Download Redefining Product Lifecycle Management in a Circular Economy: Driving Sustainability and Profitability

Manufacturing
White Paper
Redefining Product Lifecycle Management
in a Circular Economy:
Driving Sustainability and Profitability
About the Authors
Edzil Gonsalves
Edzil Gonsalves is a lead New Product Introduction (NPI) consultant with the
manufacturing innovation and transformation group at Tata Consultancy Services. He
has over 25 years of experience in areas such as product development, supply chain and
program management. Gonsalves has worked on a variety of large consulting and
implementation engagements in the area of NPI, supply chain, and customer experience
management. He is a certified Six-Sigma Green Belt, PMP, NPDP, and CSCP.
Babu K Nagiligari
Babu K Nagiligari is an NPI consultant with the manufacturing innovation and
transformation group at Tata Consultancy Services. He has over 11 years of experience in
manufacturing, supply chain, engineering, and project management. He has handled
multiple roles in NPI, product development, engineering services, business process
consulting, and project management with leading automotive and discrete
manufacturing customers. He is an active member of the Project Management Institute
(PMI) and is certified in Six-Sigma, CMII, Scrum Master, Supply Chain, and Information
Technology Information Library (ITIL).
Vikram Shah
Vikram Shah is an NPI consultant with the manufacturing innovation and transformation
group at Tata Consultancy Services. He has over 14 years of experience with Fortune 500
companies in automotive and off highway equipment manufacturing. He has also
worked with their tier I suppliers. Over his career, he has led several transformational
business process consulting assignments and new product program launches, and has
experience in dealing with diversified products, functions, and cultures. Shah has a
Bachelor's degree in mechanical engineering from Pune University, India.
Abstract
Businesses make significant cost and time investments in managing their product lifecycle
through custom or commercial off the shelf solutions, or a judicious mix of the two. Product
Lifecycle Management (PLM) helps organizations by improving time-to-market, managing
requirements better, and reducing costs through standardization and classification. But it is
important to understand whether these benefits can sustain long term growth and
profitability.
Increasing demand for products has resulted in a corresponding increase in the demand for
resources. At the same time, dwindling natural resources are resulting in high input and
conversion costs, thus reducing profits. To counter this situation, companies need to focus on
moving to a circular economy rather than sticking to the traditional linear approach. This
move entails implementing the 5R approach i.e. reduce, reuse, repurpose, remanufacture,
and recycle.
Such a fundamental shift can help drive sustained growth of organizations and impact how
PLM capabilities are defined, implemented, and measured. This paper discusses the role of
PLM in a circular economy and identifies how organizations can gain greater value from the
materials, manpower, and effort invested in their manufacturing processes.
Contents
Emerging Business Models are Changing the Game
5
Promoting the ‘product as a service’ concept
5
Encouraging reconditioning and remanufacturing
5
Enabling product transformation
5
Improving recycling
5
Cultivating reuse
5
Making the Case for a Circular Economy
6
Challenges to Adopting a Circular Economy
6
Implementing Circular Economy Principles within an Organization
8
Bringing the concept of circular economy into executive dashboards
8
Making products circular by design
8
Bringing about a fundamental change in mindset
8
Harnessing technology to transform PLM
9
Three Steps to Implementing a Circular Economy: The Approach
10
Emerging Business Models are Changing the Game
Organizations are becoming reluctant to make large cost and time investments in developing products that last for
decades, due to the rapidly changing technological ecosystem and economic uncertainties. Ownership-based
models are fading away, giving way to use-based models. For instance, Philips, has begun to treat lighting as a
service, like electricity or the internet.¹ The company now sells lighting as a service to business customers who only
pay for the use of light, while it takes care of the technology risk and investment in hardware. This is disruptive
innovation and indicates the emergence of a very different business model, giving rise to a new set of financial
possibilities.
