Student insights into performance-based contracting in the Dutch maritime sector
Performance-based contracting (PBC) is a contractual approach for relationships that entails emphasis on the evaluation of outcomes or KPI’s. Although the potential benefits are appealing – increased asset performance, availability and utilization – PBC has not been successfully implemented in maritime so far.
In the NWO Accelerator project, Prof. dr. Dominik Mahr, Dr. Kars Mennens and Pauline van Beusekom are co-creating a shared roadmap towards successful PBC for the Dutch Navy, Thales and RH Marine. They do so together with Prof. dr. Paul C. van Fenema from the Dutch Defense Academy (NLDA), Dr. Alp Akçay from TU Eindhoven and Prof. dr. Henk Zijm from Universiteit Twente. UM Supply Chain Management students play an important role in the project by focusing on diverse aspects of this roadmap in their MSc thesis. This way, soon-to-be-graduates are connected to potentially interesting future employers. While the students are still in the middle of their thesis process, they are happy to share some first reflections about PBC in maritime which we summarize in four key insights and quotes in this blog.
1. PBC is a highly relevant topic – and actually all around us already!
“I’ve learned that PBC plays a significant role in business within almost every industry to some extent, ranging from healthcare and manufacturing equipment to multi-million-dollar military hardware investments.”
“I personally think that PBC is a very alluring topic with great potential as the dynamic supply chain environment is continuously changing. One of the changes where PBC comes in handy is the increased prevalence of service-based business models.”
2. PBC both pushes innovation and leads to more financial profits.
“I found out that PBC tends to push innovation in all critical industries, such as the healthcare and pharmaceutical industries, which directly affects people all over the world. To the regular person, PBC sounds like an ordinary “business model” that just affects the payment model, while in truth, it affects every single aspect of how to create, maintain and sustain very critical pieces of equipment that would cause a major disruption if it would fail. It makes you rethink the current way of doing business and striving to obtain the best of the best.”
“For my thesis I mainly focus on the influence of PBC on military procurement and learned that PBC plays a very significant role in some of the most well-known pieces of equipment. For example, I learned that the U.S. military was able to save costs worth over $500 million dollars for the well-known Lockheed Martin F-22 Raptor, the Stryker-class Nuclear BioChemical Recounnaissance vehicle and the DDG-51 Burke-Class Destroyer ship (which I recently visited in real-life in the Rotterdam harbour).”
3. In the defense industry, availability, optimizing uptime are even more important for PBC than in other industries, since human lives can depend on it.
“It was eye-opening that in the defense industry, it is not all about minimizing costs, but also about minimizing downtime. Namely, having downtime on Navy machinery does not only lead to lower revenues, but can put lives at risk. PBC allows the Navy and their partners to focus on this minimized downtime as an outcome.”
“In my thesis, I focus on quantifying the impact of PBC within the defense industry. Besides the difficulties of quantifying PBC, my thesis requires a different perspective than I am used to since financial profit is not considered within the military industry. The key focus of defense organizations is achieving optimal availability and the best performance at the lowest costs.”
4. Data and information sharing is one of PBC’s greatest challenges.
“The thing that struck me most however is the willingness a lot of companies have to start using a PBC system, yet the unwillingness to open up and embrace mutual information sharing. It is understandable of course that companies are hesitant to share sensitive information with other parties so I have found out it is crucial to create a way all parties find a comfortable sweet spot in the cooperation process in order to set up a PBC agreement. This is easier said than done…”
Inspired and motivated by these insights, the students are now focused on producing new academic and practical knowledge with their theses. They will present their intermediate results during the final Accelerator event which will be organized at Thales on June 14th.