buyer and its supplier are different, it seems highly important to include both perspectives when analysing (successful) types of cooperation. Therefore both sides will be involved in the multiple case study, described in chapter 4.

One could say that three organisations are always connected to each other by two relationships, whereby the interaction (whether it is buying or selling) between two organisations will depend on what happens in relation to the third party (Håkansson & Ford, 2002). However, organisations in networks have their own perspective on the network, each with their own motivations, resources and understandings. Therefore, every organisation in a network should not only see the network from its own perspective, but also from other organisations to understand its dynamics and the interface between the well-being of others and itself (Håkansson & Ford, 2002). Moreover, the importance of the individuals who interact in networks will increase when company’s relationships become more important, due to the co-determination of companies and relationships. Furthermore, when organisations aim for an integral approach, also information on maintenance infrastructure, equipment and training should be clear and aligned to all stakeholders.

During the emergence of a business network, time and money have been used to build, adapt, develop, understand, relate and combine different human and physical resources together. Consequently, the greater the investment, the more substantial the content will be. However, the stronger the relationships, the more they will restrict the freedom of the organisation to change (Håkansson & Ford, 2002). The opportunities and limitations for an organisation are therefore related to the resources invested in the relationships, choosing the right counterparts and the companies’ internal capabilities (Håkansson & Ford, 2002). Due to the interdependence between organisations, the strategy process should not be independently developed and implemented, but interactive, evolutionary and responsive (Håkansson & Ford, 2002). Finally, organisations in complex networks will attempt to influence the other organisations in the network wherever possible to benefit from their resources, initiatives and creativity. Therefore, organisations should be aware of these dynamics and develop a strategy which can manage these relationships.

Two control mechanisms can be related from the earlier described Transaction Cost Economics Theory: a market mechanism (focus on prices) and a bureaucratic mechanism (focus on regulation and control). However, hybrid-forms of transactional relationships have been analysed and many scholars have found

trust as a major element (Bachmann, 2001; B. Nooteboom, 1996, 2000; Bart Nooteboom, Berger, &

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1995). Therefore, Vosselman & van der Meer-Kooistra (2006) developed a third category: the trust pattern. How these three patterns develop in the contact, contract and execution phase is shown in appendix 7.3. Furthermore, features of transactional relationships (i.e. complexity of the operations, uncertainty, frequency, character and degree of asset specificity and bargaining power) and institutional

features (market imperfection, environment and atmosphere) (Vosselman & van der Meer-Kooistra,

2006) have been analysed per pattern in the same table. The different types of trust in the contact, contract and execution phase, indicate that trust is a major issue in cooperation and will therefore be taken into account in this research. There are three levels of trust: contractual trust, competence trust (Williams, 1988) and goodwill trust (Sako, 1992). Contractual trust is based on moral values of honesty wherein ‘keeping your word is of great value. Competence trust refers to the expectation that the potential supplier has the needed technical and managerial competences (Vosselman & van der Meer-Kooistra, 2006). Finally, goodwill trust can be defined as ‘the willingness to do more than can formally be expected’ (Vosselman & van der Meer-Kooistra, 2006, p. 325)

On top of that, to cooperate with the earlier described stakeholders in fleet management, a certain level of transparency is needed. Especially in supply chains and networks with multiple stakeholders, organisations should share information to enhance the performance of the assets. The well-known bullwhip risks originated by information distortion will entail large fluctuations in demand and inventory (Faisal, Banwet, & Shankar, 2008). This might occur in fleet management when spare parts management is not perfectly aligned between the stakeholders. However, too much transparency can entail risks, like Intellectual property rights and information security risks (protection against accidental or intentional disclosure to unauthorized persons) (Faisal et al., 2008). Finally, if information technology or systems (IT/IS) collapse, organisation should have a backup policy developed with other stakeholders to be able to sustain the daily operational fleet management.

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performance or facilitator contract. For this thesis this criterion will be discussed for purchasing and for maintenance.