Some leading organizations are already adopting and framing strategies to support a circular economy (CE), while
others are piloting business models around it. A circular economy is an alternative to the linear ‘take, make, and
dispose’ model. It is regenerative, closes loops and keeps products, components, and materials at their highest
utility at all times to eliminate waste. The concept is not completely new. It is a framework built on various schools
of thought such as Cradle to Cradle, biomimicry, industrial ecology, natural capitalism, and performance economy.
Such innovation not only requires new strategies but also demands new skills and capabilities. Key trends that
directly influence the realization of a circular economy include:
Promoting the ‘product as a service’ concept: Visionary manufacturers are adopting the concept of product as a
service (PaaS). This model ensures that the product is used elsewhere if it has not reached end-of-life, and if it has,
its parts can be recycled or reused. This approach also leads to a deeper relationship with customers and allows for
more business opportunities. For example, several telecom companies have collaborated with handset companies
and provide handsets as part of their service contract, with an incentive to upgrade to latest model with contract
renewals.
Encouraging reconditioning and remanufacturing: Redeployment of products results in additional income.
Original Equipment Manufacturers (OEMs) are discovering creative ways of offering reconditioned products at
nearly half the price, with the same warranty period. Tier 1 companies are therefore gearing up to support OEMs
with reverse logistics, and methods to efficiently recover and recondition products after use.
Enabling product transformation: This new approach to design focuses on creating reuse, remanufacturing,
reconditioning, and recycling capabilities in an organization.
Improving recycling: Affordable and user-friendly technology is making it easier to extract core materials from
products, and ensure better and faster recyclability.
Cultivating reuse: Many products such as books and clothes are discarded before they reach end-of-life. Social
media is making it possible for sellers and buyers to connect and trade in a safe and cost-effective manner,
exponentially increasing reach. This considerably reduces costs as well. For instance, if a telecom company provides
handsets as a part of their service contracts, used handsets can be collected, refurbished, and reused in areas where
there is an economic need to provide less expensive options.
[1] Ellen MacArthur Foundation, Towards The Circular Economy - Volume 3, January 2014, accessed on June 1, 2015,
http://www.ellenmacarthurfoundation.org/business/reports/ce2014, Page 18
5
Making the Case for a Circular Economy
Components and materials flow through various lifecycles until they fulfill their useable life. Currently, the demand
for commodities is growing exponentially and this trajectory is unsustainable over the long term.
Natural resources are rapidly depleting due to increased manufacturing needs. The availability of resources needed
for different industries is also constantly shrinking. This could soon lead to severe environmental, economic, and
social repercussions. Conflict minerals such as coltan, cassiterite, gold ore, and wolframite are natural resources
obtained from conflict areas and sold to fund combat operations and to create other products. Currently, there is
also a growing trend of managing conflict minerals through policy decisions and reporting. In essence, increasing
scarcity of resources and rising costs are the key drivers of a circular economy.
Challenges to Adopting a Circular Economy
Moving to a CE poses challenges such as insufficient value chain collaborations, disconnected internal change
management, sub-optimal policy conditions, and shortage of next generation technological support. Lack of
awareness is yet another challenge. For example, a major off-highway equipment manufacturer needs to convince
end-customers that a remanufactured piece of equipment can deliver the same quality and capability as a new
product, and at a lower cost.
In addition, organizations need lifecycle and real time product information to plan and design scenarios that enable
optimal reduction, reuse, remanufacture, recycle, and repurpose strategies. This could eventually lead to
environmentally and financially beneficial planning and resource management. Such information should cover the
larger economic system of interconnected entities such as the organization, its suppliers, and its customer service
processes. However, such systematic information systems are either entirely unavailable or tend to be untimely
where available. In addition, fragmented management frameworks lead to inefficient information sharing. Cisco
identified this challenge early on and is helping businesses by designing integrated strategies around the Internet
of Things (IoT), thereby supporting the transition to a circular economy. ²
Culture and technology are the key elements in developing a circular economy. Companies require a new business
model to design, manufacture, and test products that can be used more than once. However, due to insufficient
financial support and skills, organizations are not always technologically mature to support such a mandate. Social
acceptance is also crucial to CE initiatives as is evident from European and South East Asian countries that have
pioneered this concept and realized its potential successfully.
