Characterisation of uncertainties in costing for availability contracts

There is an emerging trend of offering combined products and services to customers as integrated solutions. These are implemented by contracts such as availability contracts. Uncertainties may arise due to the novelty of the process of designing and managing such offerings, prediction of equipment failure and multiple stakeholders involvement in addition to the long-term nature of the contract. Understanding through-life uncertainties and their impact on cost is critical to ensure sustainability and profitability of the companies offering such solutions. The focus of this paper is to (i) evaluate existing uncertainty classifications and (ii) propose essential considerations for characterising the uncertainties in availability contracts. Appropriate classification of uncertainties should improve the quality of cost estimation by stimulating an understanding and awareness of uncertainties and their characteristics

Uncertainty analysis in product service system: Bayesian network modelling for availability contract

There is an emerging trend of manufacturing companies offering combined products and services to customers as integrated solutions. Availability contracts are an apt instance of such offerings, where product use is guaranteed to customer and is enforced by incentive-penalty schemes. Uncertainties in such an industry setting, where all stakeholders are striving to achieve their respective performance goals and at the same time collaborating intensively, is increased. Understanding through-life uncertainties and their impact on cost is critical to ensure sustainability and profitability of the industries offering such solutions. In an effort to address this challenge, the aim of this research study is to provide an approach for the analysis of uncertainties in Product Service System (PSS) delivered in business-to-business application by specifying a procedure to identify, characterise and model uncertainties with an emphasis to provide decision support and prioritisation of key uncertainties affecting the performance outcomes. The thesis presents a literature review in research areas which are at the interface of topics such as uncertainty, PSS and availability contracts. From this seven requirements that are vital to enhance the understanding and quantification of uncertainties in Product Service System are drawn. These requirements are synthesised into a conceptual uncertainty framework. The framework prescribes four elements, which include identifying a set of uncertainties, discerning the relationships between uncertainties, tools and techniques to treat uncertainties and finally, results that could ease uncertainty management and analysis efforts. The conceptual uncertainty framework was applied to an industry case study in availability contracts, where each of the four elements was realised. This application phase of the research included the identification of uncertainties in PSS, development of a multi-layer uncertainty classification, deriving the structure of Bayesian Network and finally, evaluation and validation of the Bayesian Network. The findings suggest that understanding uncertainties from a system perspective is essential to capture the network aspect of PSS. This network comprises of several stakeholders, where there is increased flux of information and material flows and this could be effectively represented using Bayesian Networks

Towards design of prognostics and health management solutions for maritime assets

With increase in competition between OEMs of maritime assets and operators alike, the need to maximize the productivity of an equipment and increase operational efficiency and reliability is increasingly stringent and challenging. Also, with the adoption of availability contracts, maritime OEMs are becoming directly interested in understanding the health of their assets in order to maximize profits and to minimize the risk of a system's failure. The key to address these challenges and needs is performance optimization. For this to be possible it is important to understand that system failure can induce downtime which will increase the total cost of ownership, therefore it is important by all means to minimize unscheduled maintenance. If the state of health or condition of a system, subsystem or component is known, condition-based maintenance can be carried out and system design optimization can be achieved thereby reducing total cost of ownership. With the increasing competition with regards to the maritime industry, it is important that the state of health of a component/sub-system/system/asset is known before a vessel embarks on a mission. Any breakdown or malfunction in any part of any system or subsystem on board vessel during the operation offshore will lead to large economic losses and sometimes cause accidents. For example, damages to the fuel oil system of vessel's main engine can result in huge downtime as a result of the vessel not being in operation. This paper presents a prognostic and health management (PHM) development process applied on a fuel oil system powering diesel engines typically used in various cruise and fishing vessels, dredgers, pipe laying vessels and large oil tankers. This process will hopefully enable future PHM solutions for maritime assets to be designed in a more formal and systematic way

Servitization and operations management : a service-dominant logic approach

Managing organisational performance in sectors such as equipment provision has become increasingly complex as competition has heightened and firms have felt pressure to add value through the provision of services (Baines et al, 2007; Howard and Caldwell, 2011; Neely et al., 2011). This provision is commonly referred to as the servitization of manufacturing (Vandermerwe & Rada, 1988). By extending the traditional offering of equipment to include service activities however, underlying operational delivery systems and processes have become more complex to manage and co-ordinate. No longer are firms simply making and shipping products; they are now engaged in a more complex world of design and delivery (Neely et al., 2011). This study aims to explore servitization from a value perspective through the lens of Service-Dominant (S-D) logic, and to propose its implications for operations management

Made to serve: a model of the operations practices and technologies that deliver servitization

This paper explores how successfully servitised manufacturers deliver advanced services and proposes a model that describes how they configure their operations. A case study methodology is applied across four manufacturing organisations successful in delivering advanced services. A descriptive model is then formed based around six popular technologies and practices

A conceptual framework to assess the impact of training on equipment cost and availability in the military context