In summary, organisations have different options to cooperate in fleet management. First, an organisation can choose between a work package contract, performance contract and facilitator contract (Martin, 1997) or an intermediate form. Second, organisations can build relationships with other organisations in a dyadic relationship, in a supply chain or a network. Third, we have seen different practical implications for relationship management like the interdependency of others by investing and sharing resources together. Furthermore, according to literature the following criteria are important for organisations who want or need to cooperate with others: institutional factors, interdependency through asset specificity, trust, transparency, risk and involvement in purchasing and maintenance. These critical factors are summarized in table 1.

Table 1: Provisional critical factors for cooperation in Fleet Management

To investigate if these criteria are important for fleet owners in practice and which aspects have been underexposed in literature, the final research question is:

RQ4: Which critical factors in practice influence the decision process regarding inter-firm cooperation in fleet management?

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3. Research Methodology

The aim of this research is to present critical factors for cooperation in fleet management that supports managers in organisations in deciding upon options to cooperate with others. As described earlier, cooperation in fleet management have been described scarcely in scientific literature. Therefore, a multiple case study approach is taken to facilitate an explorative qualitative research. Benbasat, Goldstein, & Mead (1987, p. 370) identified three outstanding strengths of the case study approach: 1) rather than just how and what it allows the much more meaningful question of why to be answered with a relatively full understanding of the nature and complexity of the complete phenomenon; 2) the phenomenon can be studied in its natural setting, and meaningful relevant theory can be developed by observing actual practice; and 3) the case method lends itself to early, exploratory investigations where the variables are still unknown and the phenomenon not at all understood (Meredith, 1998). Moreover, a case study approach is an appropriate method for building new theory and the rich data often available is likely to give a more accurate answer to the research question in comparison with the use of a survey (Eisenhardt, 1989). This thesis will therefore contribute to the scarce literature on cooperation in fleet management. This chapter will first describe the case selection (3.1), then it will describe which data collection techniques have been used (3.2) and finally, the data analysis is described in 3.3.

3.1 Theoretical Sample and Case Selection

The unit of analysis is cooperation in fleet management regarding purchasing and maintenance. The case selection criteria included: The fleet owner/user cooperates to a lesser or greater extent with other

partners in their environment/market regarding purchasing and/or maintenance. Moreover, within the

cases there should be a difference in the extent of cooperation. Therefore, the following cases are selected: (1) the fleet (different vehicles) of the Royal Netherlands Army; (2) the fleet (trains) of NS and (3) the fleet (ships) of Wagenborg Shipping. Furthermore, the selected cases met the following set of general criteria:

1) The organisation is the fleet owner or is part of an owner construction;

2) The fleet is related to the core business of the organisation and therefore the organisation is (highly) accountable for the availability (in Dutch: inzetbaarheid) of their fleet;

3) The three cases include different types of organisations: a semi-governmental organisation, a for-profit organisation and a governmental organisation.

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In the Netherlands, most organisations with fleets with a transportation function are (partly) owned by the state. Consequence, these organisations are influenced to a certain extent by politics. Since politicians in the Netherlands are democratically chosen, every Dutch citizen and especially the media has an opinion on how these organisations operate and how they spend their money. This could have great impact on how these organisations cooperate with other organisations. To find out whether these public institutional factors are of influence for a non-profit organisation, the Royal Netherlands Army

(from now on: RNA) is selected for this multiple case study. Moreover, the RNA is working on a project

called ‘Land Maintenance Initiative’ whereby the focus is on building relationships with the defence industry to increase the availability of the fleet. Since their focus is on exploring their types of cooperation, it is interesting to explore what criteria they should take into account. The second case is also influenced by politics: NS is semi-governmental since the state is 100% owner of the NS, but it is allowed to make profit. Within the NS holding, the buyer, user and maintainer are each represented by different organisations within the holding. Given this division of responsibilities, it is interesting to explore their cooperation within the holding and externally. The third case, at Wagenborg Shipping (from now on: Wagenborg), is chosen because of its profit character. This organisation has a large company history since it is started in 1898. It build ships in their own yard, but also purchase ships from other shipyards. Moreover, the maintenance is coordinated internally, but performed externally.

