CIRP Annals - Manufacturing Technology 59 (2010) 607–627

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CIRP Annals - Manufacturing Technology

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Industrial Product-Service Systems—IPS2

H. Meier (2)a,*, R. Roy (2)b, G. Seliger (1)c
a
Chair of Production Systems, Ruhr-University Bochum, Germany
b
Decision Engineering Centre, Cranfield University, Bedfordshire MK43 0AL, UK
c
Assembly Technology and Factory Management, TU Berlin, Germany

A R T I C L E I N F O A B S T R A C T

Keywords: In mechanical engineering and plant design, product-related services are usually considered as an
Service
add-on to the actual product. Industrial Product-Service Systems deal with dynamic interdepen-
Lifecycle
dencies of products and services in production. Research areas cover new concepts and methods
Industrial Product-Service Systems
which enable the machine producers to design the potential services in an optimal way, already
during the development of the machine. This paradigm shift from the separated consideration of
products and services to a new product understanding consisting of integrated products and services
creates innovation potential to increase the sustainable competitiveness of mechanical engineering
and plant design. The latter allows business models which do not focus on the machine sales but on
the use for the customer e.g. in form of continuously available machines. The business model
determines the complexity of delivery processes. Characteristics of Industrial Product-Service
Systems allow covering all market demands.
ß 2010 CIRP.

1. Introduction So far a number of approaches developed a classification

The world is changing. Industrialized countries are subject to a
structural change toward a service society, while the industry
sector drifts to emerging and developing countries. The following
examples should illustrate the development. The United States
recorded a percentage GDP from service in 2005 of 76%, Germany
of 70% and Japan of 69%. In comparison the share in China is just
40% [1]. One important reason for that change is the fact that in the
industry sector fewer jobs were offered and customer needs were
met in a more cost efficient way at the same time, because of
automation and increased productivity. So the service sector
gained more importance during the time by offering new jobs and
developing purchasing power. But nevertheless the industry sector
is still the backbone in some industrialized countries e.g. Germany
and Japan despite the figures. To keep their competitiveness and
survival, working plants start the tertiarization of the industry
sector by means of Industrial Product-Service Systems (IPS2). IPS2
are forcing a new understanding for business relationship within
the Business-to-Business market. Main stakeholders of this
business relationship are identified as the customer, the Original
Equipment Manufacturer (OEM, also known as the IPS2 provider),
the suppliers (IPS2 module, product and service supplier) and the
society (e.g. government, competitors) with regard of sustainable
and ecological solutions (Fig. 1).
Based on new service businesses a stronger connection
between the mentioned participants can be established. In this
context the term of service needs to be clarified.
* Corresponding author.
E-mail address: meier@lps.rub.de (H. Meier).
scheme and explained the meaning of industrial service. For
instance MacDonald defines a service as ‘‘an activity which has
some element of intangibility associated with it. It involves some
interaction with customer or property in their possession, and does
not result in a transfer of ownership. A change of condition may
occur and provision of the service may or may not be closely
associated with a physical product’’ [2]. The three most commonly
ascribed characteristics of service are [2]:
 Intangibility, services usually are intangible while products
generally are concrete. The consequence of a service often is
inseparably connected to goods in turn, though; different
states during the service delivery are differently materially
distinctive.
 Uno-actu-principle, services are produced and consumed at the
same time hence they cannot be stored.
 Integration of the external factor, a direct contact between the
service provider and the demanders is fundamental. The active
role of the customer during the production of the service, leads to
the specific feature of the location restraint, because the service
of the provider is carried out or in an object which is in the access
of the customer.
A result of the integration of the external factor is the
heterogeneity of the whole service business. This means that an
IPS2 provider has to cope with different expectations of different
stakeholders for the provision of a service in a defined quality and
time schedule (see Fig. 1).
The Meaning of industrial service is a necessary prerequisite to
understand the nature of an Industrial Product-Service System
which is

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608 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
‘‘An Industrial Product-Service System is characterized by the
integrated and mutually determined planning, development, pro-
vision and use of product and service shares including its immanent
software components in Business-to-Business applications and
represents a knowledge-intensive socio-technical system’’ [3].
This means in detail:
 An IPS2 is an integrated product and service offering that delivers
values in industrial applications.
 IPS2 is a new product understanding consisting of integrated
product and service shares.
 IPS2 comprises the integrated and mutually determined plan-
ning, development, provision and use.
 IPS2 includes the dynamic adoption of changing customer
demands and provider abilities.
 The partial substitution of product and service shares over the
lifecycle is possible.
 This integrated understanding leads to new, customer-adjusted
solutions.
 IPS2 enable innovative function-, availability- or result-oriented
business models.
Furthermore Industrial Product-Service Systems apply only in
Business-to-Business applications and represent a socio-techni-
cal system due to the interdependencies between the immanent
product and service shares and the involved persons (in this
context the term product describes a tangible good while the term
service is a synonym for intangible parts or items). In distinction
from Product-Service Systems (PSS) the integrated development
of the mutually determined product and service shares is essential
for Industrial Product-Service Systems; an exact separation
between product and service is no longer feasible, neither during
concept development nor during the delivery phase. Over the life
cycle Industrial Product-Service Systems will gain a Win-Win-
Situation for the corresponding stakeholders. By using IPS2 OEMs
have to be linked to the demands of the customers. This results
from the effects of the turbulent global markets concerning
flexibility, quality, delivery dates and prices. The advantage on
customer side is a higher level of productivity because of the
better utilization of the machine performance and the longer
operation possibility. Therefore customers can concentrate on
their core competences and tend to outsource secondary tasks.
Nevertheless the use of new and even more complex technologies
becomes more and more important for the customer’s competi-
tiveness, whereas the risk to start such a technology can be
covered by even less customers due to restrictions regarding
capital lock-up and knowledge.
These tasks on customer’s and OEMs side can both be met by
the OEM’s development from leadership in technology to leader-
ship in use/utilization. The essential prerequisite to accomplish the
leadership in use is the leadership in technology. The use
orientation as a system solution in the sense of an integrated
offer of IPS2 enables the OEM a life-cycle-spanning contact to the
tangible parts of his IPS2 and thus the option to continuously
Fig. 1. IPS2 stakeholders.
improve them. The benefit for the OEM is getting more revenue out
of the additional service business with the customer and the longer
business relationship. These advantages can only be established by
taking the whole life cycle into consideration. Furthermore the
changing markets shift the focus towards sustainability; eco-
efficiency has been declared as the guiding principle to decrease
environmental damages. New objectives in production industries,
allowing maximal use with minimal resource consumption,
compete with traditional economical models like economies of
scale. In the economic dimension sustainable use can be achieved
in increased economic competitiveness by selling functionality
instead of selling products. If functionality can be provided at
competitive prices, purchasing the functionality instead of a
comparable product becomes more attractive. Another aspect of
sustainability is prolonged life cycles by preserving the usability of
the IPS2 offers, which can be achieved by a higher level of product
accompanying services. At least sustainability can be implemented
by establishing closed loop recycling management with reuse
services [4]. It can be summarized that the aspects of IPS2 have a
potential contribution to sustainability. The ecological motivation
is the benefit of IPS2 to reduce resource consumption by using the
machine more efficiently. The technical motivation will be that the
equal focus on product and service development can enable
innovations and therefore product and service engineering have to
be integrated. Economical motivation lies in increasing profit by
delivering services and not just merely selling products. The
sustainability impact of the social motivation is the enabling high
wage countries to protect employment and provide new jobs.
Countries with low technical qualification can raise their
performance.
In summary the IPS2 business demands a paradigm shift
towards selling functionality instead of selling products. Fig. 2
illustrates the percentage of firms focusing on Product-Service
offerings in a global survey [5]; an analysis of 12,521 companies
with over 100 employees from the OSIRIS database with US SIC
codes 10–39 (from metal mining up to miscellaneous manufactur-
ing industries). When comparing the revenues of the firms, those
offering both products and services account for a major share of all
revenues, while representing a much smaller share of firm
numbers. That means combined product and service offers lead
to much higher revenue.
The takeover of all customer processes usually leads to new
business models. This implies tremendous financial Risks and
requires new legal conditions. Alongside engineering and
management, new methods and tools that makes IPS2 successful,
are required. So the companies need new methods and concepts
to design and develop IPS2. Also the operational and organiza-
tional structure needs to be adapted to the new situation.
Furthermore the offering and also delivering of IPS2 cause a new
kind of knowledge that has to be identified, to be saved and used
in a company. All these new influence factors are picked up as a
central theme within this keynote paper, to describe a frame-
work that enables companies to become a producing service
provider.
Fig. 2. Firms offering products and services as well [5].
 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
The IPS2 topic is very extensive and complex, hence the keynote
paper should give only a general overview. Certain fields of
research are highlighted in the text with methods and concepts. In
the future the target is to present also detailed methods and
concepts in other areas.
2. Evolving industrial context
The tertiarization of the industrial sector is on the rise.
However, the level of development along the branches varies,
which is intended illustrated by four selected examples from the
capital goods sector.
2.1. Case studies/examples
An example is given by the machine tool manufacturer Mori
Seiki with headquarter in Japan. Mori Seiki is representative for
many companies in the machine tool industry in terms of
development in the field of IPS2. The branch and so also Mori
Seiki’s efforts, to provide customers with integrated product and
services are only just at the beginning. The product is currently in
focus [see Fig. 3].
Mori Seiki currently offers its customers standard services from
the after-sales area. This includes mainly the field service, spare
part business and customer training. This form of service business
is a classic example of function-oriented business models. The
initiative for the service business is on customer side. First steps
towards IPS 2 are service contracts and the use of remote service
solutions. Both service offers can be regarded as a pre-stage for
availability-oriented business models. In line with a service
contract, customers pay a fixed amount for the service every year.
The contract contains defined service shares and times for each
service. Based on that, the manufacturer is able to calculate the
costs and to determine the price. Mori Seiki offers two kinds of
service contract Basic and BasicPlus. The advantage for the
manufacturer is the anticipation of the cash flow before the
machine break down occurs. For the customers, these contracts are
similar to insurances. In case of failure the customers get quick and
un-bureaucratic support. Without any failure during the contract
period customers only bear the costs. Furthermore the offering of
service contracts is an educational measure towards condition
based maintenance, as mentioned a pre-stage for availability-
oriented business models.
