Reshaping the Washing Machine Industry through ...

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ScienceDirect Procedia CIRP 64 (2017) 43 – 48

The 9th CIRP IPSS Conference: Circular Perspectives on Product/Service-Systems

Reshaping the washing machine industry through circular economy and product-service system business models Gianmarco Bressanellia,*, Marco Peronaa, Nicola Saccania a

RISE Laboratory, University of Brescia, Via Branze 38, Brescia 25123, Italy

* Corresponding author. Tel.: +39 030 3715760.

E-mail address: [email protected]

Abstract Although circular economy is usually indicated as a way to reconcile economic growth and sustainability, circular business models and related product-service systems are not implemented on a large scale yet. Providing information about how to develop circular business models and methods to evaluate their expected impacts, can support stakeholders to embrace this transition. To this regard, the aim of this paper is to propose and discuss the actions required for reshaping the washing machine industry towards a circular economy scenario. The paper, based on a recently launched research project, describes a set of actions and develops very preliminary computations of their expected impact. Results show that customers could benefit from an average yearly saving of almost 30% of the current washing cost, while country total electricity generation and water consumption could be reduced of about 0.6% and 1% respectively. Albeit they are only preliminary estimates and further research and empirical validation are certainly needed, these outcomes gives an idea about the order of magnitude of benefits gathered by a circular economy transition for a mass durable consumer goods industry such as washing machines. ©2017 2017The The Authors. Published by Elsevier B.V.is an open access article under the CC BY-NC-ND license © Authors. Published by Elsevier B.V. This Peer-review under responsibility of the scientific committee of the 9th CIRP IPSS Conference: Circular Perspectives on Product/Service(http://creativecommons.org/licenses/by-nc-nd/4.0/). Systems. under responsibility of the scientific committee of the 9th CIRP IPSS Conference: Circular Perspectives on Product/Service-Systems. Peer-review Keywords: Circular economy; Product-Service System; Washing machine; Circular business model.

1.Introduction Circular economy has received increasing attention in recent years, from both companies and policymakers. For instance, China has issued a circular economy law in 2008 with a topdown approach, based on the “command and control” principle rather than market instruments, as in the European, American or Japanese policies [1]. In general, circular economy is indicated as a way to reconcile economic development and sustainability and, thus, as a major trend for the future. [2] However, real circular economy projects are not always taking off so far, especially due to limitations like risk of cannibalization, fashion vulnerability, financial and operational risk, customer irrationality and lack of supporting regulation and knowledge [3][4]. Despite these barriers, the circular economy potential is high in several sectors. For instance, O’Connel et al. [5] have demonstrated how a reuse policy for white goods and

especially for washing machines adheres to all the three pillars of sustainability, since it brings advantages to the environment (e.g. lower pressure on raw materials), the economy (e.g. usage cost reduction thanks to lower energy and water consumption) and the society as a whole (e.g. job opportunities and an increased quality of life by providing low-price refurbished appliances to low income households). In order to foster the circular transition, this paper proposes and discusses the actions needed for reshaping the washing machine industry towards a more circular scenario. The research presented in this paper is still at a preliminary stage and will be further deepened by a three-year study. However, the aim of this paper is to highlight and to provide insights regarding: (i.) the washing machine industry suitability to move towards a circular model, (ii.) the actions needed to trigger this transition, and (iii.) the main expected impacts. To this purpose, section 2 provides a literature review on circular economy and product-service systems, based on a

2212-8271 © 2017 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of the scientific committee of the 9th CIRP IPSS Conference: Circular Perspectives on Product/Service-Systems. doi:10.1016/j.procir.2017.03.065

