7 companies advancing the circular economy by selling products as a service
The "performance economy," as defined by the Ellen MacArthur Foundation, describes a business model in which manufacturers retain control over products throughout their life cycles and handle their maintenance and recovery, rather than saddling customers with those responsibilities.
Offering products "as a service" is also a tenet of the circular economy because it transforms the concept of ownership and encourages people to rethink how a "thing" is used over its lifetime — whether it's an apartment that often sits vacant or a specialized piece of equipment that's used relatively infrequently.
Manufacturers benefit by establishing a steady stream of revenue related to a single product and potentially keeping them in circulation longer, which saves on energy, materials and other resources associated with the manufacturing process. Customers benefit because they only pay for what they need. Both sides benefit from a more active, ongoing relationship.
Vehicle-sharing company Zipcar and accommodation-sharing pioneer Airbnb may spring to mind when we think of product-as-a-service models. But many other companies, such as lighting vendor Philips, have created subscription programs that rethink how their products are sold. Those offerings align with principles of the circular economy, in which materials are kept in play for as long as productively possible, then recovered and reused at the end of life.
Last week during a workshop at the GreenBiz 18 conference in Phoenix, strategists Daniela Pigosso and Tim McAloone — co-founders of sustainability consulting firm essensus and, respectively, a researcher and professor at the Technical University of Denmark (DTU) — illustrated other examples of as-a-service success stories. Here are some of the companies behind them.
In 2014, French train manufacturer Alstom began offering HealthHub, a predictive maintenance tool that monitors the health of trains, train infrastructure and signaling systems. It uses advanced data analytics to extend and maintain the useful life of trains.
"It's a circular economy strategy that provides deep insight into how frequently the infrastructure is being used and maintained," McAloone said.
HealthHub uses data capture and diagnostics to measure the performance of wheels, brake pads and wear-and-tear-prone pantograph carbon strips (the framework that conveys currents to trains from overhead wires).
"It is an innovative approach designed to shift from traditional mileage-based maintenance to condition-based predictive maintenance, thus reducing the life cycle cost for the operator," said Alstom's press release. "It allows up to 15 percent of material costs to be saved by replacing them only on an as-needed basis."
Car rental serval Sixt carved out a niche through a seven-year-old European car-sharing service called DriveNow — now wholly owned by BMW — that offers a fleet of the latest BMW and Mini vehicle models. (BMW was previously a partner in the venture, but it acquired Sixt's stake in late January.)
Users register for DriveNow through an app, choose a car and pick up the vehicle with a DriveNow card. When the rental is up, the vehicle can be left anywhere in the app's zone, making it easy to use the service for one-way trips. The cost of gas, insurance and possibly parking are included in the flat-rate service.
The service has more than 1 million registered customers in 13 cities and 6,000 vehicles in its fleet. BMW estimates that every car in the DriveNow program replaces at least three privately owned cars, significantly easing traffic congestion in cities such as Munich, London, Vienna and Lisbon.
"We look forward to working with our franchise and city partners to continue actively shaping urban mobility in a sustainable manner," said Sebastian Hofelich, managing director of DriveNow, in the press release about the acquisition.
It's hard to be a student in Copenhagen, one of the 10 most expensive cities on Earth. Design company CHP has created a village of temporary apartments made from shipping containers to provide affordable homes for 2,500 people by 2020, located in the city's ports.
The process began with a long period of negotiation with landowners, investment funds, municipalities and even the Danish government to create new zoning laws. Because the ports don't allow permanent construction, the temporary development fits within the loophole.
In 2018, CHP is introducing a service package for repairs and other residential needs to the villagers, along with a mobile platform with service integration and community support.
"They don't own the containers, but invite window manufacturers to [provide] windows and light, or washing and heating water, HVAC functionality and sewage," McAloone said.
Apartments as a service, anyone?
Grundfos, a pump supplier for heating, air conditioning, irrigation and water treatment, is branching out with a "circular economy takeback experiment" that's worth following as an example of how to engage with consumers, Pigosso said.
The company, which has a global presence, had to solve a logistical challenge when it piloted a take-back program for circulation pumps.
Grundfos had to provide incentives and means for take-back. The program, spread over many houses, meant the company needed to encourage many customers to participate.
"They got back the pumps and developed a tracking system to understand the health of the pumps," Pigosso said.
Pigosso listed some challenges facing the take-back program: "After we take back the products, what is the best circular economy strategy to implement? Is it to remanufacture? Reuse? Recycle some of the materials?"
With persistence, Grundfos eventually found success with the take-back program. It provides information about how each product is disassembled and recycled on its website.
MAN Truck & Bus
German company MAN Truck & Bus is a leading international supplier of commercial and transport vehicles to businesses. It offers support and advice with vehicle design for fleets, operations, infrastructure, and service and maintenance.
Late last year, MAN rolled out a data-driven service to assist commercial truck and bus fleets with the transition to low-carbon transportation. In particular, the company is focusing on helping companies with challenges such as range planning, charging infrastructure and battery swapping considerations, capacity planning and loading times, and considerations around heating and air-conditioning requirements.
"Each customer can select whichever components of our range of services they need, as we provide personalized advice and consultancy," said Stefan Sahlmann, head of the MAN consultancy team, in a press release. "For example, we can use our simulation tools to assist them with route planning or with depot design and layout."
MAN is also developing an electric battery-powered bus to debut in 2018.
Tire company Michelin introduced Fleet Solutions, a leasing program for European trucking fleets, way back in 2000. The business-to-business initiative leases "tire services" by the kilometer, charging a flat fee that scales based on vehicle type and distance driven.
The company states that the service reduces the risk of fluctuating costs that come with variability in tire performance, purchase costs and unpredictable damage rates from owning individual tires. Instead of requiring customers to pay upfront for the tire and cost of replacing it, Michelin absorbs some of that risk.
According to the essensus analysts, "If you sell the value, not the tire, you can follow the item through its life cycle." The program is also pitched as a path to more energy-efficient tire fleets that can reduce emissions.
While Michelin initially struggled with how to make the service profitable, in 2013 it created "Michelin Solutions" to develop and market a broader set of services for commercial fleets. More recently, it began using an internet of things (IoT)-enabled system that uses sensors inside vehicles to collect information about fuel use, tire pressure and speed.
Steelcase is already known as a circular design leader, offering Cradle to Cradle certified products that minimize impacts on human and environmental health. As of 2017, it offered two programs that help other companies reuse, donate and recycle their furniture.
"Subscription models are a huge area of opportunity for us," said Bruce Smith, director of design, global seating and surface material at furniture manufacturer Steelcase. "Now, we sell a product once and never see it again."
Products that are exchanged at point of sale are designed for 20 to 30 years of use, but if they are made to be returned and reused, they may be designed for 50 or more years of wear, Smith said. That has serious implications for the materials used to construct them.
To create a strategic shift in the way that manufacturers think about products, Steelcase needs to let product-as-a-service thinking guide the design, he said, and include finance experts at the front."