Concerning the remote service both, manufacturer and
customer find it difficult to implement the technology in the daily
work despite the enormous opportunities. The usage of remote
service open up the possibility to offer new kinds of service, e.g.
machine benchmarking but the technology also enables the
manufacturer to provide their existing services quickly and cost
efficient. Wollschläger a trading company for precision tools,
machining and machine tools has proceeded far ahead within the
field of remote service. The company offers a tool cabinet based on
the remote service technology to its customers. So Wollschläger is
Fig. 3. Service offer of Mori Seiki [6].
609
Fig. 4. IPS2 process security by condition monitoring.
able to control the need and availability of the tools at each
moment and can react in real time. In combination with a machine
tool manufacturer both companies and also the customer can
benefit from this new solution by a higher value for each party.
NILES-SIMMONS also a machine tool manufacturer situated in
Chemnitz, Germany is on the way to IPS2. The focuses towards IPS2
are an improved process security and operational safety. For
achieving these targets, NILES-SIMMONS offers proactive main-
tenance based on equipment observation and wear-analyses for
tool machining and manufacturing equipment (see Fig. 4).
A necessary prerequisite is the remote monitoring for service
process integration. The main characteristic for this kind of IPS2 is a
high integration of analyses and monitoring competence with
service processes capability as a basis for the new business
concept. This service offer is a typical example of an availability-
oriented business model where the service initiative is on the
manufacturer side. Furthermore, like Mori Seiki, NILES-SIMMONS
offers standard After Sales services to their customers like spare
parts, field service and trainings for the customer staff, but as
described the process security is a further step than the service
contracts offered by Mori Seki.
A further example of IPS2 in practice is the SITEC Industrie-
technologie GmbH, also situated in Germany. The company SITEC
designs, delivers and operates flexible assembly, laser, and ECM-
lines (see Fig. 5).
The manufacturer is a part in the end-users production chain.
With a wide range of services like construction, cost-optimizing,
preventive maintenance, reduction of cash-assets-binding, plant-
leasing and finally operation of the system the customers can
choose from a variety of options, the one which is appropriate for
them. The offering to operate the systems and to get paid only for
the output is a typical example for result-oriented business
models. But nevertheless services are offered around the product,
but only to provide the customers with a permanent available
machine, that can be operated optimally by the customer or ensure
a steady and fixed output. The step to offer customers services
outside of the production cannot be found so far along all the three
examples and this is a the great challenge for the machine tool
branch in the future.
The issue of sustainability has not yet arrived in the machine
tool branch. Companies within the machine tools industry have
Fig. 5. IPS2 for an assembly line.
610 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
Fig. 6. Solution offer of Tetra Laval Group along the value chain.
started to measure the energy consumption of their products. In
the near future an energy classification scheme can be expected as
a benchmarking tool for the customers. Finally, an example of IPS2
in practice where not only the product but the whole value chain is
in focus should be introduced.
The Tetra Laval Group as a supplier of packaging solutions is
well progressed in the field of the IPS2. The company, Tetra Pak,
founded in Sweden, now located in Switzerland, has become
known as a manufacturer of packaging for liquid products. With its
acquisition of the companies AlfaLaval (independent industrial
group within the Tetra Laval Group) and Sidel, the company has
changed into a solution provider along the entire value chain from
milk production to filling the final product. To offer customers the
maximum benefit the group does not only focus on its products
[see Fig. 6]. The idea of becoming a solution provider is supported
by a wide range of services along the value chain starting with the
care of famers and equipment for the animal husbandry, on the
design, installation and operating of processing and packaging
systems and technical support up to public relation and marketing
support services for the final product. The importance of service is
rooted in the company and the daily activities aimed at solid
customer focus to recognize the needs, giving options, keeping
promises and exceed expectations by cutting-edge customer
solution as a result of IPS2 [7]. The subsidiary DeLaval focused
in 2009 alongside the development of innovations, especially on
service. ‘‘Besides innovation, service will be our focus. We are now
launching a new concept called DeLaval InService. The concept takes
into consideration that every farm is different and every farmer
unique, whilst adapting the solutions to their particular requirements.
The program aims to unify DeLaval service and create a standard for
how service should be presented and delivered to customers.’’ [7] In
addition to focusing on Industrial Product-Service Systems in order
to provide the customers the maximum benefit, the group also
engage in sustainability. All three industry groups of Tetra Laval
show strong commitment to developing sustainable products and
solutions. Tetra Pak, DeLaval and Sidel are taking a number of
initiatives from consuming less energy in the factories and offices
to the development of recycling systems. Especially Tetra Pak. is
committed to reducing its impact all along the product life cycle.
Tetra Pak integrates environmental aspects in product develop-
ment, uses renewable packaging materials, use the idea of
remanufacturing and green energy in converting factories [7].
2.2. Industrial challenges
The case studies demonstrate that industry has already started
with selling some kind of Industrial Product-Service Systems.
Finally this leads to a paradigm shift from leadership in technology
to leadership in utilization. In general the new service-based
businesses avoid dissatisfaction of the customer by a not
controllable level of technological complexity. Furthermore with
IPS2 the customer can focus on his core competences, reduction of
capital lock-up and the access to new technologies. On the other
hand the OEM can raise customer loyalty, open new business
fields, develop market shares and most important provide the
customer with information about the use of his products to create
innovations. To use these drivers the customer and the OEM have
to deal with challenges. The customer has to evaluate chances and
risks, he has to identify his core competences, comparability with
own processes and has to open his organization to the OEM. The
OEM has the challenges
 to identify the important stakeholders and understand their
demands,
 to create proper business models,
 to identify involved chances and risks,
 to develop and deliver IPS2 processes,
 to set up IPS2 oriented organization,
 to qualify the staff (empowerment),
 to industrialize and automate his IPS2 processes and
 to adapt his product understanding and business culture.
But despite all the opportunities and challenges, systematic
methods and tools from the scientific point of view have to be
developed. This concept requires a holistic framework. Such a
framework should give guidelines to the mentioned challenges
above. In this context the establishment of a service production
system, as a necessary requirement for the future form the
industry side needs to be mentioned. Similar to known
production systems like Toyota, a higher effectiveness and
efficiency in service production and providing should be
achieved. The service production system should also contribute
to embed a long-term service business within the company, to
highlight the strategic importance of service and to upgrade the
service to a higher level of professionalism as a contribution to
the shift from producer to a utilization offer provider respec-
tively the paradigm shift from leadership in technology to
leadership in utilization.
3. IPS2 approaches in academia
Already at the end of the 1960s Theodore LEVITT [8] made a
statement that is still valid for current industrial applications:
‘‘People don’t buy products; they buy the expectation of benefits’’.
The problem of this statement is to measure the expectation of
benefit and to gain the highest profit out of it. A classical product
can be demonstrated, calculated and validated by its technical
functionality. If you want to work with LEVITT’s statement you
have to develop similar methods and tools for this solution
providing.
The development and delivery of products and services can be
seen in different ways. The most traditional approach is the
separated view; products and services are developed indepen-
dently and organized in different departments. Further on, services
can be seen as add-ons to the actual product; thus they are
developed subsequently to a specific product (Fig. 7).
On the other hand Industrial Product-Service Systems represent
a paradigm shift in the definition of service performance in
mechanical engineering by considering tangible and intangible
goods in an integrated way [3].
 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
Fig. 7. Types of Product-Service Systems.
3.1. Related research
There is considerable research going on related to IPS2. Some of
this research is concentrating on a specific problem or it results
from differing viewpoints of different research disciplines and
areas.
The customer value view was primarily brought to consideration
by marketing researchers when facing the challenges of changing
markets and upcoming globalization; it specially focuses on
customer needs and the effects of customer orientation, e.g. by
selling more and better services [9,10]. Thereupon the concept of
Service-Dominant Logic evolved also from the marketing perspec-
tive, stating that customers mainly create value through service
experiences and relationships [11,12].
The concept of product-service systems (PSS) considers the
integration of products and services to enable new business
models aiming to fulfill customer needs [13–18]. It has a broad
view on products and services and includes B2C-markets. It is most
common in Asian and European engineering.
The term Servitization of products was first referred to in the
management literature [19] and is sometimes also used as a
synonym for PSS or IPSO (see below). The related Servicification
concept also focuses on the enhancement of products by adding
services while considering more the Service Engineering
approaches [20,21].
The concept of Integrated Product and Service Offering (IPSO)
views from a lifecycle perspective and aims to offer a solution with
a combination of products and services that satisfies an identified
customer need. The related Functional Sales concept includes the
perspective of environmental impacts. The connected concepts of
Integrated Product and Service Engineering (IPSE) as well as
Functional Product Development focus on creating a method for
developing those IPSO/Functional sales. These concepts are mainly
discussed in Sweden and Japan [22–26].
Life Cycle Engineering, Life Cycle Assessment, EcoDesign, design for
environment and many related concepts focus on sustainability and
how to develop e.g. energy efficient products, whereas in recent
years they tend to incorporate service-related concepts (e.g.
intelligent maintenance) to reach these aims [27–31].
3.2. Academic challenges
The introduction of Industrial Product-Service Systems has
shown a great potential of benefit for all contributors. The
examples and case studies gave a hint about existing scenarios
und usage. The conclusion is that the industry is already working
with very similar understandings of IPS2 but a methodological or
standardized support does not exist. These lead to new academic
challenges that have to be solved. How can the use orientation be
described and what influence has the shifting and sharing of risks?
What impact on sustainability can result out of the new under-
standing? The academic research has to focus on a prolonged life
cycle and the use of better knowledge out of the use phase. The
fields of action vary from the research about increasing customer
demands for services and additional functionalities over the
possibility to differentiate by focusing on customer solutions up to
offering more value to the customer with IPS2. How can these
611
Fig. 8. Scientific fields of action.
values be described and what methods make us able to measure
these values? The academic research has to show if the offering of
Industrial Product-Service Systems are a possibility of further
revenue generation.
The shown paradigm shift of Industrial Product-Service
Systems creates new scientific issues over the entire life cycle:
 Arising complexity of processes by customer integration
 Interdisciplinary issues
 Stimulates the innovation capability
 Know how feedback
Within the scope of the collaborative research project SFB/TR29
the mentioned main challenges are concretized (Fig. 8). The
extensive change of all customer-supplier-processes according to
the IPS2 approach thus enables significant innovation, optimum
customer orientation, measurably reduced time-to-market as well
as considerable cost reduction.
