Click Here for Blog Series Overview
As business conversations around the circular economy shift from conceptual aspirations to concrete action plans, leaders are preparing to reshape traditional business models into circular successors. However, the road from intention to implementation is long and complicated, with few points of reference to gauge progress along the way.
Building upon the latest insights from circular economy think tanks and thought leaders, this blog series explores ways in which the circular transformation can be measured at the business level through sustainability performance management systems.
Definition of the Circular Economy
A circular economy is one that is restorative and regenerative by design, and which aims to keep products, components and materials at their highest utility and value at all times, distinguishing between technical and biological cycles – Ellen MacArthur Foundation
Summary: With its prolonged value creation potential, business interest in product life extension is increasing. However to maximize access to the advantages on offer additional business data is required. This need can be met by adding selected input, utility and destination indicators to existing sustainability performance management systems.
The business case…
Change is underway in certain segments of the manufacturing sector. A historic focus on volume of sales is being displaced by a focus on prolonged value creation made available through product life extension. This change is happening for several reasons:
- Market saturation with competing products is underscoring the importance of customer retention and relationships as revenue drivers;
- Incremental changes in product design are increasing the viability of product modularisation around long term, customisable architecture;
- Digital technology and enhanced asset tracking capabilities are improving the potential for product recapture and refurbishment;
- Input material price volatility, coupled with customer discomfort with planned obsolescence is encouraging manufacturers to prolong product utility.
What is product life extension?
- Extending the lifespan of a product through repairs, refurbishment, upgrades or remanufacturing
- Reforming product design approaches away from planned obsolescence towards extended value creation
- Shifting customer engagement away from passive transactions to proactive relationships.
The challenges ahead…
- Many products are not viable for product life extension in current formats or markets
- Partial product viability may reduce the priority of efforts to extend customer relationships
- Managing multi-directional product and data flows may exceed business capabilities
Despite the challenges stated above, the business case for product life extension remains strong – where it is viable. To facilitate and manage its adoption under such circumstances, product life extension focused indicators are required. Therefore, the remainder of this post proposes responses to the question ‘which indicators can be added to sustainability performance management systems to measure the adoption of product life extension business models?’
Focusing efforts…
The strongest opportunities for the addition of product life extension indicators lie within the input, utility and destination categories (see heat map below – as explained in the first Circular Optimisation blog). This alignment has been suggested due to the enhanced importance of product construction and customer use within the product life extension business model
Establishing circular indicators…
Note: defining the scope of analysis is a critical preliminary step prior to adding circular indicators.
Within inputs, a first step could be to establish indicators monitoring the proportion of the product portfolio that is designed or viable for product life extension. This product segment could be further broken down into categories of products that are extendable through repairs, refurbishment, upgrades or remanufacturing.
Utility focused indicators could monitor the duration of product use to establish the additional lifespan of products compared with an industry average.
Destination indicators could be established to measure the quantity of products returned for life extension processes (upgrades etc.), thereby serving as a proxy for the effectiveness of customer service, reverse supply chains and customer behaviour change efforts.
Setting circular targets…
- Increase the proportion of products designed for product life extension
- Increase the actual life span of extended life products compared to an industry standard
- Improve the completion rates of life extension processes (upgrades etc).
Starting small…
At present, it is likely that the product life extension business model may only apply to certain product segments for certain manufacturers. Despite a restricted scope, gathering product life extension data through existing sustainability management systems may provide the insight required to deploy this attractive business model at scale.
Evelyne Saelens is a consultant at cr360. Her main area of interest is how business can enable sustainable behaviour change through the use of their products and services
The post Measuring Progress Towards Product Life Extension appeared first on Knowledge at Work.