Next to these three cases, a contrasting case study with a non-moving, production fleet has been conducted. The Nederlandse Aardolie Maatschappij (from now on: NAM), an organisation that explored for and produced oil and gas in the Netherlands since 1947, outsourced the performance and coordination of maintenance (partly) of their gas fields in Groningen towards a consortium with four partners called Groningen Long Term Plus (GLT Plus). This unique type of cooperation has been the reason to explore this case next to the three other cases.

Finally, in three of the four cases, the organisation AND its contractor(s) have been included in the case research. In the RNA case three maintenance providers have been interviewed. In the NS case employees of both NS Reizigers (NSR) and NedTrain have been interviewed. Finally, in the NAM case also interviews have been conducted at its contractor GLT Plus.

3.2 Data Collection

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conducted with different employees from different departments or organisations. All 24 interviews have been conducted between August and November 2013 and each lasted 50-80 minutes. Most of the interviews were recorded and all have been processed as quickly as possible. The interview reports were send to the interviewees to give them the opportunity for feedback (misinterpretations or thoughts that should be excluded for further analysis). By quick processing the interviews, the construct validity has been maintained. The reports where adapted when necessary and saved in a case study database. Next to the interviews, secondary literature has been collected per case between May and October 2013 via internet, intranet and other provided internal and external company documentation. A summary of the whole data collection is depicted in table 2. The complete list of interviewees is displayed in appendix 7.1 and the complete list of locations and events that have been visited is depicted in appendix 7.2.

Table 2: Overview of Data Sources per Case (*shadowed 5 employees on Day at the Office; ** attended a meeting where the management of one of the armoured vehicles was discussed)

3.3 Data Analysis

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differences between the cases have been discussed. The main points found in this cross-case analysis are described in chapter 4. The three fleet management cases are described in detail in appendix 7.5-7.7.

Criteria Values Coding

In v ol v e m e nt 2 In purchasing Low: 1 Medium: 2 High: 3

Present functional specifications

Present functional and technical (i.e. define sub-supplier) specifications

Functional and technical specifications developed together with contractor

In maintenance Low: 1

Medium: 2

High: 3

Define required performance, coordination, planning and execution at partner

Set performance, make general planning, coordination and execution at partner

All coordination and planning, execution at partner

Ris

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3

Financially (& performance) Low:1 Medium: 2 High: 3

The risk for poor performance is low or inapplicable The risk for poor performance is neither low nor high The risk for poor performance is high and therefore potentially disastrous

Information risk /Transparency Low: 1

Medium: 2

High: 3

The risk for transparency regarding the fleet is low so information can be shared

The risk for transparency regarding the fleet is neither low nor high.

The risk for transparency regarding the fleet is high, so no or not all information can be shared

Asset Specificity4 Low: 1

Medium: 2

High: 3

The fleet is standardised, whereby purchasing spare parts and maintenance can be obtained at multiple suppliers

The fleet is relatively specific, whereby some spare parts and maintenance can be obtained at multiple suppliers and others at some parties

The fleet is very specific, therefore purchasing spare parts and maintenance can be obtained at some parties

2

Coding is based on the three contracts described by Martin (1997).

3

Coding is based on the risks found by different types of contracts in the case studies

4

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Institutional factors5 Low: 1

Medium: 2

High: 3

The characteristics of the market (i.e. number of players/competitors) have low impact on cooperating with others

The characteristics of the market (i.e. number of players/competitors) have medium impact on cooperating with others

The characteristics of the market (i.e. number of players/competitors) have high impact on cooperating with others

Trust6 Low: 1

Medium: 2 High: 3

This organisation can only build on contractual trust This organisation can build trust based on competences This organisation can build trust based on goodwill

Table 3: Criteria Coding (# words in table and footnotes: 390)

5

Coding is based on Vosselman & van der Meer-Kooistra (2006)

6

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4. Results

To answer the four research questions set in chapter 2, sub-sections 4.1-4.4 present the key findings from the case analysis. Consequently, the contrasting case results at NAM will be described in sub-section 4.5. Table 4 gives an overview of the case descriptions.