Therefore the methodical and systematic background of the
innovative product understanding has to be supported by new
scientific results regarding all phases of the IPS2 life cycle, whereas
the engineering sciences are in the focus, complemented by
economic and social issues. In industry already specific solutions
exist, whereas there is a lack of scientific methods and tools.
The IPS2 approach therefore has to establish a life cycle
spanning procedure to achieve higher performance and increased
supplier mutability at the same time.
3.3. Competitive IPS2 framework
Various drivers can be identified along with the competitiveness
of IPS2. To offer high quality IPS2 solutions, companies must be able
to compete in saturated product markets and to re-orient the current
production and consumption mechanisms into a more sustainable
direction. A new competitive space and framework is established to
achieve this [32]. The competitive space describes the situation of
the offering industry and a comparison between different IPS2
offerings can therefore be achieved [32]. For the durable customer
value a competitive IPS2 framework is presented (Fig. 9).
Fig. 9. A Competitive IPS2 framework [32].
612 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
An excerpt of the competitive framework is given in the keynote
paper. The framework illustrates the structure of this keynote
paper and hence the coherences between the topics respectively
the chapters. After describing the drivers and motivation towards
IPS2 in Chapter 1, Chapters 2 and 3 describe the current situation in
industry and research concerning IPS2.
Point of origin to offer IPS2 solutions is the definition of an
appropriate business model. Each business model causes different
risks and uncertainties that have to be regarded in the form of
contract. Based on the contract the IPS2 solution needs to be
designed and delivered to the customer. This requires an
appropriate organizational structure.
Along the life cycle of an IPS2 a lot of data and information are
incurred. The IPS2 providers must be able to identify only the
important data and information to generate knowledge for the
adaption of future IPS2. But the adaption of IPS2 is not a part of this
keynote paper and has to be regarded as an future topic. The
competitive framework for IPS2 is a key to create sustainable
customer value and get success for any business.
4. Business models, risk evaluation and management
The starting point in an IPS2 concept is the relationships
between the customers and manufacturers, initiated through the
business models. This section covers topics related to business
models, contracts, risks and uncertainties, cost models and
obsolescence in IPS2. Various models and techniques proposed
in literature are discussed and major issues are summarized in
these topics.
4.1. IPS2 business models and contracts
A business model can be described by use model, architecture of
value creation and turn over model (Fig. 10) [33–35].
Depending on the individual use model, an adjusted concept of
the sub-processes is necessary: Due to the consequent orientation
of the service offer towards the individual customer use the
supplier takes over more and more tasks which have been
executed by the customer before. The customer–supplier relation
is thus changed from a supplier-buyer relation to an integrative
cooperation [36], where the established division between supplier
and customer blurs more or less, depending on the specifications of
the use model. The innovative product understanding of Industrial
Product-Service Systems with shares of tangible and intangible
goods of course affects the development process of the service
offer, but furthermore leads to completely modified requirements
towards the service provision process.
Industrial Product-Service Systems are individualized, custo-
mer-oriented configurations of products and services, which affect
each other due to their integrated development and provision [3].
Innovative and flexible business models which describe the design
of the customer–supplier relation are based on these dynamic
systems. It can be varied between function-, availability-, and
result-oriented use models [35]. The different types of business
Fig. 10. Business models for IPS2 (adapted from [33–35]).
Fig. 11. Identification of customer demands.
models are connected to varying configurations of IPS2 occurring in
the range of products and services. Also it differs in shifting
business processes from the customer to the IPS2 provider (Fig. 11).
A function-oriented use model includes e.g. a maintenance
contract in order to guarantee the functionality for an agreed
period of time. In an availability-oriented use model the usability
of the means of production is also guaranteed. For the first time, the
IPS2 provider takes over business processes of the customer as his
own responsibility and thus bears a part of the production risk. In a
result-oriented business model the complete responsibility of the
production process is transferred to the IPS2 provider, as the
customer pays for the faultlessly produced parts respectively
products. However, often only a few customers are willing to
completely outsource processes. The investment to build the
necessary infrastructure to operate their investment goods on
customer side often does not pay off then. Usually the critical mass
above, which is worth the takeover of all customer processes, come
together only in special market niches. So IPS2 is therefore suitable
only for companies that have positioned themselves as niche
player’s e.g. agricultural engineering, packing, and pumps industry,
to mention only a few examples. The individual business models
can be differentiated by further criteria (Fig. 12).
Hauschild describes how to provide optimal functionality by
identifying ‘‘environmental hot spots’’ and how to reduce them
[37]. Horváth analyze in the German BMBF project ‘KorServ’ the
perceived usage that lead to a strong risk reduction on the side of
the customer [38].
Seliger argues that selling use becomes superior to selling
products, once the idle capacity costs of a sold product are higher
than the costs for information and logistics, arising within the
scope of the adaptation for further usage phases [39].
This IPS2 model also leads to a cycle economy. A cycle economy is
not only ecologically reasonable but also a chance for new business.
Selling utilization instead of selling products is advantageous once
Fig. 12. Specification of innovative use models.
 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
additional costs for information processing and logistics are less
than costs for underutilized capacity.
A competitive provider offers product functionality, availability
or a result in quality, time and location as required by the user.
Multiple usage phases’ makes an IPS2 competitive by maximizing
the utilization of resources and can be achieved by disassembly,
component adaptation, and reassembly [4]. The opportunity to
optimize the use phase is the key for success in consequence of
more freedom of business and engineering development.
IPS2 business models are supported by contracts which are
agreements whose purpose is to mitigate risks by defining obligation
of parties to each other and to have this enforceable by law [41].
Susani and Dugerdil [42] suggest having an automation of cross-
organizational interactions or process in B2B markets bound by
contractually gives a competitive advantage for IPS2.Traditional
contracts are no longer valid in this scenario due to the influences of
various factors especially in terms of risks and uncertainties. Fig. 13
shows different IPS2 contract types identified from the literature and
industries by Roy and Cheruvu [32].
It is observed that most of the companies are customizing the
contracts by combining aspects of the different types of contracts.
The factors identified by Roy and Cheruvu [32] (Price competition,
Price analysis, Cost analysis, Type and complexity of the
requirement, Urgency of the requirement, Period of performance
or length of production run, Contractor’s technical capability and
financial responsibility, Adequacy of the contractor’s accounting
system, Concurrent contracts, Extent and nature of proposed
subcontracting and Acquisition history) would to a great extent
help to ease these processes of finding viable contract. Datta and
Roy [52] study different service support contracts and the cost
modelling techniques used in availability type contracts in the
context of defence and aerospace industry. The main parameters
considered in the contracts are responsibility, cost of performance
and incentives.
It has been seen that the inclusion of information and
knowledge exchanges in terms of monitoring in contracts is
greatly useful in the process of IPS2. Johanes (2007) suggests
detailing the contract that outlines the measuring, monitoring and
penalty procedures to reduce behavioral uncertainty [43].
Milosevic et al. [44] argues that designing and implementing a
contract monitoring facility as part of larger cross-organization
contract management architecture can be achieved with use of
information technology. Nowadays electronic contract systems
deal with the life cycle automation and management of contract
documents from their establishment to expiry [45,46]. Contracts
monitoring helps to detect and rectify any contract violation [41].
IPS2 business models also recognize that a strong partnership
between the manufacturer and the customer is vital for long-term
performance, and that can go beyond the contracted relationship,
this could also mean more risks for the contract.
4.2. Risks and uncertainties in IPS2 business models
Erkoyuncu et al. [47] argue that the terms risk and uncertainty
have often been used interchangeably in industry; however there
is an important distinction between the two where the concept risk
deals with measurable probabilities while the concept uncertainty
does not. Risks are often considered as threats and are caused by
Fig. 13. Types of IPS2 contracts.
613
uncertainties. The longer time span involved in IPS2 increases the
risks and uncertainties. The natures of uncertainty are addressed
from aleatory and epistemic aspects [47]. No single uncertainty
typology has been commonly accepted [48]. Erkoyuncu et al. [47]
present a conceptual representation of risk and uncertainty in
relation to knowledge {indeterminate (uncertainty), probabilistic
(risk) or deterministic outcomes (certainty)}. Boussabaine and
Kirkham [49] argue that the more explicitly the risk is defined, the
greater the possibility for the decision maker to have confidence in
using derived probabilistic results. The goal of uncertainty
management includes minimizing the negative impacts of
uncertainties and realizing the opportunities that may arise
within a project [50]. In IPS2 contracts, customer demand and
supply related activities are categorized into sources of uncertainty
[51]. Uncertainties greatly reside on the mismatch between
demand and supply. Sources of disturbances in the demand-
supply could be considered due to faulty processes, uncertainties
within an organization, from interaction between different
partners or a higher industry or environment level [52]. Sharing
uncertainty between customers and OEMs plays a vital role in IPS2.
Fig. 14 illustrates the influences of business models on uncertainty
and risks sharing between the customers and OEMs. Customers’
proportion on uncertainty and risks share is higher in the function-
oriented business model, whereas OEMs responsibility on uncer-
tainty and risks is higher in the result-oriented business models.
The figure also represents these sharing proportions along the life
cycle with illustrative examples. This should be noted that sharing
uncertainty and risk is one of the processes involved in IPS2
management. In IPS2, OEMs and customers should jointly identify,
plan, assess, handle and monitor these uncertainty and risks.
Ng and Yip [53] stress that complexity and unpredictability in
costs are the challenges in Maintenance-Repair-Overhaul service
delivery under performance based contracts, especially when the
service provision aims to be innovative and pre-emptive, cultural
change from traditional contracting, loss of perceived control by
customer, lack of boundaries (rigidities and fluidities) and
coordination with suppliers. Maintenance, Repair and Overhaul
especially with a focus on electronics is getting more important
because of the increasing quantity and the value added share of
electronics in durable products. The electronics integration open
up new applications and business models and thus support the
trend, to increase service revenues sustainable and to compensate
economic cycles of the new business [54].
All the stakeholders involved in IPS2 would subject to risks
and uncertainties involved in this process. Risks and uncertain-
ties should be properly managed to reap the benefits of IPS2.
Identifying and sharing the risks in the process will greatly
enhance the confidence between the stakeholders [55]. Supply
chain plays important role in the life cycle of IPS2. Managing
complexity in supply chain impose a greater challenge. Risk
quantification, forecasting accuracy and data collection are
frequently addressed in the current literature. Erkoyuncu et al.
