As some of you will know, I have been, and continue to be, involved in research relative to Through-life Engineering Services and how such product support can be used to inform the business model.  As manufacturing organisations seek to redefine the corporate and operating strategies by the process of servitization as they move to adopt a Product Service System novel cost models are required.  Work, research, and interest within these areas continues to grow at exponential rates both within academia and the commercial world.


There are becons of success which are often cited, they being Rolls Royce, Xerox, Mann Trucks, and Bombardier Transportation to name but a few.  These companies whilst being manufacturers now gain most of their revenue from advanced integrated service systems supported by complex condition based management systems, Through-life Engineering Systems, and integrated health solutions.


As I was travelling home on the train recently my thoughts turned to the rail industry and the cost model that could be applied within the sector for a train operating company (TOC).  For those who do not know the basic relationships between companies within the sector are as follows:

• The manufacturer (Bombardier/Alstom/Hitachi et al) manufactures the trains and sells them to a leasing company (a bank or finance house) at a reduced cost.  The manufacturer also gains through-life revenue whilst the asset is available for use so has a vested interest post initial transaction through-out life.

• The asset life is approximately 25-30 years but this life is constantly squeezed

• The TOC leases the train from the finance house but under a servitized agreement only pays for the train's 'availability for use'.  If it is not available for use due to breakdown or failure then the TOC has no revenue to pay.

• Revenue streams are protected by complex service agreements whereby the manufacturer is liable for reliability.  The manufacturer applies condition based engineering systems which deliver prognostics and diagnostics in advance of failure to enable mitigation of impending failure and distruption to revenue streams.

Now for my quandery.  Railway franchises normally run for 7 years.  If a TOC enters into such an agreement which a new fleet of trains then the agreement is what it is.  After 7 years though negative pressures start to materialise.  The fleet is becoming older so there are more maintenance events occuring thus increased costs.  In our world of cost down, the Government will drive a harder bargin for the 2nd Franchise (years 7-14) so the franchise becomes more expensive and pressure groups and the regulators are starting to squeeze ticket prices.  This problem becomes ever more accute when the 3rd franchise becomes available (years 14-21).  I therefore believe that the whole macro system provides an inherent disincentive to bid for the 3rd Franchise.


I find myself starting to question the cost models that are employed within the rail sector.  What are the key parameters that need to be considered within the model when on takes a whole life perspective?  How does the cost model mitigate these pressures which seek to squeeze the life out of the cost agreement?  


Whilst this is significant within itself, there are also other major factors at play which include the fines which are levied by the regulators for non-sevice compliance.


There have been spectacular failures as TOC's seek to hand back the franchise (East Coast Mainline)..........


So from a Project Management Perspective for a manufacturing company wishing  to embark upon defining a strategy for servitization and future adoption of Product Service Systems.....how does one start to define the cost model?  What are the key elements to such a model?  Is there an optimum life span for such models when working within this paradigm.


Insights and opinions would be welcome.......