Table 4: Highlights of Case Description (*flocks= functional location indicators)

4.1 Purchasing

RQ 1: How do organisations in practice cooperate with other partners regarding the investment in a new fleet?

Wagenborg

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ships at external shipyards are the difference in culture (morale and standards) late deliveries and poor quality. Due to its private character, Wagenborg is not obliged to tender publicly, but can build or buy ships wherever they think is best.

NS

Since the number of train manufacturers is small, the interdependence is high between the NS and the manufacturers. In the past, NS Reizigers (NSR) and NedTrain have had different roles and involvement in investment projects. Nowadays, the design is done by the train manufacturer based on the qualitative (functional) and quantitative specifications (based on demand and current fleet) constructed by NSR. Due to its public character, NS is bound to a public European tender. Furthermore, sub-suppliers offers modular parts and most train manufacturers are system integrators and do often not have the knowledge about the performance of all assembled parts. Moreover, systems have become more complex over the years (from mechanic towards electronic), and the organisation of NedTrain (service locations and trained employees) is not yet totally equipped for this. Until recently, the train manufacturer that won the tender determined which parts would be purchased where. Though NS assumes that this is done with the focus on the best cost-quality consideration, NSR and NedTrain tries to gain a certain level of control on the train manufacturers and sub-suppliers in specifying certain requirements (design for maintenance).

RNA

Just as NS, the RNA is also bound to a public European tender. After setting the functional requirements of the new system (Material Defence Process), interested manufacturers can bid based on their own technical expertise and specifications. The function that the new system is required to offer, and thereby the asset specificity, determines if a standard product (Commercial of the shelf) or if a military product (military of the shelf) will be purchased or if a special development project will be set up. Since development projects have taken many years and have been very expensive in the past, a trend is set to purchase commercial or military products of the shelf. The amount of systems bought and the magnitude of the investment is highly influenced by the Dutch government.

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4.2 Maintenance

RQ2: How do organisations in practice cooperate with others regarding the maintenance activities of the fleet?

Wagenborg

In general, a new build ship has a warranty period of one year. However, multiple things are not included in this warranty like wear & tear and consequential damage including loss of income. Only breakdowns which ‘should not have happened’ are included and repaired by the shipyard or a maintenance provider in service of the shipyard. Wagenborg has contacts with multiple maintenance providers, all over the world. If the crew aboard is not able to perform a certain maintenance activity, a maintenance provider is contacted nearby the harbour where the ship will anchor. Due to conflicting interests and lack of trust, Wagenborg Shipping is reluctant to build relations with maintenance providers. During the execution phase the ship is inspected after one year, after two-and-a-half year (‘intermediate’) and after five years (total renewal). According to the rules and regulations, a ship should go to the dry-dock once every five years. When a crew on a ship needs spare parts or other equipment (from toilet paper to engine parts) they send a request via a digital system to the purchase manager at the office. The purchaser then makes a quotation, which is send to the superintendent who is responsible for the yearly execution budget of a ship. If the request is accepted by the superintendent, an order will be made by the purchaser and the supplier supplies the ship on a place and date set together with the Fleet Management Department. Therefore Wagenborg only has a small inventory in Delfzijl to supply the ships which enter the harbour. More recent, Wagenborg installed a monitoring system on four ships. With this new system, they can monitor the route of the captain and analyse if it is the most efficient route to save fuel costs.

NS

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spare parts, NS has agreements in which a manufacturer is contracted for supplying spare parts for a period of at least thirty years. Since NS purchases it spare parts via the train manufacturer, it is often not able to build long-term relationships with suppliers. Moreover, train manufacturers and sub-suppliers do not always share information on their parts due to intellectual property rights. However, NedTrain has several contracts with sub-suppliers that are not arranged via the train manufacturer.