[47] argue that risk assessment at a more detailed level
facilitates the mitigation of uncertainty through avoidance,
Fig. 14. Influence of business models in sharing uncertainty between OEMs and
customers along life cycle with examples parameters.
614 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627

adjustment and contingency. They also argue that service

complexity and delivery urgency lead to demand uncertainty
[47]. Various factors that influence the level of uncertainty
deriving from the service supply chain include scale of the
supply chain, skill requirements, degree of customization and
changes in requirements. Development of a service uncertainty
framework would need to identify activities that take place in
delivering each service. Also there is a lack of clarity or guide to
select suitable methods to model uncertainty.
The foremost research in IPS2 uncertainty is to develop a
standard typology of uncertainty. This will greatly help in further
processes such as to understand nature of uncertainty, model
uncertainty and identify and share uncertainty. Quantification of
risks in IPS2 is still in infant stage which plays vital role to enhance
the links between customer and supplier. Influence of uncertainty
in costing needs to be understood better to create viable contracts.
Customer perceived risks need to be studied in detail to frame
better performance contracts.

4.3. Costs of IPS2

Neely [56] observes that the servitized companies get higher

revenues than pure manufacturing companies but tend to
generate lower profits particularly for large firms. There is a
need to understand true whole life cost of an IPS2 contract in
order to achieve a higher profit. Predicting the whole life cost
along with associated uncertainties at the bidding stage is very
challenging. Estimating the cost would significantly help to
develop stronger contracts. Coster [57] classifies the elements of
cost incurred in Total Cost of Ownership into: capital investment,
manufacturing activities, logistics activities and customer life
cycle support. Roy and Cheruvu [32] classify revenue model into
contract, product sales and service revenues. They also argue that
Whole Life Cycle Cost is focused on product at design stage with
very little knowledge of maintenance or operation associated
cost drivers and processes [32]. Schuh et al. [58] propose
subdivision of the whole life cycle costs into cost elements. Also
most of this research is focused towards costing the service
associated with stand-alone products [59]. Forecasting different
economic and financial future scenarios are the key factors to be
considered in costing [60]. The major inputs considered for
costing are user requirements, customer affordability issues,
service breakdown structure, historical data and expert opinions
and supplier inputs.
The main criteria used to evaluate costing methods are time
consumed in calculating process, accuracy of the results and
expenses incurred. Lanza and Ruhl [61] simulate the service costs
throughout the life cycle of production facilities with the help of
Monte Carlo simulation. They highlight the challenges of hardly
computable stochastic cost elements and statistically uncertain
costs. The methods (analogy-based methods, parametric techni-
ques, simulation models [62]) are heavily dependent upon the
sufficient and accuracy of the input data. Rese et al. [63] argue that
only a combination of the Net Present Value Approach and the Real
Options Approach enables a reliable estimation of the true value of
an IPS2 for an individual customer over its life cycle.
Datta and Roy [52] use the competitive IPS2 framework
developed by Cranfield University [32] to consider cost at various
stages of the life cycle (design, delivery and adaptation). In IPS2,
intangible performance metrics drive costs and the degree of cost
ownership varies depending on the IPS2 business model (product,
use and result). Datta and Roy [52] represent the entire cost
framework through a wagon wheel (Fig. 15).
They classify the key cost elements into recurring cost, non-
recurring cost, overheads and hidden costs [52]. Hidden costs
include issues such as cost of relationship management, commu-
nication costs, cost of lack of detailed level data, cost of reverse
logistics and flexibility of response and cost of cultural changes or
change management. They also identify the following key supply
chain issues for IPS2 network cost: reverse logistics, lack of
Fig. 15. IPS2 Cost–Conceptual Wagon-wheel [52].
visibility of parts, inaccuracy of predicting customer usage, the
scale of availability contracts and very little incentive in service
support business [52]. Difficulty in assessing the value of the
services by the customer is the major challenge in costing. This
includes human behavioral aspects into the cost models. Even
incorporation of these terms and conditions in contracts are
difficult. Kaplan and Cooper [64] create a link between how the
firm sustains to deliver its offering and the immediate effects on
the customer’s perceptions and attitudes.
The other major factor for the IPS2 costs is the cost impact of
obsolescence. Traditionally, the customers directly pay this
obsolescence cost. With IPS2 contracts manufacturers are expected
to take on the responsibility to manage the obsolescence and
incorporate any cost within a fixed price. This certainly provides
new opportunities to the manufacturer to optimize costs, but also
shifts significant risks to them. IPS2 contract would require
proactive obsolescence management. Romero Rojo et al. [65]
argue that the impact of components getting obsolescence on cost
should be considered in risk assessment which should be the part
of proactive obsolescence management. The obsolescence man-
agement includes mitigation and resolution approaches, design for
obsolescence and obsolescence costing for electronics, software
and material obsolescence at different levels (component, assem-
bly and system level) [65]. Meyer et al. [66] and Sandborn et al.
[67], advise the use of obsolescence monitoring in order to obtain
timely notification of any obsolescence risk. Development of an
Obsolescence Management Plan (OMP), a technology roadmap and
the use of obsolescence monitoring tools are the other strategies
suggested by the researchers. There is a lack of formal approach to
measure the obsolescence management capability of OEMs and
also a lack of study on incentivizing their suppliers for
obsolescence management.
5. Design and development
Traditionally, engineering designers and service and marketing
people respectively perform product design and service design.
Predominately technical services are provided during product
usage. It has been argued that servicing can significantly influence
product design. Mainly reliability, maintainability and support-
ability are the factors considered in design phase, which influence
during the in-service phase of the equipment.
 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
5.1. Understanding IPS2 design
Just simply adding services to designed product is no longer
sufficient [68]. The differences between the product-only context
and product-service context are explained by Molloy et al. [69].
The major difference highlighted is in the requirements definition
due to the changing and evolving capability needs in the product-
service context. Since product and service activity design are done
separately by different staff, it is difficult to link information
between products and service activities during the design phase
[70]. Aurich et al. [71] suggest the application of life cycle
engineering techniques to service design. Based on three main
strategies for combining products with related services, a
corresponding design process is proposed. It simultaneously
considers the product, process and information dimensions of
services (Fig. 16). Adapting methods used in product design to the
requirements of services and establishing them in service design
will support this integration.
IPS2 provides integrated solutions which consist of products
and services [72,73]. But it also includes business process/model
design [74]. Physical products are not as prerequisite in provided
offers, while most of the other existing research does [70].
The common argument is that integrating different character-
istics between products and services such as intangibility,
inseparability, heterogeneity, perishability, simultaneous produc-
tion and consumption and ownership as well as the establishment
of win-win solutions makes IPS2 design difficult [75]. The necessity
to consider IPS2-Design from the system level perspective has been
commonly argued [76]. Also it is a co-creation process between the
stakeholders involved [77]. The development of such systems is
influenced by several elements such as partners, organization,
benefits for IPS2 provider, benefits for IPS2 customer, environment,
social considerations, indication to use IPS2, interactions system/
users and system life-cycle phases [75]. The development of an IPS2
requires in addition to comprehensive expert knowledge in both
fields of product design and service engineering the consideration
of diverse interdependencies between the products and services.
Many requirements for designing IPS2 are identified in
literature. A procedure for selecting requirements and mapping
with service knowledge is proposed [78]. But these requirements
are not prioritized and structured. Many case studies are required
to justify these requirements across various industrial domains.
5.2. Modeling methods
Service design requires a sound model of services in contrast
to product design for which a variety of modeling methods
are available. Service has been discussed mostly in marketing;
there does not exist models of service for science for engineering
contexts. Integrating products and services by traditional
function, physics and geometry oriented design methods is
limited for generating well balanced IPS2. The major challenge is
to visualize and document basic elements and relations among
them, including the business model, technical artifacts, service
Fig. 16. Approach for systematic development of integrated product and service
design processes [71].
615
Fig. 17. Functional block diagram for an IPS2 [75].
activities, the IPS2 lifecycle, aspects of the system’s context and
resources to deliver added value. Some IPS2 methodologies are
focused on the system only and do not sufficiently specify
engineering product criteria [75]. Maussang et al. [75] propose a
methodology to provide engineering designers with technical
engineering specifications in relation with the whole system’s
requirements as precisely as possible for the development of the
physical objects and service units involved in those systems [81].
They adapted the functional analysis approach: the graph of
interactors and the functional blocks to bridge the gap between
the system approach and product development. Designers should
not focus at first on a solution based on a physical product or a
service unit. They must be able to work on organizational aspects.
External functional analysis supports the clarification of the
expected properties and performances of the system. Fig. 17
represents the functional block diagram representation for an
IPS2, highlighting functional flows and their materialization
supported by design assessment tools.
A description of product models especially for life-cycles helps
by modeling IPS2 [80]. The need for representation to model IPS2 is
fundamental for a basic understanding and handling [79,81].
In order to support an integrated planning and development of
products and services Müller and Stark defined a generic
development process model for IPS2 [82]. Characteristic for the
new model (Fig. 18) is the strong emphasis on the planning and
project definition at the left branch and the fade out from
development into delivery on the right branch. Both phases are
iterative and have high IPS2 relevance. The upper levels ‘‘customer/
market/environment’’ and ‘‘value’’ address customer needs and
customer values, which are essential PSS and IPS2 design
dimensions [82]. Additionally, the model highlights the simulta-
neous activities (i) brief conceptualization, architecture and
business model design, (ii) specification on system level, and
(iii) development project definition, which together lead to the
offering of a provider towards a customer.
The ‘‘heterogeneous IPS2 concept modeling’’ [83] is a novel
modeling principle that has been created to support model-based
IPS2 concept development (Fig. 19).
Based on a new paradigm to dissolve fuzzy distinctions
between product and service the IPS2-artefact has been defined
[84,85]. According to [83], an IPS2 is basically composed of a
combination of IPS2 artifacts to fulfill required functions. Thus, the
existential origin of an IPS2 artifact is a function, and could be
represented by the constructs ‘‘IPS2-object’’ and ‘‘IPS2-process’’. An
IPS2-object equals the material or immaterial operand of an IPS2
artifact that possesses definable states. IPS2-processes comple-
ment IPS2-objects. But, only the combination of IPS2-objects and
IPS2-processes can generate functional behavior! To cope with
development complexity, IPS2 concept modeling takes place on
three modeling planes. The conceptual development is carried out
on the so-called ‘‘IPS2 function plane’’. It is used to model IPS2
problem solutions abstractly and solution-neutral by defining and
linking ‘‘IPS2 functions’’ via appropriate relations. Apart from
modeling IPS2 function structures this plane is used to specify and
model the allocation of risk that needs to be shared between
customer and IPS2 provider according to a business contract.