Another significant constraint is the continued unwillingness of governments to use suitable economic and
financial instruments to complement the preferred governance and administrative approaches required for
implementing a circular economy. Insufficient financial support from banks and inadequate public tax incentives
are further preventing enterprises from adopting more environmentally-friendly technologies. Manufacturers find
little or no economic incentive in saving tightly controlled resources such as energy, material, and water. Even if
these resources become more expensive, they are able to transfer the cost to consumers in the form of higher price
markups.
[2] Ellen MacArthur Foundation, Towards The Circular Economy Volume 3, January 2014, accessed on June 1, 2015,
http://www.ellenmacarthurfoundation.org/business/reports/ce2014, Page 18
6
Potential challenges faced by organizations in piloting circular economy initiatives can be broadly categorized into
business, social, technology, governance, and environment. These challenges can be further evaluated based on
different key perspectives, as illustrated in figure 1.
Perspective
Business
Social and Technological
Governance
Environmental
Awareness
Lack of awareness
amongst internal and
external stakeholders
Consumers and end users
lack understanding and
acceptance of the 5Rs
Lack of awareness about CE
Unavailability of research
on how to implement CE
Support
System
Bidding and other
supplementary
process changes
Lack of complete system
support
Lack of overall governance
(industrial, environmental), policies,
planning and guidance (legal
bodies, consumer contact points)
Customers may not accept
new or alternative contract
schemes
Risks
Potential challenges
vary by product and
industry type
Health concerns around
reuse
Financing upfront production costs
poses financial risks to
manufacturers
Lack of motivation to pilot
companies and its
employees
Feasibility
Reuse and
reconditioning is not
feasible in all
industries (healthcare
and hospitals)
Influence of cultural
aspects in different
regions
Industry structure is not aligned
with the economic structure
Difficulty in obtaining
financial support
Guidance
Unavailability of
research on how to
reuse and recycle raw
materials, and if these
are used for the right
purpose
Lack of measurement
system to baseline
resource usage and
measure usage
continuously
Lack of appropriate incentive
system impacting resource
recovery
Unavailability of KPIs and
interim and final target
setting throughout the
process
Cost
Extended lifecycle
requires additional
design and validation
increasing product
lifecycle costs
Long-lasting products
substitute new models
and decrease sales
Total Cost of Ownership (TCO)
increases
Recovery and returns of
products for refurbishment
is not easy and costs more
Figure 1: Challenges in adopting CE (Source: TCS Research)
Corporate decision-makers find it difficult to tackle these challenges. These problems are further compounded by
multi-layered bills of materials (BOMs) of current generation products that reflect the complexity and proliferation
of materials used in manufacturing them. ³
[3] Ellen MacArthur Foundation, Towards The Circular Economy Volume 1,2 and 3, January 2014, accessed June 1, 2015,
http://www.ellenmacarthurfoundation.org/business/reports
7
Implementing Circular Economy Principles within an
Organization
While companies are aware of the importance of moving to a CE, they fail to act on the assumption that they will
not be impacted. It is therefore important that businesses proactively adopt initiatives such as the following to
facilitate the move toward a circular economy:
Bringing the concept of circular economy into executive dashboards
During an interview with the authors, Peter Bilello, President of CIMdata, stressed the need for adopting CE
practices as an enterprise-wide initiative. He believes that circular thinking will soon become a way of life. Philips’
CEO Frans van Houten followed a similar ideology by integrating the principles of circular economy into executive
dashboards. He set measurable targets to ensure reusability top down.