Due to a differences in focus, NSR has other relationships with train manufacturers and sub-suppliers than with NedTrain. The relationship with NedTrain is long-term, based on trust, with a medium-high level of transparency. Moreover, NedTrain attempts to be retain a good and sharp buyer-supplier relationship with NSR to be efficient as possible. Building relationships with suppliers is possible, but when a problem occurs, legal and commercial grounds are most important. The fact that NS is a relatively small customer in the market plays a part. Finally, next to the maintenance activities, NedTrain has specialised location for refurbishment. The refurbishment projects are much more expensive in comparing with the corrective and planned maintenance and therefore more profit-focused.

RNA

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In conclusion, all organisations are to a high extent involved in the maintenance of their fleet. Wagenborg coordinates and plans everything regarding the maintenance activities and only the performance is done by maintenance providers. Within NS, NedTrain is the maintenance provider and but NSR is still highly involved in the strategic planning and coordination of the activities. The RNA performs most of the maintenance activities internally. However, also in the maintenance activities done by other parties they are highly involved in the planning and coordination of their fleet.

4.3 Integral Approach

RQ3: How do organisations in practice cooperate with others in integrating purchasing & maintenance activities?

Wagenborg

In the nautical market there is an increase of automation. Recently, ships have been equipped with internet and information systems, whereby fleet management has expanded with multiple new opportunities. Communication between the crew and the office has become much more efficient of which both parts benefit. Furthermore, Wagenborg is working on a new information system in which multiple parties can be authorized to monitor the ship. Hereby several suppliers or shipyards can be involved in the inspection aboard with the aim of decreasing maintenance costs and increasing availability of the fleet. Moreover, Wagenborg can decrease the amount of crew aboard due to these technological developments. Furthermore, Wagenborg could be slightly forced into long-term contracts with shipyards and suppliers. So, Wagenborg’s Fleet Management department sees future possibilities in long-term contracts with suppliers and shipyards to decrease maintenance costs, to increase the availability of the fleet and to innovate current technologies and parts.

NS

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developed on NedTrain initiative, to collect the data from all maintenance activities. Hereby NedTrain offers a high level of transparency towards NSR which increased the level of trust. The implementation of the monitor has lead to an increase in the performance of NedTrain. NSR received this initiative positively and already decided to use the monitor as a forecasting tool to improve the availability of the fleet. So NSR and NedTrain integrate more and more and also integrate to a certain extent with the train manufacturer and sub-suppliers.

RNA

The RNA is currently exploring how to increase its fleet availability by increased cooperation with the industry. One recent move is the attendance of an industrial party at a management system meeting of an armoured vehicle. However, there was a lot of resistance involved regarding this activity. Furthermore, the organisation on spare parts and the total life cycle costs are internally not clear and therefore also in cooperation with the industry not transparent. An exception wherein integration takes place on a small scale is the performance-based contract with a supplier of standard vehicles (COTS). This supplier for instance advised the RNA in changing the way the vehicles are used, to increase the availability of the fleet.

In conclusion, all organisations are cooperating with others to integrate purchasing maintenance, but every organisation at its own pace. The RNA is the least integrated, but with the Land Maintenance Initiative they have taken a step in this direction. Wagenborg is one step further in providing transparency towards the industry with their maintenance monitor aboard. Finally, NS can be seen as a pioneer in integrating purchasing and maintenance by increasing the communication towards design for maintenance and refurbishment towards their suppliers.

4.4 Critical Factors

RQ4: Which critical factors in practice influence the decision process regarding inter-firm cooperation in fleet management?