616 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
Fig. 18. Generic process model for IPS2 development [82].
5.3. IPS2-design researches and methodologies
It is observed from the literature that product design processes
are well-structured, whereas the service design process, if existent
at all, is highly intuitive and mainly liability oriented [78]. It has
been argued that company should develop and implement the
systems to deliver IPS2 [77]. IPS2 design is to find a mapping
between activities in a service environment and value, which is
similarly observed in the relation between behavior derived from
the structure of a product and functional requirements in product
design [86].
In literature a method for designing service activity and product
concurrently and collaboratively during the early phase of product
design for total value is proposed (Fig. 20) [70,87]. The design
method differs from Traditional Engineering and Concurrent
Engineering in that products and service activities are designed
in parallel according to customer value. Yoshikawa’s General
Design Theory approach to describe products and services in terms
of function and attributes is part of the method.
Shimomura et al. [87] have given a fundamental unified
representation scheme of human process and physical process in
service activity for increasing customer value in service by
extending service blueprints. In their opinion the service blueprint
is unable to properly correlate a customer value and service
activity and find difficulties in association of the described service
Fig. 19. Theoretical Framework of the heterogeneous IPS2-concept modeling
approach [83].
process to the customer requirements due to lacks of design
information and insufficient normative notation to apply to actual
services.
The blueprint of a service offering like IPS2 should contain
information concerning the product and its service behavior as
well as information on the human activity associated with the
service. They extended service blueprint to include product and its
behavior (Fig. 21).
A quite similar design process is given by Meier and Massberg
[74]. If a new life cycle-based product comprehension is to be
established, the customer demands need to be analyzed first [74].
Second, appropriate business models and company strategies for
the supplier need to be developed and finally there is a need to re-
design the internal working processes in a service-oriented way.
They classify operation fields for the development of service-
oriented business models in terms of planning level (strategic,
tactical and operational) and dimensions (process, potential and
result). The development of a modular service product portfolio is a
prerequisite for a successful service strategy. A methodical
procedure for the development of standardized service modules
is proposed in Fig. 22.
It is only possible to combine individual modules from different
cooperation partners to an offer if a consistent syntax and
semantics has been introduced for the description of the service
and its attributes.
According to Baldwin and Clark a dynamic and unforeseeable
development can be made allowance for by using the concept of
modular architectures [88]. Furthermore, the use of the concept of
service modularization significantly contributes to increasing
clarity during the early IPS2 development phase (Fig. 23). See also
[19,88–92].
Fig. 20. The proposed Shimomura et al. model [87].
 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
Fig. 21. Schematic illustration of the proposed method for modeling services [70].
Handling complexity in IPS2 design requires frameworks and
methods, which help to systematize and structure complex tasks
into pieces, which can be overseen and handled properly.
Architecture for services design is introduced as an initial starting
point to realize IPS2. This architecture as illustrated comprises
steps for successful design and development of industrial services
and has been introduced by Gill [94]. Each service here is
considered to be a part of a more complex IPS2.
The architecture of service engineering as illustrated in Fig. 24
structures the overall service engineering task while linking tasks
with the methods and tools required performing the tasks [94]. The
architecture as shown in Fig. 24 consists of five essential
components for designing and developing business related services.
To keep the complexity of a development project as low as
possible, it is not useful to construct the service in detail from the
start. Instead, the development can be stated in such a way, that
the requirements for the service system are implemented first in a
general concept. Afterwards, the general concept can be divided
into components. The determined characteristics of the general
concept result in requirements for those components.
Each component can then be considered independently. This
procedure of specifying concepts into partial concepts and their
subsequent configuration can be continued at all levels of detail in
the same way. An appropriate method to detail a service system is
the Function Tree Analysis under consideration of Suh’s axiomatic
design. Suh states that one can only detail a function tree with the
embodying concept in mind [96,97].
Halen et al. [98] proposed a methodology for developing
product-service systems which consists of strategic analysis,
exploration of opportunities, IPS2 idea development, and IPS2
development and preparation for implementation. Kimita et al.
[99] proposed another model for expressing changes in customer
requirements from the viewpoint of service design. They used
service is ‘‘an activity that a provider causes a receiver, usually with
consideration, to change from an existing state to a new state that
Fig. 22. Configuration of customer-specific services [74].
617
Fig. 23. A service module [93].
the receiver desires, where both contents and a channel are means
to realize the service’’. They adopted a theoretical approach termed
the ‘assimilation-contrast theory’ that deals with situational
customer demands, to demonstrate the change in customer
importance in the post-purchase stage. Furthermore the literature
offers some computer- and it-aided design approaches.
Uhlmann et al. [100] argue that in order to aid the developer in
such a complex task, an IT support system should guide and
accompany the developer during the development process from
the planning phase to the completion of the elaboration phase in an
integrated manner (Fig. 25).
A key point is the support of the concurrent development of
products and pertinent services and the consideration of their
mutual interrelations. Starting with the acquisition of customer
needs and the derivation of requirements, the developer is
supported with the use of product-service module libraries,
technology databases throughout the development process to
the configuration, evaluation and optimization of a complete
Industrial Product-Service System.
Shimomura et al. [101] propose a method for evaluating service
solutions based on the Quality Function Deployment with some
mathematical reinforcements. Customers generally evaluate
services and products not separately but concurrently. They had
shown that a specific function is the most important among
multistage structure of the target service. Komoto and Tomiyama
[86] propose Integrated Service CAD and Life cycle simulator
(ISCL). ISCL plays the role of CAD/CAE tools for product design in
IPS2s design. In ISCL, the service CAD supports systematic
generation of alternative IPS2s based on service modeling, and
the life cycle simulator analyzes their economic and environ-
mental performances.
Designers can systematically define and search IPS2s as a
combination of service contents, service channels and correspond-
ing activities defined in the service CAD. Rese et al. [63] propose a
combination of the Net Present Value Approach and the Real
Options Approach as a means of determining the quantified value
of an IPS2 for an individual customer over its life cycle.
There is an implicit assumption in developing IPS2 design
methodology, i.e., most of the proposed IPS2 design methodology
has the inherent links with existing product and service design
Fig. 24. Architecture for service engineering: essential components (Source:
[94,95]).
618 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
Fig. 25. Structure of an IPS2 Development Tool [100].
methodologies and tools. Evaluation of IPS2 offerings for the longer
term is not explained. Even though availability and capability are
highly stressed in the literature of IPS2, these parameters are not
considered in the various proposed IPS2 design methodologies. The
long time frame and related risks and uncertainties involved in the
IPS2 are also not considered explicitly at the design stage.
Especially transfer of risks and uncertainties from customer to
supplier is not properly noted. It has been commonly agreed that
designing IPS2 is a co-creation process, but the process is not
developed further. The methodologies proposed do not aid to
design the right product/service mix based on total costs. Except
few techniques such as modularization, the uncertainties involved
in the customer’s requirements are not properly structured in the
design process. It is observed that many methods focused at
system level use details in a very abstract form. The primary
advantage of IPS2 is not properly leveraged in the proposed
methodology such as it allows the supplier to design better
products by learning from the experience of product in-use, i.e.
feedback loops are not described. Scenarios are used to design IPS2
but the process to forecast the demand is not structured. Even
though Persona is used to get customer’s details, methodology to
predict the customer’s perceptions and attitudes immediately after
the offering is missing.
In a comprehensive study [83] existing approaches have been
analyzed, which support IPS2-concept development [68,102–105]
and modeling [106]. Amongst others the fulfillment degrees with
regard to ‘‘integration of product and service development’’,
‘‘systematic IPS2-concept development’’ or ‘‘determining product-
service interdependencies in early phase of development’’ have
been considered. Despite an existing multitude of methodologies,
this study unfolds that designers are insufficiently supported by
computer aided tools in the early phase of IPS2-development. The
analysis of existing concept modeling approaches concerning
‘‘integrated product-service modeling’’ with an ‘‘IPS2-appropriate
modeling notation’’ has led to similar results. See also [107–111].
The important topics to be addressed are as follows:
 Modeling and verification in IPS2 development
 Major challenge is to visualize and document basic elements of
the future IPS2 and relations among them—new modeling
method is required
 Comprehensive checklist to derive requirements for the concept
 Development to be described on a generic level
 Investigation of IPS2 project management methods to realize an
agile and adoptive IPS2 project management
 Methods for IPS2 property verification will enhance the toolset
and methodology for IPS2 designers
 Use-case analyses might be one approach which gains impor-
tance for IPS2 development in future.
It is observed that supplier capability is not considered
systematically while designing an IPS2. IPS2 design is still
developing as an area of research, more work is necessary to
develop novel IPS2 solutions that are competitive in a Global
marketplace.
6. Delivery and use phase
The change from producer towards an IPS2 provider assigns
companies to new challenges. Fig. 26 shows various aspects and
dependencies of the IPS2 delivery and use phase. The companies
have to produce and deliver products and they have to prepare and
deliver services over the life cycle. The Challenges are methods and
tools for value creation, planning and control of delivery processes
and user support. Realization of these methods is made by
recognizing adaptability, risk and cost targets. These targets have
direct impact on the customer satisfaction. Any change in a target
influence the other targets. An optimum has to be found. Along
with the challenges of the delivery and use phase there are life
cycle and quality management processes as well as continuous
improvement processes. The IPS2 delivery and use phase is
influenced by the IPS2-product model, contracts, customers and
knowledge. Outputs of this phase are obsolete products, IPS2 (that
reach their end-of-life) and new gained knowledge. The IPS2
delivery and use framework focuses on the aspects for efficient and
effective delivery of IPS2. New organizational structures, opera-
tional methods and tools are needed. The IPS2-providing company
should be able to adapt on changing circumstances.
In machine tool and plant industry special services exist that are
relevant for the delivery and use phase. They can be summarized in
the following seven types of services [112]:
1. Planning services, e.g. material flow planning, factory planning
2. Counseling services, e.g. calculation support, personnel coun-
seling
3. Training services, e.g. operator training, determination of the
need for training
4. Logistic services, e.g. replacement part service, machine
implementation
5. Function creating services, e.g. start-up. Rampup management
6. Function maintaining services, e.g. maintenance, repair
7. Optimizing services, e.g. process optimization
These services differ in the detail level and automation degree.
