Section 2: Business Value in a Circular Economy

Section 2: Business Value in a Circular Economy

“Introduction … Closing Loops … Value Creation in a Circular Economy … Case: Philips Healthcare … Business models for a Circular Economy … The Case of Riversimple … In-depth: The Darker Side of Access”
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Summaries

  • 2. Business Value in a Circular Economy > 2.1 Introduction > 2.1.1 The fastest growing companies...
  • 2. Business Value in a Circular Economy > 2.2 Closing Loops > 2.2.1 What it takes to Close Loops
  • 2. Business Value in a Circular Economy > 2.3 Value Creation in a Circular Economy > 2.3.1 Four types of value creation (1/3)
  • 2. Business Value in a Circular Economy > 2.3 Value Creation in a Circular Economy > 2.3.2 Four types of value creation (2/3)
  • 2. Business Value in a Circular Economy > 2.3 Value Creation in a Circular Economy > 2.3.3 Four types of value creation (3/3)
  • 2. Business Value in a Circular Economy > 2.4 Case: Philips Healthcare > 2.4.1 The business value of refurbishment (1/3)
  • 2. Business Value in a Circular Economy > 2.5 Business models for a Circular Economy > 2.5.1 Overview of business models (1/2)
  • 2. Business Value in a Circular Economy > 2.9 In-depth: The Darker Side of Access > 2.9.2 The darker side of access

2. Business Value in a Circular Economy > 2.1 Introduction > 2.1.1 The fastest growing companies…

  • A car is parked 92% of the time, 1.6% of the time it’s seeking for parking, 1% of the time it’s standing in congestion.
  • It’s only 1% of the energy that you put into a car that’s actually used to move the person.
  • It’s not only good for the environment, it’s creating more growth, it’s creating more disposable income, it’s creating more employment.
  • It’s making every European family richer by 3000 Euros.

2. Business Value in a Circular Economy > 2.2 Closing Loops > 2.2.1 What it takes to Close Loops

  • In a closed loop we can identify three main business processes that connect with one and other: The first one is acquisitioning of used products and materials.
  • Material recycling only works with large volumes, because recycling facilities are expensive and they need to run continuously.
  • Refurbishing is feasible with smaller volumes, but here it’s crucial that the returned products are of sufficient quality: so testing and sorting are very crucial.
  • Used products and materials need to be reworked into products and materials of sufficient quality for a reasonable price.
  • So apart from the technological challenges that are addressed elsewhere in this course, a company needs to offer proper incentives and infrastructure to users to return their used products.
  • As yet another example, the recycling of concrete is technically feasible and cost efficient.
  • The real challenge again is acquisition: concrete recyclers do not have direct access to used concrete and it’s therefore hard to get the right volume and the right quality.

2. Business Value in a Circular Economy > 2.3 Value Creation in a Circular Economy > 2.3.1 Four types of value creation (1/3)

  • We’re going to talk about your area of interest, business value from closed loop supply chains, and what is value creation in a circular economy? Can you give us an overview of what these things mean to you? – Sure.
  • So for them it is about business value I guess, right? And that also holds for the Circular Economy.
  • This business value comes in four flavours, if it’s to me.
  • Or it can be more indirect gains, like environmental value or customer value or informational value.
  • Can we go in a bit more depth into sourcing value.
  • Sourcing value is the most direct value that you can leverage by closed loop supply chains.
  • Companies tend to start with reduction of negative externalities, right? But you see that the smarter companies see that they can actually make money with closing loops.

2. Business Value in a Circular Economy > 2.3 Value Creation in a Circular Economy > 2.3.2 Four types of value creation (2/3)

  • Where’s the value there? – Well, once you have your sourcing value in place and you notice that you are actually reducing your footprints because you have this access to used materials in used products, you can think of communicating that to your stakeholders.
  • If you communicate that to your customers for instance, they might be more loyal to your products and to your company.
  • Where do customers get value out of this? – Once you’re setting up a reverse supply chain to get products back, you can also offer certain services to your customers.
  • It all adds to customer satisfaction and in a long run of course you hope that that will create more loyalty from your customers.

2. Business Value in a Circular Economy > 2.3 Value Creation in a Circular Economy > 2.3.3 Four types of value creation (3/3)

  • Just the fact that you’re taking back your products actively and you have the opportunity to inspect them, you can see what was the wear and tear of your products.
  • You can see how your customers use your products or how they are not using your products the way that you expect them to use your products.
  • Right? You can just redesign your products in such a way that they fit your customers need better.
  • We’ve got this whole concept of the Circular Economy where this discussion sits in and then we’ve got this idea of a closed loop supply chain.
  • You have this idea that we need to reuse materials and products in some kind of good way to create value.
  • From the business perspective you need a supply chain to organize that.
  • The Circular Economy cannot do without them, right? It is about those closed loops supply chains.

