Combined analyses of costs, market value and eco-costs in circular business models: eco-efficient value creation in remanufacturing

Jnl Remanufactur (2017) 7:1–17 DOI 10.1007/s13243-017-0031-9 RESEARCH Combined analyses of costs, market value and eco-costs in circular business models: eco-efficient value creation in remanufacturing Joost G. Vogtlander 1 & Arno E. Scheepens 2 & Nancy M. P. Bocken 3,4 & David Peck 5 Received: 21 December 2016 / Accepted: 27 April 2017 / Published online: 10 July 2017 # The Author(s) 2017. This article is an open access publication Abstract Eco-efficient Value Creation is a method to analyse innovative product and service design together with circular business strategies. The method is based on combined analyses of the costs, market value (perceived customer value) and eco-costs. This provides a prevention-based single indicator for ‘external environmental costs’ in LCA. The remanufacturing of products is an environmental and sustainable approach, in the circular economy, and can deliver lower eco-costs of materials depletion and pollution. From a business point of view, however, remanufacturing seems to be viable in B2B niche markets only. In consumer markets, remanufacturing is less common. The question is how can remanufacturing become a viable business solution for mainstream consumer markets. Traditional ‘green’ marketing approaches are not enough: green has a positive, but also negative connotations, so marketing approaches are complex. By using the Eco-efficient Value Creation method, marketing strategies for the roll-out of remanufacturing in mainstream consumer markets, can be revealed. This approach has led to the development of five aspects, which are key to innovative circular business models, for remanufacturing: (1) buyers differ from the buyers of the ‘new product’ (2) * Joost G. Vogtlander 1 Industrial Design Engineering, Product Innovation Management, Delft University of Technology, Landbergstraat 15, 2628 CEDelft, The Netherlands 2 Ernst & Young Accountants LLP, Climate Change and Sustainability Services, Boompjes 258, 3011 XZRotterdam, The Netherlands 3 Industrial Design Engineering, Design Engineering, Delft University of Technology, Landbergstraat 15, 2628 CEDelft, The Netherlands 4 Lund University, IIIEE, Tegnérsplatsen 4, 223 50 Lund, Sweden 5 Architecture and the Built Environment, Architectural Engineering & Technology, Delft University of Technology, Julianalaan 134, 2628 BLDelft, The Netherlands 2 Jnl Remanufactur (2017) 7:1–17 quality must be emphasised in all communications (3) risk must be taken away from the buyer (4) top level service is required to convince the buyer (5) a ‘green’ brand may support the remanufactured product image. Keywords Eco-cost . Life cycle analysis . Reuse . Remanufacturing . Sustainability . Closed loop Introduction Remanufacturing is one of the promising business solutions in the future ‘circular economy’ [8, 15, 19, 27]. Although modern approaches of remanufacturing, as a successful business model, have existed since the end of World War II [17], it has recently attracted the attention of environmentalists, who propose that it is a way to slow down materials depletion and reduce CO2 emissions. For products, all of which contain energy-intensive materials, remanufacturing can have significantly lower environmental impacts. Indeed, a large contribution towards total environmental impacts of products are related to the extraction and processing of materials derived from primary (virgin) stock materials. This is especially related to the use of scarce or critical materials [28]. Widespread remanufacturing would lower the environmental impact of society. To achieve this, there would need to be a significant increase in the market share of remanufactured products [19], [5, 23], [6, 3], [33]. Remanufacturing has been defined as: “returning a used product to at least its original performance with a warranty that is equivalent to or better than that of the newly manufactured product” [5]. The disadvantage of this definition is that it is not specific enough to all cases. An example is the return of new electronics products to the on-line store, because the buyer changed their mind (e.g. laptops, tablets an smartphones). These returned products are given a brief physical inspection and software test, and are boxed ‘as new’. Depending on which definition is used, this is ‘reuse’ or limited ‘refurbishing’. This growing business activity is a consequence of modern internet based sales and is not based in the concepts and ideas of the circular economy: it does not lead to a more sustainable society. A more precise and meaningful definition of remanufacturing is: “remanufacturing is an industrial process whereby products, referred to as cores, are restored to useful life. During this process the core passes through a number of remanufacturing steps, e.g. inspection, disassembly, part replacement/refurbishment, cleaning, reassembly, and testing to ensure it meets the desired product standards” [34]. This definition clearly shows that the product is upgraded by a manufacturing process after its use-phase. In the electronics sector (along with some other sectors such as medical devices), this is also called “refurbishing”. The database of the Boston University provides detailed and reliable data on the remanufacturing industry in the USA [18]. An in-depth market study was conducted by the [36]. This study reveals that the current remanufacturing markets are related to production of parts (“cores”) in the following business sectors: aerospace (aircraft components and subsystems), heavy duty and off-road equipment (HDOR) (e.g. Caterpillar), motor vehicle parts, IT parts (predominantly toner cartridges), medical devices (Single Use Devices), and tyres (for trucks and buses). Jnl Remanufactur (2017) 7:1–17 3 Not all products are suitable for remanufacturing. Eight criteria for remanufacturing are [10, 17]: a. b. c. d. e. f. the product is durable the product functionality can be recovered the product design is standardised and modular the value at end of life is high enough to prevent discarding the cost to obtain the core is low if compared with the potential intrinsic value the product’s basic hardware technology is relatively stable over a period of time that exceeds the product life time g. the consumer should be informed about the opportunity to return the core and about the availability of remanufactured products, in order to create an adequate supply and demand h. the product is ‘designed for disassembly’. Despite optimistic analyses with regard to the circular economy [19], the market penetration of remanufacturing is still low. Table 1 shows that the core manufacturing business in the US is still in its ‘classical’ B2B markets of parts for durable products. In these classical remanufacturing markets, only 2% of the products are remanufactured. Data from the UK shows similar remanufacturing market distributions. In the UK the remanufactured ink and toner cartridges is the largest market, followed (...truncated)