The IPS2 delivery and usage methods have to cope with it.
Fig. 26. IPS2 delivery and use framework.
 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
Manually, automated and semi-automated processes have to be
recognized by developing the IPS2 organization. All kinds of service
have to be organized by an IPS2 organization.
6.1. Value creation architecture
The value creation architecture is a part of the IPS2 organization.
An organization in general is described by its operational and
organizational structure. Transferred on IPS2 an organization has to
consist of competences out of the production and the service area
[113]. Therefore new operational and organizational structures are
needed to get a high customer satisfaction.
The organizational challenge lies within, keeping the guarantee
for sustainability and availability over the life cycle. Limited
resources, market demands, changing customer requirements and
continuous improvement with gained use knowledge are influ-
ences as well as the typical characteristics of a service itself. The
influences can vary with every process delivery and thus the
organization has to cope with this dynamic. Characteristic of the
IPS2 value creation architecture is the adaptability to compete the
dynamic influences [114]. A general and for all situations suitable
organizational structure is not possible, because of the very
heterogeneous customer and provider situations [115]. A best
fitting organization for a manufacturer of customer individual
products could be different from an organization for a manufac-
turer of customer independent volume products.
It can be defined, that the value creation architecture for IPS2 is
always a network organization [116,117]. The customer and the
IPS2 provider are working together in order to achieve the highest
value from the IPS2. Additional suppliers can be added to extend
missing capacities or limited resources.
A standard for the relations and the main elements of the IPS2
network is shown in Fig. 27 [118]. It consists of the customer of the
IPS2 and hence the IPS2 itself, the IPS2 provider, the IPS2 module
suppliers, the product suppliers and the service suppliers. The
different elements vary in their dependency and coordination with
the IPS2 provider or directly with the customer. The suppliers have
not such flexibility regarding the scheduling of their jobs. To
develop an adaptable value creation architecture IPS2-product
model processes have to be organized in the network. This is
managed by assigning the processes to resources of network
partners. The fact that every company has a different organiza-
tional structure is difficult to handle. Solutions for service
organization structures exist and their focus lies on the organiza-
tion of service units as they need to complement the existing
manufacturing units [119]. Efficient structures are important
preconditions. These are established by more or less independent
business units. Regarding the development of services, service
departments and service organizations offer high transparency of
Fig. 27. Typology IPS2 network organization [118].
619
costs and profits as well as the opportunity using incentive or
working hour models.
For supply chains a modular concept shows useful aspects for
the organizational structure [120,121]. An example is the modular
organization concept for IPS2 that is able to assign processes to
resources of multiple suppliers [120,122]. In addition, it has the
positive effect being very flexible in changing processes or
resources. The smallest elements of the modular organization
are the modular organization units. A modular organization unit
for IPS2 is described with its name, the responsible process part and
the necessary resources and attributes. The organization unit
owner can either be the customer, the IPS2 provider or a supplier. If
more than one organization unit owner exists, a pool with all
options is generated. Operational workflows are created by
connecting in- and outputs of the modular organization units. In
the following the operational structure of an IPS2 organization has
to be studied as a stringent process beginning with the planning
and scheduling of IPS2, automated IPS2 control, and best quality
strategies up to multimodal user support for IPS2 delivery.
6.2. Planning methods
With the value creation architecture all necessary processes are
assigned to resources. If a process has to be delivered the resources
need to be available. Planning methods take care that the processes
are planned by time, cost and quality. Traditional service planning
processes start with a customer problem. This is followed by
finding a solution for the problem. A service ticket is initiated to
plan and schedule the service process. Service Management
Systems support and optimize industrial services. INNOSOFT as
a German manufacturer of a Service Management System
describes the system as followed [123]:
 Increase of competence of solution finding within the service
field due to a shared base of knowledge
 Fulfillment of the customer and business requirements
 Planning, delegating & controlling of the workflow of service
 Customer binding due to customer satisfaction
 Creation of an easily manageable complaint system
 History chart of machinery
IPS2 have other characteristics as traditional services and
therefore need new planning methods. The new characteristics
that influence the planning methods are:
 Long range relationship with the customer will avoid or
minimize troubleshooting processes
 The business models allow creation of product use knowledge
that can be used for the planning and scheduling
 Industrial development gains higher efficient resource con-
sumption
 Learning effects of the service staff
IPS2 delivery planning can be divided into a strategic and an
operative planning phase. Constant and high capacity utilization
and minimal stock of preliminary combinations and supplies are in
the focus of the planning methods. The aim of the strategic capacity
planning is to build up an economic capacity by using prognoses
for short- and mid-term service demands by taking changing
resource capabilities into account. The objective of the operative
resource planning is to control the delivery in case of unscheduled
events, e.g. like machine breakdowns or insufficient supply of
resources (e.g. illness of a service technician). Due to the much
longer planning horizon of the strategic capacity planning in this
phase the planner has the opportunity to build up new capacities
(e.g. hire a new service technician and train him to a certain
qualification level) while in the operative resource planning the
only way to handle an unscheduled event or to improve a lack of
resources is to reschedule the certain resources and processes
within the network.
620 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
Planning of IPS2 delivery changes from an uncontrolled and
random reaction to a controlled and scheduled action!
The separation of strategic und operative planning methods
leads to serious difficulties particularly in the choice of the right
level of flexibility and stability. Flexibility is needed during the
operative business level and the strategic business level focuses to
stable resource consumption. To alleviate the dilemma between
flexibility and stability an integrative valuation methodology for
resources solves the mismatches [124]. A portfolio is created to
compare the strategic value with the operative business value of
resources (Fig. 28).
The figure shows four possible value classifications of resources.
Resources with no. 1 should be based on reliable and approved
technologies with a long-term development and improvement
plan. These resources support the gain of experience for cost
reduction, quality improvement und enhancement of productivity.
Resources of classification no. 2 have a low strategic and operative
value. For these resources the decision maker should have a high
degree of freedom in the choice of alternative resources. The
decision should be made based on opportunities on the resource
market to minimize investment costs. Resources with classifica-
tions 3 and 4 have a valuation mismatch that needs to be solved
before a decision about flexibility and stability can be made. First of
all the strategic value must be reconsidered. After this the
operative value can be adjusted. Through selective investments
and improvement activities the operative value of re-sources can
be increased. A radical example of the reduction of the operative
value is outsourcing and liquidation of resources.
A prerequisite for the IPS2 planning is the decomposition of
processes into resources. The resources have to be coordinated for
right time and right place. The determination of the service
delivery time is based on statistical breakdown forecast of the
devices and the know-how of the provider and the supplier.
6.3. Delivery process control
While process automation currently focuses on the control of
functions relevant for the production process itself, e.g. feed axis
control, IPS2 automation takes production processes as well as
service processes needed to operate an IPS2 in the desired manner
into consideration [100].
Automation concepts vary for different IPS2 business models
such as function, availability, and result oriented, due to involved
product and service modules. Availability-oriented IPS2 for
example aims, as mentioned in Chapter 4.1 at providing a
guaranteed availability of the production system. To achieve this
goal in an efficient manner, a high degree of IPS2 process
automation is needed. Great potential can be found within the
automated support of service processes. They are subject to
fluctuations in time and quality, due to human performance. An
appropriate approach for the controlled IPS2 execution is given in
Fig. 29. An important aspect of automation is the information flow
within the automated system. The approach shown in Fig. 29 is in
line with availability-oriented business models and all information
flows within this kind of business model have been analyzed [125].
Due to the fact that the IPS2-provider is in charge of the
execution of Industrial-Product Service Systems, a centralized
Fig. 28. Comparison of strategic and operative resource values and implication on
stability and flexibility [124].
Fig. 29. Agent-based concept for IPS2 control [125].
communication architecture is appropriate with the provider as
communication node. Based on a multi-agent system all necessary
information is transferred to the IPS2-provider, analyzed and if
applicable forwarded. He is also responsible for the initiation of
appropriate measures based on this information.
Today’s automation approaches take service process focus on
gathering and providing information from the operational phase of
a production system into account. Further automation approaches
are related to decision making and notification as trigger for
needed service measures (see also [126–129]).
6.4. Quality management
6.4.1. Quality of product services
Next to the planning, scheduling and automated control of IPS2
companies have to put the focus also on the quality of their services
as well as their IPS2. Against the background of the growing
importance of IPS2 an empirical study in the Austrian machinery
and plant engineering industry was conducted [130–132]. The
quality of the service is an essential factor, especially for customer
retention and 65% of the companies’ state low service quality as a
trigger for substituting their suppliers [133].
Characteristic of services is their intangibility and the
simultaneousness of production and consumption. Quality criteria
for services are [134]:
 Presentation and ambiance
 Reliability, accuracy, correctness
 Competence,
 Politeness, friendliness, cooperativeness, understanding
 Authenticity, security
 Accessibility and availability
 Ability to communicate and sociableness
6.4.2. Specific problems of quality management in industrial product
services
All the mentioned criteria for quality are aimed at influencing
the perceived, subjective customer’s conception in a positive way.
While quality management is an essential and well developed part
of the business process in the product as well as the service
business, within the delivery of IPS2 the questions arises how the
customer perception of quality changes and which methods and
tools are appropriate to ensure a steady quality of IPS2? This means
different business models cause different customer interaction
lines. Within an availability-oriented business model quality can
be described by the Gap between offered and delivered availability
of an industrial good. The customers do not care about the quality
of a single service anymore. However the quality of a service is still
the benchmark within function-oriented business models.
Nevertheless service quality is affected by subjective percep-
tions due to the integrated service share within an IPS2. An
appropriate way to measure the perceptions is the Integrated Gap-
Model. The Integrated Gap-Model regards the service contact
 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
between customer and service provider and is a valuable tool to
describe the service quality. The specific characteristic of the gap-
model is the exact description of the gaps in communication. The
customer gap, the difference between customer expectations and
perceptions is the central focus of the integrated gap model of
service quality. Companies need to close this gap between what
customers expect and receive in order to satisfy their customers
and build long-term relationships with them.
