Almost every day, we hear about the dangers humanity faces with the imminent climate change. Due to the awareness spread by media campaigns and compelling regulatory needs, sustainability & circularity are becoming more important for implementing new business propositions. Building new sustainability & circularity aware propositions will require more constraints on proposition design which is a new challenge, but it also brings new opportunities for the industry to reinvent itself in the current environment. To do this, changes to product architecture will need to be made. In this series of articles, we will explore some important Circular Economy related architectural considerations or Architectural Drivers. In this first article, we will talk about the role of business models in this sustainability & circularity aware epoch.
In the most prevalent model, a product is designed, fabricated and sold using materials that have been extracted from our environment. Once a product is sold, the responsibility of maintaining and keeping it running is left to the new owner. Very often, the producer takes little responsibility for what happens to their products after sale. From the producer’s viewpoint, as soon as the product leaves the factory, they can forget about it, for them it is Sell-and-Forget. At the end of their useful life for the owner, a lot of products end up on a landfill as there is no one who takes the responsibility for reuse of these products or their parts. Allen McArthur foundation calls this the Take-Make-Waste model. It is important to note that in this model, it is not only the product that is being thrown in a landfill, but it is also all the effort, energy used for fabrication, marketing, transport etc. that is being wasted. These days, much of this energy comes from fossil fuels which, of course, is not sustainable.
The Circular model proposed by the Allen McArthur foundation promotes use and reuse of products into the so-called Take-Make-Use-Reuse. In this model, the products are taken back at the end of their useful life for a user and are returned as refurbished product, parts of the products are extracted for reuse, or materials are extracted and reused. This requires not only the companies that make products but also the society at large to start reusing products and materials. The manufacturing companies need to design products in such a way that they can reuse these products as a whole or their parts and materials and the users need to accept product reuse.
The importance of business models
In the take-make-waste model, companies compete on price, whereas keeping Bill of Materials (BOM) low is very important. Consequently, architecture and material choices give more importance to a company’s financial considerations rather than sustainability. This results in products that are predestined to end up on a landfill as BOM reduction design consideration may have reduced their longevity. In this market situation, one company cannot unilaterally start implementing circular products as the new product features needed to enable Circular Economy will increase the BOM or design effort. A way to move away from competition on BOM would be to change the business model. One model could be, for instance, a result-oriented model where a customer would pay for the result obtained from a product rather than the price of the product. In another model, known as X as a Service (XaaS) model, the customer pays for using a service provided by using products and not pay for products. In a usage time-based model, a customer pays for the time the product has been in active use. In a performance-based model, a customer will pay for the performance provided by a product and services. Important to note here is that in these business models, the ownership of a product is not transferred to the user, but it remains with the company providing the service.
Design of equipment for low-energy manufacture and usage is obvious in the light of sustainability considerations. There are, however, a number of other ways Circular Economy and business models will impact the architecture of the solutions (equipment and infrastructure) that will be created. A starting point for architecture definition is to identify the driving needs for a proposition called the Architecture Drivers.
In the next two articles, we will highlight a few architectural drivers that can be detailed further into architectural requirements for Circular Economy aware architectures.
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Dr. Aly Aamer Syed
Consultant Innovation management & System architectures
Industry Consulting, Philips Engineering Solutions