Feasibility study on service contracts
Industrial Engineering / Management / Business administration / Econometrics
21 - apr - 2016
Korte opdracht omschrijving
Next to the initial supplying of systems, Vanderlande also facilitates the maintenance of systems by a.o. supplying spare part packages, and offering site based services by own personnel at airports. The availability of spare parts is important, since system downtime may have serious consequences. For example, downtime of a baggage handling system at an airport may lead to baggage that misses its flight, which leads to significant costs. Vanderlande often supplies an initial package of spare parts to the customer, delivered at installation of the system. Also, spare part inventories are replenished from time to time upon request of the customer. In case of baggage handling systems, this may be pretty infrequently because legal obligations to tender spare part packages (e.g., once every two or four years). This leads to high cycle inventory for fast moving parts.
The services that Vanderlande offers during the life cycle of their systems yield an important part of both the total revenues and the total profit. Vanderlande aims to extend its services business in the future. An option is to stop offering initial spare part packages at system installation, and to offer service contracts instead. Such a service contract could consist of delivering all the spare parts needed for preventive and corrective maintenance within a certain time frame, where the length of the time frame may depend upon customer requirements. Also, different time frames for different classes of spare parts may be offered, e.g. depending on the criticality of the parts for the functioning of the system. The price of the service contract should obviously depend upon the length of the time frame. Advantages for the customer could be that no investment is spare parts are required and costs become variable in the part usage. From a supply chain perspective, safety inventories could be decreased, since parts can be pooled over multiple customers by Vanderlande. Also, the cycle inventory could decrease for governmental customers who are legally obliged to tender spare part packages to replenish current inventories. The advantage of Vanderlande should be that the turnover and profit of services will increase, a.o. because customers will use more parts through the Vanderlande channel than currently (a considerable fraction of the parts are sourced by the customers from other suppliers, since these parts are generic).