To close this important customer gap, the model suggests that
four other gaps – the provider gaps – need to be closed. The following
four provider gaps are the causes behind the customer gap:
 Gap 1: Not knowing what customers expect
 Gap 2: Not selecting the right service designs and standards
 Gap 3: Not delivering to service standards
 Gap 4: Not matching performance to promises
The Gap-Model can be seen as a guideline for the systematic
analysis and elimination of inner and inter-company weaknesses
on the basis of the shown gaps.
In many cases the department of service development is either
nonexistent or non distinctive in the companies. So the develop-
ment of services has no systematic and structured proceeding. This
reactive and unstructured approach is often the reason why the
quality aspect is not taken into consideration in the service-
development [130,131].
A new service consists at least partially of familiar elements
that are used in other services. In this respect, it is assumed that for
example in the context of error finding methods results will be
available. These results should be provided for the service
development process and the following approach will be
suggested:
 Formation of quality circles
 Recording of the planned work flow
 Consideration of possible errors
 Compilation of possible causes of errors
 Assessment of possible errors/causes of errors
 Development of error prevention measures
In conclusion an approach should be introduced to support the
staff to deal with IPS2 in the best manner. The information can be
used to optimize the human engineering of IPS2, but also to ensure
the service quality on a high level.
6.5. Multimodal user support for IPS2 delivery
Constant availability, different qualifications of users and
company-spanning cooperation in the field of industry demand
a specific support concept during the delivery of services. The role
of the human being in the phases of planning, development and
delivery of industrial product-service systems plays a major role;
especially the human-machine interaction in the phase of delivery
is in the focus.
One of the first questions was whether there are specific
requirements for the interface design of IPS2. For this purpose,
focus-group discussions were organized. The experts for IPS2 were
instructed to detect what kind of interactions occurs during the
operation of IPS2, which persons are involved and which kind of
tools are used. Accompanying the discussion, the answers were
collected and noted by the semi-formal C3-notation (communica-
tion, coordination, cooperation). Subsequently these results were
used to develop specific C3-models. As a result of the different
phases of analysis (development of models depending on the IPS2-
specific business models, development of scenarios like break-
down and maintenance, differences between these scenarios)
preliminary requirements were merged thematically to aspects of
qualification, C3 and rights of access to data.
These aspects include the demands for usability for users of
different qualification, integration of tools for coordination and
621
Fig. 30. Shared vision system concept.
communication into the human-machine interface, as well as the
access to the machine’s sensor data and access to generated
knowledge during operation. Due to the fact that the persons
involved in IPS2 pursue different interests, a security concept
concerning rights of access to the data which is created during the
phases of planning and operation, is needed.
Only one challenge is the support of less and insufficient
qualified users. As a part of a support concept, for example in a
maintenance scenario, the creation of a ‘‘shared vision’’ (i.e. a
shared view for the involved persons of the area where the
problem exists) can be the last possibility for the diagnosis and
solving of a problem, if other support forms were insufficient or not
available in the specific business model (Fig. 30). During the
production of a work piece the machine informs the user about a
breakdown. After a detailed inspection the user realizes, that her/
his qualification for the removal of the failure is insufficient. To
minimize downtimes of the machine, expensive journeys of
service staff and last but not least mistakes in the problem
diagnosis, the user can establish an audio-visual contact to a
remote service expert of the machine manufacturer by a shared-
vision system. Now this service expert can analyze the problem in
time. Furthermore he can guide the user to a solution of the
problem. As the gaze direction shows the focus of attention the
visualization of the gaze direction of both involved persons can
enhance the communication. Perceiving the mutual gaze move-
ment therefore means an additional intuitive source of informa-
tion.
Future studies and experiments for the development of IPS2-
specific forms of user support will be placed in a demonstrator
scenario in the field of micro production and related to
maintenance and repairing scenario.
The following chapter deals with the question how to gain
information of an IPS2 during the usage and how to use them for
improvements and optimizations.
7. Knowledge management and life cycle issues
IPS2 business models give a platform to collect information
from every IPS2 which earlier was only accessible for the customer
or by feedbacks of service personnel. This offers providers
opportunities to learn more about the IPS2 behavior and usage
by the customer and to use it for IPS2 design or redesign.
Knowledge generation as well as knowledge and information
management is necessary. The adaptation of products and services
to the continuously changing technical requirements, application
areas and user demands is crucial for the competitiveness of the
IPS2 business model. Different configurations have profound
impact on the performance of the system in terms of reliability
and productivity, product quality, capacity scalability, and costs
[135]. Adapting the functions to the customer needs, the design to
reduce idle and operation costs and an ongoing adjusting of service
times requires knowledge about the system behavior and
prognostics about the system conditions [136]. This knowledge
needs to be generated and managed.
7.1. Information and knowledge management in IPS2
IPS2 requires manufacturers to understand the customer’s
behavior of product usage and product failures in-use. These
challenges could be achieved only if the product and service
knowledge are captured and reused appropriately. The various
research themes highlighted in the PSS literature are as follows:
622 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
 Identify the information and knowledge requirements for
designing PSS.
 Representation of product and service knowledge in practice.
 Enhance the capture and reuse of in-service feedbacks.
 Improvement of information and knowledge sharing across
stakeholders.
Doultsinou et al. [78] describe the service issues and service
knowledge that has an impact on product design. They also
illustrate how to apply service knowledge in the conceptual design
stage based on an existing requirements management framework
modified for this context. Various studies highlight that there were
loops between the service and design personnel. But the problems
highlighted in these loops are that it is reactive rather than
proactive [137], learning occurred due to this loop is challenging
[138], informational, motivational and organizational factors
[139], methods for utilizing information and knowledge feedback
from the later life cycle phases to impact the PSS activities have
been limited in the literature [89], the feedback processes are in
general ad hoc and informal although formal procedures such as
engineering change requests do exist and only limited feedback
reaches the design teams [140]. Cross-referencing the in-service
instances to design or manufacturing records will be necessary to
have reliable feedback loops [140]. Baxter et al. [77] describe the
development of an integrated knowledge management framework
to support PSS design. They adapted and extended a method
developed to reuse engineering design knowledge to take account
of design, manufacturing and service knowledge in a PSS design
context. Jagtap proposes the Sym-SAPPhIRE model of causality to
support designers in using in-service information effectively in a
design task [141].
Graphical and ontological representations of PSS, consisting of
values, product and service elements, and their relations are also
an appropriate way to handle IPS2 [142]. Point of origin is the
definition of value as used in economics: value is the market worth
or estimated worth of products or services [143]. Shen and Wang
[144] define product service ontology as the conceptualization of
the product service.
The literature is not clear about the managing knowledge for
the different kinds of PSS [13], namely the product-oriented, use-
oriented and result-oriented type. Also the requirements with
respect to different service activities have not been studied in-
detail. The ontology development for PSS is in its infant stage.
Various ontologies proposed are to be evaluated in-depth in
terms of exclusiveness and exhaustiveness using longitudinal
studies. Due to the involvement of many stakeholders semantics
for each terminology should be defined properly. The challenge
is not in building various information technologies but to
develop common representation across domains. This will
subsequently expedite knowledge retrieval, discovery, editing,
sorting and automate reasoning with minimal implementation
and maintenance effort.
7.2. Automated knowledge generation in the usage phase
Due to the modern IT based engineering, business commu-
nication and documentation, most data along the life cycle of an
IPS2 are already available in digital form and worldwide accessible
via internet, e.g. machine datasheets, service protocols or personal
database. Companies offering machine services already document
plenty of detailed data about the service processes. Currently this is
being used as an information base to compare new situations with
historical data [145]. The challenge lies in accessing, acquiring,
communicating and finally processing it to knowledge. The
continuous supervision of products and processes as well as
processing of data by intelligent algorithms is an enabler to do
prognostics of the system condition. The ‘‘GETA/IMAGE’’ – Failure
Database includes ‘‘100 Scenarios of Failure’’ [146]. The aim of this
project was to give characteristics for failure prognostics and
diagnostics within 10 min.
The Virtual Life Cycle Unit (VLCU) [136] is an information
technology network that supports the supply chain and
communication processes in the whole IPS2 life cycle with
knowledge. The VLCU acquires data from the usage phase,
communicate and process it with the help of data mining
algorithms to knowledge about the system behavior. This
includes rules about the process flow of the IPS2 and its
operations, as well as prognoses and classification of the IPS2
health condition [129]. The processing to knowledge that is
classification, clustering and correlation can be done by using
data mining algorithm, e.g. C4.5, statistical pattern classification
or, pattern recognition [147–149]. These algorithms can be used
to formulate rules about the IPS2 system behavior. Other
algorithms like Support Vector Machines or Statistical Pattern
Recognition can be used for condition prognostics based on the
actual system condition and wear [150].
7.3. Knowledge generation for the IPS2 ReDesign
During the delivery and use phase gained knowledge can be
used for reconfiguration (extension or a down-grading of service
contents or product modules), redesign or further development of
the IPS2. Thus, the IPS2 development phase does not end with the
preparation of the production and operation documentation as e.g.
in the general approach of VDI 2221 [151]. Production and
consumption, in contrast to product manufacturing and purchase,
are not clearly separated, caused by the characteristic of services
that production and consumption is simultaneous [152].
As in every development process knowledge about the systems
lifecycle (ramp-up, use, optimization, etc.) is vital to develop
effective, highly efficient systems [153]. According to chapter 7.2
knowledge valuable for the early development phases can be
extracted by VLCU collecting system operation data of products
and services and generate the knowledge about the systems
behavior. The development and operation benefit will be enabled
to improve systems development and operation projects for a
competitive IPS2 design.
Molcho et al. [154] create a computer aided manufacturing
analysis tool that captures the knowledge and incorporates it
within the CAD tool, enabling improved product timeliness and
profitability. It makes the ‘‘know-how’’ available to designers in the
context of their specific design activity and can thus influence
decisions before the product design in the early stage.
7.4. Life cycle information management
The development, manufacturing and provision of products and
services happen in separate processes at the moment. Lifecycle
management approaches for services or IPS2 have only been
addressed in few research activities [155]. A holistic management
approach as well as powerful methods and tools are compulsory
for an IPS2-Lifecycle Management [156]. Existing product lifecycle
management solutions can be extended in five dimensions to meet
specific IPS2 requirements [157]:
 Management of independent products and services as well as
integrated product and service packages. It has to deal with
individual and dynamic customer-specific objects [158].
 Consideration of the interconnectedness of providers (e.g. of
product developers, manufacturers or service providers) as well
as the strong integration of customers [159] during the entire
IPS2 lifecycle.