Wagenborg

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shared information system, where shipyards and maintenance providers can see what maintenance is necessary on a ship, the informational risk is low. Since the nautical market is somewhat conservative in sharing information, this might be a bound-breaking initiative. On the one hand, Wagenborg has developed relationships with a certain level of trust with its shipyards and suppliers in the North of Netherlands. On the other hand, it does not want to have long-term relationships with maintenance providers due to its need for flexibility, conflicting interests and thereby lack of trust. All in all, the level of trust is bounded by the type of contract and since the contract is leading in the current cooperation with shipyards, it scores a low level of trust. Furthermore, institutional factors, the relatively small but competitive market and a steady institutional atmosphere, has low impact on the way Wagenborg build relationships with others. Finally, other critical factors that influences Wagenborg in their cooperation with others are different rules and regulations that are present in the nautical market including inspections, audits and certificates.

NS

In general, technological developments increase the complexity and therewith the asset specificity of trains and its infrastructure. However, since the technology in the trains is approximately equal, a categorization of asset specificity within the fleet is hard to make. Therefore asset specificity scored medium. On the one hand, due to its public character NS has a high level of financial and performance risk. Moreover, a medium-to-high level of transparency is possible between NSR and NedTrain whereby a medium-high level of trust is developed. On the other hand, train manufacturers and sup-suppliers are not always willing to share information. But NS is increasing her control on their suppliers in discussing technical specifications whereby sharing of information is necessary. Therefore informational risk scores low-to-medium. Rules and regulations are also of great importance for passenger transport in the form of changing demands by the government and passengers, inspections and the mandatory European public tender. Finally, the institutional factors, the public characteristic of NS in a relatively small competitive market, has a medium influence on the way NS can cooperate with others.

RNA

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performance-based contracts, but for highly specific assets the maintenance is performed internally or at an affiliate organisation of the OEM with a clear unit rate contract. Therefore, their level of trust developed so far is low-to-medium. Furthermore, due to the high risk profile of the fleet in not only transport but also defence, their performance risk is very high. The level of transparency is low-to-medium, but the risk regarding transparency is also medium: data about strategic military schedules cannot be shared, but data regarding maintenance can be shared without high risk. Finally, the RNA is restricted by opting for a European Public Tender whereby long term relationships regarding multiple fleet types seem to be difficult.

The criteria that influence cooperation in fleet management that were described in chapter 2.3 have been investigated in the different case studies. The answers of RQ 1-4 are summarized for each case in table 5 (including the contrasting NAM case to be discussed in the next section) and figure 4-6. Furthermore, practice has revealed that rules and regulations are often of great importance in cooperation in fleet management. This criteria factor is added to the list that was described in chapter 2.3 and thereafter coded as follows: 1) Rules and regulations restrict the organisation on a minor level in cooperation in fleet management (i.e. only regarding maintenance); 2) Rules and regulations restrict the organisation on a medium level in cooperation in fleet management (i.e. regarding purchasing); 3) Rules and regulations restrict the organisation on a high level in cooperation in fleet management (i.e. regarding maintenance, purchasing and integration).

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Figure 4: Case Results RNA Figure 5: Case Results NS

Figure 6: Case Results Wagenborg Figure 7: Case Results NAM

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clear at NS than at the RNA. In both organisations maintenance costs are difficult to calculate on vehicle level. However, there are differences: where NS is more involved in purchasing, the RNA is more involved in maintenance, the asset specificity is less important for NS than the RNA, as well as the institutional factors and the informational risk.

The case at Wagenborg shows that an organisation can be highly involved in purchasing and maintenance without actually performing the activities in-house. However, Wagenborg is less restricted by institutional factors and rules and regulations on purchasing. Notably Wagenborg has low informational and financial risks as it is a private family owned business. Wagenborg is not aiming for long-term relationships with maintenance providers. Moreover, due to the relatively large amount of maintenance providers Wagenborg is able to switch between them.

4.5 Contrasting Case – NAM

The context of this case is provided in appendix 7.5.

Purchasing

With a tender, NAM indirectly determined the technology by setting functional specifications that would be used for the renovation of the gas field. The partners in the consortium provided the technical specifications by entering the tender with their engineering expertise. Interesting is that NAM and GLT were both not previously involved in a project this large. GLT was allowed to learn from its mistakes when aiming for continuous improvement and standardization. This learning situation initiate additional risk for NAM and costs for GLT. The approach developed by NAM for renovating the twenty clusters was to first do one and improve until a certain standardization and performance was reached, and only after that renovate the other 19 clusters with the standardised technology. The standardised technologies and handlings performed by maintenance engineers contributed to the safety priority of NAM.

