The presented results from the simulations have some implications for decision mak-ing in maintenance management. Now it is discussed, how the behavior described above affects the optimal decisions in practice. Also, the practical implications are associated to some closely related theoretical foundations that have not been dis-cussed but now.
The results clearly point out that the shift from time-based pricing to value-based pricing is beneficial especially for the maintenance companies. In time-based pricing it is practically all about a zero-sum game between the maintenance companies and the customers. In time-based pricing, the rationale for the customers in optimizing their maintenance schedules is to minimize the need for time used for maintenance.
From the point of view of the maintenance companies, the rationale is to be as ineffi-cient as possible in maintaining machines, because then the time required for mainte-nance tasks is maximized. If we qualitatively assess this situation, it is far from a “fair
deal” for both parties. It is argued that if the other side of the bargainers is benefiting more from the maintenance contract, the other one suffers so that in the long run it is not very rational to participate in the deal anymore. To conclude, if the pricing logic is time-based, the maintenance function can definitely be seen as “the necessary evil”
for the customers and the maintenance companies are just organizations of implemen-tation rather than value providers.
In value-based pricing, the rationale to maintain machines is fundamentally different to time-based pricing. The maintenance companies are given another purpose to exist than just being the implementers of maintenance tasks, but to be the value providers for customers. Specifically, the purpose of the maintenance companies changes to being the backers of the profitability of the customers. The maintenance companies want to maximize the profitability of the customers as that increases their own profit-ability. The customers are more than willing to participate in such a deal. In addition, in such a situation the customers are probably more eager to pay for additional ser-vices that could increase their and hence the profitability of the maintenance compa-nies. As a conclusion, if the pricing logic is value-based, it is in most cases a win-win situation for both parties. However, the customers have to be willing to give a sub-stantial share of their value (i.e. profits) to the maintenance companies. If the share is too low, the rationale of the maintenance companies changes back to maximizing the time required for maintenance, as only this ensures that enough profits are obtained.
The above results are consistent with previous literature on pricing and value creation strategies. If there is added value in one’s product, customers are willing to pay for the price premium. However, if there is no real added value in a product for the cus-tomer, he does not justify the added price premium, even if the product was differen-tiated. (Hinterhuber 2004, p. 777-778; Woodruff 1997, p. 149-151) As shown, switching from time-based to value-based pricing strategy changes the function of the maintainers from minimizing to maximizing customer value, and this justifies cus-tomers to pay for the price premium. If there is competition between maintainers, in
order to stay competitive, the maintainers should seek ways to increase customer val-ue through time and not pursval-ue price war.
In addition to the implications related to the pricing logic, the analysis of how the condition measurement errors affect profitability revealed new insights. These were that how the accuracy of the measurement affects profitability when we vary the maintenance point in which we desire to conduct maintenance. There is a huge differ-ence in profitability between over and under maintaining near the optimal mainte-nance point. Over maintaining is much more destructive to profitability than under maintaining, in both time- and especially in value-based pricing. The value of in-creased accuracy in condition measurement is that it allows us to increase the mainte-nance point resulting in greater profitability (for the customer in time-based pricing, and for the both parties in value-based pricing) in that optimal point. But if for some reason we set the maintenance point too high, we sacrifice the value what the condi-tion measurement has to offer.
In other words, the knowledge about the amount of error in condition measurement is critical to making the decision in which point a machine is maintained. If the error is known, profitability can be increased by optimizing the maintenance point. If the er-ror is not known, we cannot really optimize the maintenance point. Therefore, there is real systemic value in having more accurate condition measurement systems. Howev-er, although we had a capable condition measurement system, we would still need to be careful in relying on the condition measurements and predictions too much. The predictions can and will sometimes go wrong when the condition measurement error is larger than zero.
The above finding of the systemic value of condition measurement systems relates maintenance strategy to competitive strategy. From the resource-based point of view of the firm, it has been shown that information technology capabilities can be sources for competitive advantage, if exploited properly (Bharadwaj 2000, p. 186-187).
In-formation technology plays the key role in either being a core capability or in lever-aging existing capabilities. In both cases, information technology has either direct or indirect effects on market performance (Rivard et al. 2006, p. 45-46). Thus, incorpo-rating the resource-based view in studying the strategic value of information systems for companies is valuable (Wade et al. 2004, p. 131-132). In maintenance manage-ment, making condition measurement a core capability would certainly increase com-petitiveness, as shown above.
5 CONCLUSIONS AND DISCUSSION
In this chapter, the conclusions from this study are summarized. These include: em-phasizing the main outcomes in terms of literature findings, the AB model and simu-lation results; discussing the limitations of this study; and discussing the possibilities for future research.