 Management of value-added processes, but also support (e.g.
quality management, customer feedback management) and
decision-making processes. All these processes consider more
than one IPS2 lifecycle and lifecycle phase.
 Consideration of further lifecycle phases beside IPS2 develop-
ment like manufacturing, realization, provision, use [160],
recycling and end-of-life.
 Adaption for special application domains or industrial sectors.
 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
8. Contribution of IPS2 to sustainability
In 1998, the Enquete Commission of the German Parliament
clarified sustainability as a holistic approach, harmonizing the
ecological, economical and social dimension of mankind (Enquete-
Kommission des Bundestages, 1998).
The IPS2 approach takes as its starting point the goal of
achieving an integrated functional solution to meet client
demands, moves away from phase based servicing and discrete
resource optimization, to system resource optimization which is
utility based. The resulting IPS2 can produce synergies in profit,
competitiveness and environmental benefits. The potential eco-
efficiency of an IPS2 relies on system optimization (in resource use
and emissions) because of the stakeholders’ convergence of
interests [40]. Further IPS2 enables an equipartition for the use
of technology. It allows the adoption of the right technology and a
competitive production also for low-budget SME and developing
countries at the time, place and in the complexity it is needed.
The idea of selling utilization instead of products is the core idea
of the IPS2 business model. It is advantageous once additional costs
for information processing and logistics are less than costs for
underutilized capacity, see Fig. 31.
To be competitive on the market the IPS2 providers have a
strong interest in using a minimum of production resources, which
means maximum utilization and usage of products and compo-
nents. Multiple usage phases’ makes an IPS2 competitive by
maximizing the utilization of resources and can be achieved by
disassembly, component adaptation, and reassembly [4].
So IPS2 can lead to reduced resource use and waste generation
since fewer products are manufactured. The increase in sales of
services can balance reductions in sold products. Employment lost
in manufacturing can be balanced by jobs created in services. As a
business concept, product service systems have the potential to
improve access to technology worldwide. With product service
systems, consumers worldwide would have less need to buy,
maintain, dispose of, and eventually replace a product. In fact, the
quality of the service, and thus consumer satisfaction, may
improve with product service systems because the service
provider has the incentive to use and maintain equipment
properly, increasing both efficiency and effectiveness. The
incentive also exists for producers to design closed-loop systems
for equipment based on designs for higher durability and
recyclability [40].
The rising need for sustainability and a sustainable production
industry can be confronted by different sides. In developed
countries, which already have a large environmental footprint
arising from a high rate of per capita resource consumption,
product service systems can facilitate the transition toward a more
service-oriented, sustainable society. The service industry gets the
chance to find new and increasing market opportunities. Other
benefits include reduced dependence on externally produced
resources and reduced load on waste disposal facilities. For
developing countries, product service systems may represent a
more promising and environmentally sound path to economic
Fig. 31. Prerequisite for selling use instead of selling products [4].
623
Fig. 32. Contribution on sustainability by IPS2.
development since it enables them to bypass the development
stage characterized by individual ownership of goods [161].
McAloone and Andreassen [162] examine the PSS business model
as a realistic opportunity to achieve the factor x improvements in
environmental performance of products, where x can be 4, 10 or 20.
Fig. 32 abstracts the economical, technical, ecological and social
motivation, being sustainability contributions of IPS2.
A strong relation between IPS2 provider and customer must be
established to fit customer needs and to enhance the IPS2 in its
utilization and effectiveness. The timing of the satisfaction is
different for product sale in comparison to product service systems
[163]. Ehrenfeld says, that IPS2 may provide immediate satisfac-
tion, which may not last long, while in product sale there is a
continuous satisfaction focused by the customer [163]. This means,
that the provider of an IPS2 has the risk to have short term contracts
and therefore the resource use cannot be as efficient as planned.
This would lead to a less resource saving business which is not in
the purpose of sustainability. Users exhibit different ways of acting
with products compared to services.
Also Tucker [164] considers that the PSS business model can lead
to less responsible user behavior and hence an increase of
environmental impacts due to the changed ownerships on
resources. However product renting, sharing and pooling in
principle can lead to high environmental gains, as capital goods
are used more intensively and in the case of pooling consumables in
the use phase are now beneficial for more persons at the same time.
The close co-operation with suppliers and service producers as
well as with final consumers can cope with these gaps. While
relationships with suppliers are addressed by ISO 14000-series
standards and environmentally conscious purchasing practices,
downstream practices are addressed by extended producer
responsibilities and Product Stewardship concepts [165]. Inte-
grated Chain Management (ICM) specifically addresses the issue of
involving several actors in order to improve the environmental
performance of products [166]. However, problems associated
with ICM are also going to be relevant for IPS2 due to a similar value
chain basis that is extended in IPS2 into a value creation network.
These problems include trade-offs between co-operation and
internal environmental management; the problem of choosing
wrong actors who do not have the power to change or influence
events; information sharing and transparency, and barriers from
material flows crossing borders and a variety of regulatory
frameworks in different countries. By sharing information the
provider will be enabled to identify the customer needs and
enhance his business relation with new features satisfying the
customer needs. By this a long relationship can be established,
which has to be seen as a partnership.
Brissaud et al. [167] give instructions how products should be
designed to be sustainable. Possible life-cycle strategies, sustain-
able end-of-life phases and environmental assessment of sustain-
able strategies are discussed [166–168] which are adoptable to
IPS2. Beyond that, as described in Chapters 7.2 and 7.3, information
technology is an enabler to ensure a competitive design and
provision of the IPS. By delivering knowledge about the system
behavior and the way of usage by the customer the provider has an
624 H. Meier et al. / CIRP Annals - Manufacturing Technology 59 (2010) 607–627
Fig. 33. Sustainable manufacturing [169].
insight view and gets chances to adapt the IPS2 to a minimum use
on resources and so fulfill also the demands on ecological
sustainability. Another view on system sustainability comes from
Yoshikawa, who defines a system as sustainable if there is a closed
loop of information. Because manufacturing industry and service
industry are mutually closely connected, they must be dealt with
together, see Fig. 33 [169].
The exchange of knowledge is required to cope with the
challenges of sustainability. This underlines the need for the co-
operation between provider, supplier and the customer in
information exchange for an efficient and cost-effective manu-
facturing with IPS2. Intensification of service and knowledge
contents within product life cycles is considered crucial for
dematerialization, in particular, to design optimal product-service
systems from the viewpoint of environmentally conscious design
and manufacturing in advanced post industrial societies [170]. This
requires a paradigm shift from not sharing data to exchanging data
from production within the supply chain partners in order to get a
better view on the needs and so getting more competitive and
sustainable solutions.
Ehrenfeld [163] and Tukker [164] identified contradictions in
the sustainability of the IPS2 business model as proclaimed by
most, as the usage behavior might change and therefore could
lead to higher and less efficient resource consumption. This
accompanies the challenge to build up a long partnership in the
business from the point of the provider to be competitive with
this business model and investments. Consequently an IPS2
operator needs to adapt the IPS2 continuously to the individual
customer needs, which requires an exchange of information
data from the usage phase. With the help of information
technology and knowledge management systems (see Chapter
7) the provider can identify customer needs as well as design
challenges to adapt the IPS2 in this way that is more efficient in
resource consumption and usage.
9. Future of IPS2
The described state-of-the-art of IPS2 and its methods are
defining future research questions in this area. A Delphi study has
been organized to evaluate different statements that could be
relevant now, in 5 or in 10 years. It includes the areas of ‘‘service-
based businesses’’, ‘‘service-based products’’, ‘‘service providing’’
and ‘‘sustainability contribution’’. Altogether 16 CIRP experts of the
academia took part in the Delphi study. The following results are
classified by their main percentage into now, 5 years and 10 years.
9.1. Now the following statements are relevant
The business is dominated by product functions. If the customer
decides to buy machines the price is not the only factor also life
cycle costs are getting more important. The service business
processes are partly supported by service management systems.
That will help to ensure companies’ competitiveness with good
service business.
9.2. The following statements will be relevant in 5 years
In 5 years service advantages will dominate the business. This
will lead to new tools like standard service CAD, virtual service
prototyping and risk calculators to manage new service-based
products. OEM wants to get the innovation leadership of utilization.
The challenge lies in handling flexible and versatile business models
for dynamic adaption to cope with changing customer requirements
and OEM abilities. Therefore contract standards are necessary to
share customer and OEM risks. A standard access to the machine
tools using internet technology, and software agent technology
along with approved methods for standardized condition monitor-
ing for machine tool components will help to get automated
coordination of service delivery processes. Also standards for service
process design and standards to evaluate the quality and
productivity of service-based products support a collaborative
service delivery. Systematic knowledge generation exists to get a
better machine tool utilization and life cycle enlargement. Material
cycles for non-renewable resources are established. Low wage
countries will be supported on their way to industrialization.
9.3. In 10 years the following statements will be relevant
Result-oriented business models evolve as an industry stan-
dard. Complex development processes are simplified by auto-
matically configuration by Plug&Play of product and service
modules. Service will be provided globally by service supply chains
based on modularized service processes. The service delivery will
be supported by technologies like standard shared-vision systems
or new developed industrial service robots. Service robots can be
used in industrial applications for automated delivery of service
processes. Machine tools are able to communicate over the
Internet to exchange data, information or knowledge.
The academia will focus on these topics in the future. This will
help to cope with the complexity of IPS2 and to get the most
advantages out of it.
10. Concluding remarks
As a result of the paradigm shift from leadership in technology
into leadership in use Industrial Product-Service Systems have
become an issue of particular importance for the academia and
industry. Therefore, and also evidently from the referenced papers,
in the past years there has been a great deal of research activity in
this field. The results of this research add considerably to new
methods and tools for business models, sustainability contribution,
risk management, knowledge management, design, development,
delivery and use of Industrial Product-Service Systems. A new
understanding of products and services is basis for future
developments. Separation between them will vanish and integrated
approaches are getting more in focus of the industry. Finally IPS2 will
help to improve utilization and sustainability of future products.
Acknowledgments
The authors sincerely thank the following persons for their
valuable contributions to the preparation of this manuscript: M.
Abramovici, T. Arai, J. Aurich, D. Brissaud, G. Schuh, G. Gudergan, K.
Matyas, R. Stark, W. Sihn, Y. Shimomura, T. Tomiyama, E. Uhlmann.
Special thanks to M. Kroll and O. Völker for editorial service and
coordination.
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