Maintenance

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the maintenance of their own assets or the organisation of it. Planning and alignment is of great importance to do as much as possible in the time slot with minimal clashes.

Integral approach

NAM developed a highly integral approach in their cooperation with a consortium that first supplies the assets during renovation and later on performs the maintenance. However, due to the increasing demand for gas and the decreasing pressure in the gas fields, the production locations should have as much uptime (availability) as possible. Therefore, NAM and GLT Plus started a project called ‘Groningen 2020’ to increase the efficiency of the maintenance activities. Another method that NAM uses to increase the asset availability is the type of rewarding. GLT Plus is rewarded for the execution of maintenance via a unit rate contract. Since they are not rewarded based on their effort, GLT Plus has developed an urge for continuous improvement. However, all partners within GLT Plus are rewarded on a different basis, causing potential self-contained behavior focusing on their own income instead of the combined profit.

Criteria

NAM was medium involved with purchasing and highly with maintenance. Furthermore, responsibilities of NAM and GLT Plus are clear and a high level transparency is needed to operate. Since NAM reward their partner with unit rates and cost incentives, trust is based on contracts and competences. Since the assets are installed by the engineering partners in GLT, NAM is depending on the consortium on different levels. First, the financial risk is high, since one of the consortium partners could not perform according prognosis (and contract) and if one of the partners drops out the consortium will lose its strength. Second, NAM expects the consortium to have the ‘state-of-the-art’ equipment and expertise. However, if the market develops new technologies, NAM is bounded to the expertise and technological developments within the consortium. Furthermore, the institutional factors regarding NAM are of low impact on their cooperation possibilities. Finally, NAM is somewhat restricted by the government regarding licences to build or operate, however there is little to no regulations regarding purchasing or maintenance. They do have high standards set internally, by NAM and by shareholder Shell.

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5. Discussions and Conclusions

Fleet management has received little attention in the scientific literature. Just as asset owners regarding production environments, fleet owners aim for a high performance and availability. But should fleet owners take other aspects into account to increase the availability than production asset owners? This thesis focused on how a fleet owner cooperates with other stakeholders in fleet management. Furthermore, aspects influencing the extent of cooperation are investigated in three fleet management case studies and one contrasting asset management case study. In this chapter the different aspects within the case results will be discussed. Consequently, limitations and recommendations for future research are described. Finally, practical implications are discussed.

From the three fleet management case studies, Wagenborg is most involved in purchasing by specifying functional and technical requirements together with other partners. This is explained by the fact that Wagenborg is family owned. With a long history of building ships and building relationships with partners in the north of the Netherlands, it has probably also build a standard way of working, with a high level of involvement. The second most involved organisation is NS. Although they purchase partially standardised trains, they also require certain unique specifications (i.e. specific parts) from train manufacturers, and the degree of customization is increasing. Third, the RNA only provides functional specifications, whereupon industrial partners respond with technical specifications in an offer via a tender. Cross-case analysis showed that the more an organisation is influenced by the Dutch government and thereby rules and regulations, the less it is involved in purchasing.

Regarding maintenance, again Wagenborg is highly involved, but the RNA is as well. Wagenborg does all coordination and planning itself and only execution is done by others. The RNA coordinates and plans its maintenance and also executes a large part internally. NS has internally outsourced the maintenance activities towards NedTrain, but is still highly involved due to its responsibility regarding the performance and availability of the trains. The RNA and NS are both highly involved in maintenance of their fleet, which could have been a result of the fact that both have internally (out)sourced their maintenance to a certain extent. Due to the fact that the fleet of the organisations in the case studies are highly related to their core business, it is logical that they are medium-high involved in the maintenance activities of their own fleet.