2. Business Value in a Circular Economy > 2.4 Case: Philips Healthcare > 2.4.1 The business value of refurbishment (1/3)

  • Well what we do here is we get equipment back, equipment that has been pre-owned by hospitals.
  • We get it back after a trade in mechanism that we have in place; and we would clean it, we will disinfect it, we will then review all the different components, parts that need to be refurbished, we will refurbish them.
  • We will repair, we will upgrade to the requirements of the customer and then we will test it to make sure that it fulfills all the requirements and then we will pack it and it would be ready to be sent to a new customer.
  • That’s where then this equipment can be reused and that’s why Philips is interested because the residual value normally at the end is something that we can use for five to ten years more.
  • So we will send them back so then they can do whatever is needed and they will supply them back to us again.
  • I would say that as well in circular economy the relationship with the suppliers will change because it is not going to be anymore just one transaction as it is right now, it will have probably two or three transactions after the first transaction and therefore the business models and the relationship that we have with our suppliers will change.
  • We are talking about now, access to services and technology where you don’t need to own the asset.
  • In the past that was an issue because you needed to have a capital expenditure in order to acquire the equipment and therefore then have access to the technology and services that you were looking for.
  • If you change the model, actually you benefit users and patients because they would have access to that technology.
  • So more people will have access to our equipment and to our diagnosis tools.
  • So they really now understand and look at what are the needs of their patients and those ones that require state of the art technology would be used, but then all the other ones that normally is 80 percent of the other procedures would not use the state of the art technology and you would be able to use our remanufactured or refurbished equipment.
  • So in order to do that you need to have in place for example a global return policy where we are working to make sure that all the equipment will come back.
  • You can imagine that a lot of the different components are very appealing, very attractive and they may stay in the market, they may stay with the customers after, you know, we exchange the equipment under whatever condition.
  • It is about safeguarding the value that you have created and ensuring that you exploit it to the maximum until that technology is really obsolete or you need to change the materials because of safety conditions or any other risk.
  • You mention customers and you’ve got the hospitals, the healthcare organizations and your customers in that way and then there’s also the recipients the patients that have access tot this vital equipment which can be lifesaving in many cases.
  • Do you see any barriers on how they feel about refurbished equipment? Or what sort of thoughts do they have, and responses? Nestor: Some of the times it is just a perception barrier.
  • They want to have access to this technology and therefore new is important.
  • It is not about new, or it is about access as we have explained before, to the technology and the capabilities, so we need to change that perception with the customers and the users.
  • When you want to do parts harvesting of refurbishing you will need to move parts from one country to another one, in order to make sure that you fulfill the demand, because you may not have supply and demand in the same country.
  • I think if you really want to run a circular economy business, it needs to be a strategic decision that is ensured through the top management of the organization and defines processes, capacity and capability to execute in relation to that strategy.

2. Business Value in a Circular Economy > 2.5 Business models for a Circular Economy > 2.5.1 Overview of business models (1/2)

  • As a company, you say: ”well client, you want to have a certain result and we make sure that you will have your result.
  • ” Examples there are copiers that allow you to copy things, but the copier stays totally in ownership with the provider, and the only thing that you have to do as a user is, actually, you know, copying.
  • There is a teller mechanism in the copier and on the basis of that you pay per print.
  • There, I think the most prominent examples are so called car sharing services where you actually buy access to a car rather than owning the car yourself.
  • First of all we come from a period where the normal way of doing business is making products and sell that to consumers.
  • I think the most important thing is that for many companies it is really very difficult to change your business model to something totally else.
  • Maybe a very good example where you really see where companies did make the switch is in the field of aircraft engines.
  • In the beginning it was Rolls Royce and others just selling the engines to basically airline companies.
  • Then of course, this implies that a lot had to change in the business model of the company, in the culture of the company.
  • If you’re a company in that situation I really say, think about the switch.
  • If I sell it, ok, I’ve made it and directly I get my millions.
  • If I said to the airline company I guarantee you something like 99,9% uptime.
  • Last but not least, if you are a company that really has a total mindset of selling products then all the middle managers, all the marketeers basically have that mindset.
  • If you all of a sudden have to provide a service to a company and you need a different mindset, you sell your business in a different way.
  • That is maybe even the most important switch that companies have to make.

2. Business Value in a Circular Economy > 2.9 In-depth: The Darker Side of Access > 2.9.2 The darker side of access

  • Access to goods and services lies at the heart of most business models, including ownership.
  • Is it implicit that if you have access, you also have control? What about the responsibilities and liabilities that accompany access? Secondly, what happens when you’re unable to gain access, either due to unemployment or to the business that controls access choosing to deny it? Who controls access? I look forward to your thoughts.

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