by Elisabeth Schoch, Co-Founder at Invenio Rocks.
Manufacturing companies – from the innovative manufacturers to the more traditional companies that make our clothes and furniture – can develop a circular business model in a variety of ways. Most involve a combination of three basic strategies.
1. Product Ownership remains with the Manufacturer (RPO).
In the classic version of this approach, the manufacturer rents or leases its product to the customer rather than selling it. Thus, the manufacturer is responsible for the products when consumers no longer need them.
RPO is an interesting strategy for companies that offer complex products with high embedded value. A good example is Xerox, which has long leased its printers and copiers to corporate customers. This strategy may require a large investment in customer service and maintenance, which can be more expensive for the company and ultimately for customers than a sell-and-replace strategy.
RPO can also work for simpler products if they are relatively expensive and rarely needed. For example, prom-goers have been renting tuxedos for decades, and in an increasingly status-conscious society, the rental model is becoming more prevalent. Online fashion subscription services such as Fashion Emergency or Ragfair, for example, rent designer clothing to people who need a chic outfit for a one-time event. The garments may have little intrinsic value – in terms of their raw materials, for example – but their brand value is attractive.
2. Product Life Extension (PLE).
Companies using this strategy focus on designing products to last longer, which can open up opportunities for markets for used products. Since longer product life means fewer purchases over time, this may be a bad idea for OEMs. However, longevity is an important differentiator from competitors and provides a good rationale for premium pricing, as we have seen with outdoor apparel maker Patagonia and luxury home appliance maker Miele. PLE can also help companies keep their customers from switching to a competing brand. Bosch Power Tools, for example, extends the life of its used tools by remanufacturing them to compete with new products from low-cost, low-quality manufacturers.
3. Design for Recycling (DFR).
Companies using this strategy redesign their products and manufacturing processes to maximize the recyclability of materials for use in new products. This strategy often involves working with companies that have specialized technological expertise or can best use the recovered materials. Adidas’ six-year partnership with Parley for the Oceans is a case in point. Parley uses plastic waste to create textile threads that Adidas uses to make its shoes and apparel. The partnership reduces the amount of plastic waste in the world’s oceans.
How can we support you?
In order to determine which combination of the three basic strategies will bring the greatest benefit to your business, there are some practical and very specific questions that need to be addressed, such as whether you can reclaim your product from the customer, whether it can be relocated, and whether you can recycle it.
We would be happy to support you on this exciting journey and take you on our interactive, agile journey. We know that big goals can be achieved with small steps. We would be happy to show you how you can introduce transformation and responsibility step by step.