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supplier. Where the RNA is orientating on how to cooperate with the industry to increase the availability of the fleet, Wagenborg is one step ahead in providing transparency towards their OEM and sub-suppliers. On the one hand, NedTrain being leader in this element of cooperation could be the result of that they already have their maintenance performed internally, whereby NSR and NedTrain can combine forces towards the industry. On the other hand, the RNA also performs their maintenance internally, but have not integrated purchasing and maintenance so far. This could be the result of the RNA being conservative in maintenance with a certain suspicion towards industry. Their historical need/urge of being self-reliant probably also plays in important role in this aspect. Moreover, their fleet should be available in times of peace (beyond missions) and in times of war, whereby their technical staff is integrated in this availability.

Finally, the criteria described in chapter 2.3 have been analysed per case. Wagenborg is highly involved in purchasing and maintenance, but has a low level of information risk and financial risk whereby institutional factors and asset specificity have a minor role and a low level of trust can be gained. For NS the institutional factors and asset specificity have a greater impact than at Wagenborg, whereby a low informational risk and a high financial risk is present and organisations have trust based on their competences. Finally, the RNA is highly influenced by their institutional factors, has a high financial and medium informational risk. Furthermore, asset specificity is of great impact and its involvement in maintenance is high. In general, when institutional factors are high, financial and/or informational risks are also high. This could be the result of the fact that these organisations are highly influenced by the Dutch government, financially or juridical. Furthermore, asset specificity is most important in the RNA case, which could be the result of the different types of fleet with a defence or transport function. Another factor that seem to be in important in practice are rules and regulations. This factor has impact on the cooperation regarding purchasing at NS and RNA and maintenance at Wagenborg.

Limitations

When discussing the results of this thesis it should be noted that the decision criteria described in this thesis are depicted from literature on cooperation, capital assets and (what was written on) fleet management. In explorative research, these criteria ideally originate from the case studies. However, a certain focus was needed in the case studies so the set of criteria depicted from literature is discussed in interviews.

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the literature, the interpretation of the case results has been done solely by the author. The result is that the different criteria coded in the case studies should be handled with care.

In hind sight, it might have been better to smaller the scope or to use fewer interview questions to be able to conduct more in-depth interviews that could have indicated more criteria factors. Furthermore, a second round of interviews to increase validity of the criteria would have been beneficial. Due to the time constraint of only six months, this was not possible in a thesis with so many cases and variables.

Recommendations for future research

First, future studies could increase validity of the criteria regarding cooperation in fleet management to add another round of data collection. Second, it would be interesting to compare critical factors for cooperation among an equal number of organisations with assets for production and transport in a multiple case study. This can also increase validity of the criteria described in this research. Third, within each market organisations vertically differentiate. An OEM’s can also provide maintenance service, and in certain markets there is a trend towards lease contracts. Consequently, several questions arise: “Which organisation takes the lead in differentiation/integration?” and “Is the initiator the same type of organisation in different markets?”. Finally, a more quantitative research can show to what extent the availability of a fleet increases as a result of different types of cooperation.

Conclusions

Recalling the main research question and the goal of fleet management is: “How should organisations choose inter-firm cooperation in fleet management in order to achieve a sufficient availability of the fleet at minimum costs?”.

MSc Thesis

MSc Thesis

Integral Fleet Management:

A Sophisticated Approach

‘COOPERATION IN FLEET MANAGEMENT’

P.C. den Bak (s1681435)

Dual MSc Operations Management

Management Summary

Acknowledgements

Table of Contents

1. Introduction

2. Theoretical Background

2.1 Cooperation

2.2 Fleet Management

2.3 Managing relationships

3. Research Methodology

3.1 Theoretical Sample and Case Selection

3.2 Data Collection

3.3 Data Analysis

4. Results

4.1 Purchasing

4.2 Maintenance

4.3 Integral Approach

4.4 Critical Factors

4.5 Contrasting Case – NAM

5. Discussions and Conclusions