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Information availability at the competitive bidding stage for service contracts

Author(s):

Melanie E. Kreye (School of Management, University of Bath, Bath, UK)

Abstract:

Purpose

– The purpose of this paper is to explore the information that manufacturing companies have available when competitively bidding for service contracts.

Design/methodology/approach

– A semi-structured interview study was undertaken with industrialists in various sectors, which are currently facing the issue of servitisation.

Findings

– One of the main findings was that, despite the novelty of the process, the decision makers at the competitive bidding stage have an understanding of the involved uncertainties. In particular, the uncertainty arising from the customer as the user of the product and evaluator of the competitive bids in addition to the uncertainty connected to the competitors were identified as the main influences on the pricing decision.

Research limitations/implications

– The research implications show the influences and considerations during the decision-making process at the competitive bidding stage for service contracts. These include the customer and the competitors.

Practical implications

– Shortcomings in the current industrial practice were identified such as the approaches used to communicate the cost estimate for the service contract. The approaches currently used contradict research findings in the area of communicating uncertainty information, which means that further research is to be done to identify optimal approaches to displaying the uncertainty connected to the communicated information.

Originality/value

– This paper offers a basis for research to understand the challenges industry faces when competitively bidding for service contracts. This can be used to develop novel approaches in supporting the decision maker such as a model that presents the probability of winning in comparison to the probability of making a profit.

Keywords:

Uncertainty, Competitive bidding, Information availability, Service contract, Servitisation

Publisher:

Emerald Group Publishing Limited

Acknowledgments:

The authors gratefully acknowledge the support provided by the Innovative design and Manufacturing Research Centre (IdMRC) at University of Bath, UK funded by the Engineering and Physical Science Research Council (EPSRC) under Grant No. GR/R67507/01 for the research reported in this paper. Furthermore, the authors would like to thank the companies participating in the presented interview study.

copy; Emerald Group Publishing Limited 2013
Published by Emerald Group Publishing Limited

Citation:

Melanie E. Kreye, Linda B. Newnes, Yee Mey Goh, (2013) 'Information availability at the competitive bidding stage for service contracts', Journal of Manufacturing Technology Management, Vol. 24 Issue: 7, pp.976-997, https://doi.org/10.1108/JMTM-05-2012-0059

Article

1 Introduction

Section:ChooseTop of page1 Introduction lt;lt;2 Bidding for contracts3 Method4 Results5 Discussion6 Summary and conclusionsReferencesCorresponding author

Sustainable production and consumption have become more important internationally which has led to the transformation of market structures and competitive situations into the direction of servitisation (Baines et al., 2011;Bandinelli and Gamberi, 2011). For a manufacturing company the shift towards being a service provider is characterised by a high level of uncertainty about the future strategic development of the company caused by, e.g. inadequate knowledge and information (Song et al., 2007). For this research, a service is defined as an activity or a process which is aimed at the change of the state of the service issue such as the repair of a machine or the supply of flying hours for an aircraft (Araujo and Spring, 2006; Gadrey, 2000).

In this context, the supply of product-centred services becomes more important. These services tend to be long-lived. For example, Babcock (2012) announced their support contract for the Australian Anzac class surface ship fleet until 2023. Another example is Rolls-Royce#39;s Flotilla Support Programme for their submarines until 2017 (Rolls-Royce, 2011). The shift to a being a supplier for these services can cause many uncertainties, especially for companies that have previously focused on the production and manufacturing of products.

The delivery of a service is usually embedded in a contract which

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