Designing military support is challenging and current practices need to be reviewed and improved. This paper gives an overview of the Industry current practices in designing military support under Ministry of Defence/Industry agreements (in particular for Contracting for Availability (CfA)), and identifies challenges and opportunities for improvement. E.g. training delivery was identified as an important opportunity for improving the CfA in-service phase. Thus, an innovative conceptual framework is presented to assess the impact of training on the equipment availability and cost. Additionally, guidelines for improving the current training delivery strategies are presented, which can also be applied to other Industry contexts

Local Public-Services Provision under Public Private Partnershps : Contractual Design and Contracting Parties Incentives

This paper studies the incentives of the private provider, but also of the public authority, under various contractual forms of Public Private Partnerships (PPPs). A critical aspect of any PPP contract is the allocation of demand risk between the public authority and the private provider. I show that contracts in which the private provider bears demand risk motivate more the public authority from responding to customer needs. This is due to the fact that consumers are empowered when the private provider bears demand risk, i.e. they have the possibility to oust the private provider in case of non-satisfaction with the service provision, which provides procuring authorities with more credibility in side-trading and then more incentives to be responsive. However, contracts in which the private provider does not bear demand risk motivate more the private provider from investing in cost-reducing efforts. I highlight then a tradeoff in the allocation of demand risk between productive and allocative efficiency. The striking policy implication of this paper would be that the current trend towards a greater resort to contracts where private providers bear little or no demand risk may not be optimal. I apply these results to understanding three famous case studies

Managing Traffic Demand Risk in Road Sector Public-Private Partnerships (PPPs) through the Use of Put and Call Option Agreements

One of the major problems facing road sector PPPs is the management of traffic demand risk. The reasons for this are that traffic studies are notoriously unreliable and also the possibility that an alternative route or intermodal competition might affect demand. Therefore, it is usual for private sector investors to seek additional assurances from the government that they would recover their investments through the use of guarantees or other forms of protective contractual clauses that either enable the term of the concession or the revenue accruable to the concessionaire to adjust with demand realizations.  However, these protective clauses not only increase the contingent liability of the government but may also stall the infrastructural development of the country, increasing the likelihood of political risk eventuating. This article argues that the best way to resolve this issue is for parties to consider the use of put and call option agreements, which allow either party to exit the contract where economic or social realities demands it. Key words: Public-Private Partnerships, Traffic Demand Risks, Road Sector, Put and Call Option

The Greek Capacity Adequacy Mechanism: Design, Incentives, Strategic Behavior and Regulatory Remedies

This paper describes and analyzes the Greek Capacity Market or, as named, the “Capacity Adequacy Mechanism”. A detailed description of the recently established mechanism is given, whose design is a hybrid model combining elements from three different designs: the US Capacity Markets, the Capacity Payment Mechanisms and the Centralized Auctions for Capacity Contracts. Next, the goals of this design are explained. In the case of Greece the goals are not restricted just to the so-called “missing money” problem, therefore an analysis follows examining the incentives given to the market participants. The analysis shows the dependence of the mechanism on mainly two factors: the over/under-capacity of the market and the strategic behavior of the market participants, especially of the incumbent. In general, the Capacity Adequacy Mechanism is expected to operate quite satisfactory, giving the “right” incentives to the market participants. Some minor amendments to the rules are proposed, aiming to further increase its efficiency.Capacity Mechanisms, Electricity Markets, Mechanism Design, Strategic Behavior

A "DESIGN FOR AVAILABILITY" METHODOLOGY FOR SYSTEMS DESIGN AND SUPPORT

Prognostics and Health Management (PHM) methods are incorporated into systems for the purpose of avoiding unanticipated failures that can impact system safety, result in additional life cycle cost, and/or adversely affect the availability of a system. Availability is the probability that a system will be able to function when called upon to do so. Availability depends on the system's reliability (how often it fails) and its maintainability (how efficiently and frequently it is pro-actively maintained, and how quickly it can be repaired and restored to operation when it does fail). Availability is directly impacted by the success of PHM. Increasingly, customers of critical systems are entering into "availability contracts" in which the customer either buys the availability of the system (rather than actually purchasing the system itself) or the amount that the system developer/manufacturer is paid is a function of the availability achieved by the customer. Predicting availability based on known or predicted system reliability, operational parameters, logistics, etc., is relatively straightforward and can be accomplished using several methods and many existing tools. Unfortunately in these approaches availability is an output of the analysis. The prediction of system's parameters (i.e., reliability, operational parameters, and/or logistics management) to meet an availability requirement is difficult and cannot be generally done using today's existing methods. While determining the availability that results from a set of events is straightforward, determining the events that result in a desired availability is not. This dissertation presents a "design for availability" methodology that starts with an availability requirement and uses it to predict the required design, logistics and operations parameters. The method is general and can be applied when the inputs to the problem are uncertain (even the availability requirement can be represented as a probability distribution). The method has been demonstrated on several examples with and without PHM