Typically, reusability targets tend to be the result of prevailing external forces such as regulations or Corporate
Social Responsibility (CSR) initiatives. Several companies are making huge investments to meet mandated
reusability targets, without realizing that circular economy principles will not only help them meet these targets
but also improve their bottom line. Leading organizations that realize this fact are proactively appointing
sustainability managers to drive the focus on CE practices.
Leveraging the IoT to transition to a circular economy
The growing trend of the IoT is going to generate a huge amount of data. Cisco has developed a unique plan built
on an IoT platform to transform and adopt the concept of a circular economy.⁴ When products and devices are
interconnected through sensors, it is possible to locate and study the usage patterns of components and materials,
enabling the reuse and recovery of minerals. This kind of a set up brings together a larger network of value chain
stakeholders, who would not be connected otherwise.
Making products circular by design
The concept of remanufacture and reuse has been popular for decades. Large organizations such as Cummins
(ReCon Engines),⁵ Caterpillar (Caterpillar Remanufacturing),⁶ and John Deere (John Deere Reman Engines)⁷ have
implemented strategies to refurbish used engines and resell them with a warranty. This is cost effective for
consumers and at the same time, profitable for companies.
However, many companies do not completely reduce and repurpose. Organizations can achieve this goal by
modularizing product design, making it possible to upgrade products easily.
Bringing about a fundamental change in mindset
Organizations should consider adopting the principles of a circular economy as a fundamental prerequisite to
exploring a new business model and engaging with the customer.
[4] Ellen MacArthur Foundation, Towards The Circular Economy Volume 3, January 2014, accessed on June 1, 2015, http://www.ellenmacarthurfoundation.org/business/
reports/ce2014, Page 32
[5] http://www.cumminsgenuineparts.com/reman/
[6] http://www.caterpillar.com/en/company/sustainability/remanufacturing.html
[7] https://www.deere.com/en_US/parts/reman_parts_components/reman.page?
8
For instance, consider applying a concept similar to Uber in manufacturing. A mobile application that informs
manufacturers of a particular vendor’s machine capacity in real time, can help manufacturers reduce machine
ownership and use machines available with the vendor on demand. For the manufacturer, this would enable lower
costs, faster delivery, no waiting time, and a larger number of products for sale. The vendor, in turn, will see profits
through improved machine utilization, increased focus on service, and enhanced market reach. Such a model is
already being adopted in the case of white goods and in the automotive sector.
Harnessing technology to transform PLM
The advent of new business models, performance indicators, and product design methodologies will make it
necessary for companies to understand the impact on product lifecycle management strategies.
The disruptive nature of 3D printing technology and its ability to directly enable circular economy is a case in point.
3D printing is an additive method that can create products with minimal infrastructure and reduce energy
consumption by as much as 50% and material consumption by 90%.⁸
Current PLM capabilities will need to improve the life and maintainability of products with robust advance
materials engineering. Product portfolios should include refurbished products. Advance dynamic simulation
techniques will be required for repurposing or reusing products. Leading PLM product vendors that recognize this
emerging opportunity are bringing in aspects of IoT, 3D experience platforms, integrated materials, advance
simulation software and hardware, and light weighting into their product capabilities.
Ideally, PLM capabilities should extend beyond organizational boundaries, as they will involve managing Service
Level Agreements (SLAs) and quality records for parts from different vendors, as shown in figure 2. Computer Aided
Design (CAD) management strategies will need to become cross organizational, and security and intellectual
property protection should be the prime focus of PLM.
Figure 2: Extended PLM Capabilities
[8] Ellen MacArthur Foundation, Towards The Circular Economy Volume 1,2 and 3, January 2014, June 1, 2015,
http://www.ellenmacarthurfoundation.org/business/reports
9
Three Steps to Implementing a Circular Economy: The
Approach
The move from linear models to a circular economy will require a collaborative effort from all members of the
organization. Figure 3 showcases a three-step approach that can help businesses adopt circular economy
principles.
