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The manufacturing industry is essential in the transition towards a Circular Economy and a more sustainable society. One way manufacturing companies can become more sustainable and contribute to a resource-efficient society is by offering Product-Service Systems (PSS). PSS means integrating products and services through different types of business models, such as product pooling, leasing, sharing, and other product-related services. Designing PSS is both about the tangible product offering and the design of the complete system around the product. Therefore, it is required for manufacturing companies to have a systems approach when designing PSS. The majority of studies in the PSS field have been conducted from a large-company perspective, and it has been limited focus considering the context and characteristics of SMEs. This thesis aims to contribute to the PSS and servitisation literature by addressing the research gap and lack of insights in studies related to PSS design in a manufacturing SME context.

This research is based on a systematic literature review and empirical data from three contract manufacturing SMEs. The findings show that SMEs face both internal and external challenges when designing PSS. The challenges identified are related to several parts of the organisation and are also interconnected and overlapping. Besides, SMEs' characteristics also influence these challenges, showing the importance of the context when discussing challenges in designing PSS in SMEs. The study shows that characteristics such as lack of financial resources influence more than one challenge, making it difficult for SMEs to know which challenges to prioritise when designing PSS. Also, as the studied SMEs are contract manufacturers to Original Equipment Manufacturers (OEMs), they need acceptance and support from their OEM customers, but they may not gain customer acceptance. The study indicates that SMEs need to decide if they should design PSS with their customers or find a business opportunity and design PSS independently, despite lacking vital resources needed for PSS design.

Keywords: Product-Service Systems, Small and medium-sized enterprises, Servitization, challenges, SME characteristics, manufacturing companies, circular economy