Pay-on-Production

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The English term " pay on production " (PoP) means payment per unit produced and is the name for a specific operator model .

description

In the case of operator models, the customer neither buys nor leases a production system, but obtains the required parts from a production facility, which is mostly organized by the system manufacturer. Tire assembly can serve as an example: The vehicle manufacturer does not buy a tire assembly system, but expects the operator of the system (its manufacturer, logistics service provider, ...) to deliver the wheels in all variants in sequence, sometimes five, sometimes four plus spare wheel, sometimes only four. Only the wheels actually installed are paid for.

At PoP, the idea is expanded: The entire final assembly line is run by one operator. The OEM pays an agreed price only for the finished vehicle. The concept was developed at Ford in Cologne , where the entire assembly line was handed over to the manufacturer as the operator. In 2008, the Fiesta production running there is considered the most productive in the world (measured in assembly hours per vehicle). However, the majority of those who work on the line are still Ford employees. So it is more like an operator model from the point of view of maintenance management : Does production run the plant or does maintenance? As a result, PoP is essentially a funding model and not a specific work organization .

With PoP the OEM incurs costs essentially as variable costs , the financing of fixed costs lies with the operator and, since these are usually medium-sized companies, poses special problems. There is generally a significant shift in entrepreneurial risk away from the OEM to the operator. Specifically, the extent of the risk shift depends on the respective contracts, in particular the agreed purchase obligations and price scales.

In view of the success in Cologne, the concept was not only continued for the next Fiesta, but should also be implemented at other Ford locations. The latter did not succeed, however, in view of the improved financial situation at Ford, among other things.

Background and framework

In the early years of the twenty-first century, Ford had focused on developing new models. The liquidity was exhausted for an investment in the modernization of the system technology. Conventional operator models, however, were also rejected, as experience had shown that production expertise was permanently lost with such outsourced production parts.

The aim of pay-on-production is to be able to produce with modern plant technology and own employees without available liquidity for investments, but without the plant appearing in any form in the US GAAP balance sheet and being recorded by the rating agencies .

For the supplier it was seen as an advantage that

  • otherwise the system would not have been built,
  • he receives the income from the CIP in maintenance (the OEM, however , receives that of the CIP in production) and
  • he now has continuous access to the system data and can therefore improve his design very quickly and
  • the success of such a model increases its competitiveness.

literature

  • Decker, Christian; Paesler, Stephan: Financing of Pay-on-Production-Models. In: Knorr, Andreas; Lemper, Alfons; Sell, Axel; Wohlmuth, Karl (Ed.): Reports from the World Economic Colloquium of the University of Bremen. No. 92, 2004, ISSN  0948-3829 . ( PDF file ; 81 kB; accessed on May 19, 2008).
  • Decker, Christian; Paesler, Stephan: Pay-on-Production-Models: a new way to the cash-flow-based financing of manufacturing and transport systems. In: Betriebsberatung No. 35 (2003), pp. 1831–1837.
  • Mast, Wolfgang F .: Pay on Production: long-term partnership with transfer of responsibility. In: Meier, Horst (Ed.): Service-oriented business models in mechanical and plant engineering: from the basic offer to the operator model. Berlin: Springer, 2004. - ISBN 3-540-40816-9 . Pp. 15-29.

Individual evidence

  1. ↑ Yours is my whole heart - brand eins online. Retrieved February 24, 2019 .
  2. ↑ Rechtin, Mark: Ford dumps pay-on-production plan: Tool suppliers balk at hefty expense. In: Automotive News (September 30, 2002), online , read: January 29, 2010.
  3. ↑ Mast, Wolfgang F .: Pay on Production: long-term partnership with transfer of responsibility. In: Meier, Horst (Ed.): Service-oriented business models in mechanical and plant engineering: from the basic offer to the operator model. Berlin: Springer, 2004. - ISBN 3-540-40816-9 . Pp. 15-29.