Embrace
Prepare
Realize
Figure 3: Three-steps to adopting CE principles
Embrace social media, gamification, and certification: Organizations can create awareness about circular
economy and exponentially spread the message through:
Social media: Today, it is extremely easy for employees to collaborate on social media and other digital platforms
to enable innovative CE design ideas, research material options, incubate solutions, and improve methods for
material handling and transportation.
Gamification: This concept can be used to drive ideas aimed at boosting reuse, recycling, and remanufacturing
within a company. Scoring the success of circular economy initiatives can be based on metrics such as the extent of
reuse, recycle, and remanufacture. Interactive workshops can be planned with set objectives and defined targets;
small teams can compete with each other and cross functional teams can be formed for better scores.
Certification: The Cradle to Cradle Product Innovation Institute provides Cradle to Cradle certification for
companies. The certification process includes parameters such as material reutilization and health. Such
certifications help companies provide an assurance of quality and value, improve the organization’s reputation, and
help prove its commitment to participating in a circular economy.
10
Prepare to adopt circular economy principles: Organizations can prepare to adopt circular economy practices by
leveraging supporting technology, getting reverse logistics right, and improving information availability for
collaboration and decision making. Moving to a circular economy requires fundamental changes to the way
products are designed. It is not just about design for manufacturing or design for disassembly. It also requires
upgrades to relevant technologies and design for reuse, remanufacture, and recycling. Figure 4 illustrates these
considerations and the impact on PLM.
Validate and
Verify
Recycle
Source
Simulate
Remanufacture
Design
Manufacture
PLM
Reuse
ERP
Conceptualize
PLM
Design
Distribute
Maintain
CRM
Recycle
Sell
Extended PLM
Reduce
Resell
Build
Service
Remanufacture
Reuse
Current design focus
Return
Future Consideration
Figure 4: Considerations and impact on PLM capabilities in a CE
The product lifecycle will need to be revisited and its capabilities reassessed to meet changes in product design.
Increased
Value
Value realization over time
Realize the potential of a circular economy: Organizations will need to establish transparent business models
that provide incentives to adopt circular economy initiatives. Enhancing analytics with ‘track and trace’ capabilities
will help determine the product’s condition throughout its life and also gather real time information to determine
the worth of its remaining life. Figure 5 illustrates the tremendous potential that can be unleashed by rethinking
the overall approach to PLM in a circular economy.
Potential
Incremental Value
Possible
Incremental Value
Today
2025
Traditional Enhancements
Linear Economy
Today
Opportunity Type
Value Generating Opportunities
Economic
Sustainable growth, material cost
savings, job creation potential,
innovation
Environment
Carbon footprint, reduced
material consumption
For society
Higher disposable income,
greater utility, higher
productivity, low obsolescence
For organizations
Profit improvements, competitive
advantage, new demand,
customer loyalty
2025
Reduce Reuse Repurpose
Reconditioning
/Remanufacture
Recycle
Circular Economy
11
Figure 5: Value Potential of Products in the Circular Economy Approach
The slope of the graph in figure 5, will vary depending on the industry and the maturity of the organization.
Roadmaps can be defined and implemented with the help of executive commitment for a successful transition to a
circular economy.
Rethinking PLM to Minimize Waste and Enhance
Competitive Advantage
Customers, OEMs, and organizations alike benefit by going circular. Over 100 global companies have already
partnered with the Ellen MacArthur Foundation to put circular economy concepts into practice as a business
proposition, and not merely as a CSR initiative.⁹
The Foundation estimates a huge opportunity in transitioning to a circular economy. In this age of natural resource
scarcity and the rising need for sustainability, organizations can carve out a leadership position in the marketplace
by innovating circular economy practices to gain resource efficiency, deliver superior customer value, and
revolutionize their operations.
[9] Ellen MacArthur Foundation, Towards The Circular Economy Volume 3, January 2014, accessed on June 1, 2015,
http://www.ellenmacarthurfoundation.org/business/reports/ce2014, Pages 6 and 68
12
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