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Gianmarco Bressanelli et al. / Procedia CIRP 64 (2017) 43 – 48

preliminary research conducted on Scopus and improved with cross-references analyses. Section 3 describes the set of envisaged actions, while a short discussion of the expected impacts is detailed in Section 4. Lastly, concluding remarks and future research are reported in Section 5. 2.Literature review 2.1.Circular economy The dominant economic model, based on growth and throughput, reflects linear material flows [6] in which resources are taken from natural finite stocks, products are manufactured from these resources, sold to consumers and then disposed as waste after use. The principle underlying this linear flow is a cradle-to-grave concept through industrial systems [7], where these cycles of production-consumption inevitably transform resources into waste. Moreover, the economic growth is directly connected to material and energy flows, in what might be called the “river economy” [8]. The classical linear economy paves the way for the so-called “throwaway society”, based on manufacturing of short-lived products, planned obsolescence, economies of scale and a consequent growing demand for new products by consumers [9]. In particular, economies of scales reached in the last 150 years are the most significant barrier that prevent the emergence of reuse activities [9] and, above all, new sustainable economic models. This linear model relies on large quantities of cheap and easily accessible materials and energy: during the last century the total material extraction has exponentially increased by a factor of 8 and there is no evidence that this growth will slow down or eventually decline [10]. Yet, with 3 billion more consumers expected to enter the market by 2030 [11] this model is deemed to be not sustainable. Consequently, a transition towards an economy able to decouple economic growth from resource throughput is needed, and an answer for this issue is circular economy, since it pushes the frontiers of sustainability by implementing production systems in which products and materials are used over and over again [1][2][12][13]. Circular economy is restorative and regenerative by design, because it aims to keep products, components and materials at their highest utility and value at all times, distinguishing between technical and biological cycles [2]. In fact, materials are turned into nutrients by enabling a perpetual flow within a biological metabolism – composed of biodegradable materials – or within a technical metabolism – composed of synthetic or mineral materials that have the potential to remain in a closedloop system of reuse, remanufacture, refurbishment or recycle activities [7]. Three major changes can help the transition towards circular economy. First, resource and material prices are on a constant rise and are becoming more volatile than in the past, making more attractive the recovery of raw materials from products at the end-of-life [4]. Second, new information technologies (e.g. Internet of things, 3D printing, etc.) are enabling the creation of new business models [14] that enhance products utilization and enable reuse, remanufacture, refurbishment and recycle. Third, green consumers are rapidly growing [15] and an

“access instead of ownership” attitude is increasingly taking shape among customers [2]. 2.2.Product-service systems Following [16], we define a product-service system (PSS) as an integrated bundle of products and services which aims at creating customer utility and value. Despite the fact that customer value generation is the ultimate purpose of a PSS, it is commonplace that PSSs must fulfill other goals, especially sustainability ones. For instance, Mont [17] defines a PSS as a system of products, services, supporting networks and infrastructure that is designed to be competitive, satisfy customer needs and have a lower environmental impact than traditional business models, pointing out the need to support PSSs with a business model evolution. Tukker [18] identifies three main categories of PSSs: • product-oriented, where the business model is still mainly geared towards selling products but some additional services are added (e.g. maintenance contracts); • use-oriented, where the product’s ownership remains with the provider who makes it available in various forms (e.g. leasing, renting, sharing or product pooling); • result-oriented, where the client and the provider agree in principle on a result, with no pre-determined product involved (e.g. catering service, pay per use). While in traditional product-oriented business models firms have the incentive to maximize the number of products sold, in solution-oriented ones companies are paid for the services they provide. Thus, the materials involved in the product become cost factors and firms have the incentive to minimize them by extending their lifespan, reusing, remanufacturing or recycling them. According to Tukker [19], the result-oriented PSS is the most effective category for shifting to circular economy. 2.3.Circular economy and PSSs More specifically, Linder and Williander [3] define a circular business model (CBM) as one in which the conceptual logic for value creation is based on utilizing economic value retained in products after use in the production of new offerings. Thus, a CBM entails a reverse logistics able to return products from users to producer, involving activities such as reuse, repair, remanufacturing, refurbishment and recycling. When feasible, a hierarchy among these activities should be followed: reuse is preferable to recycling, since much of the value still remains with the components [20]. Previous considerations show to which an extent circular business models are aligned with the provision of PSS. According to the literature, in fact, a transition towards circular economy entails four building blocks [2] [4] [21]: • circular design: in order to be restorative and regenerative by design, circular economy addresses the recovery of materials not only at the end of use. Consequently, companies need to build skills in circular design to improve product reuse, remanufacturing, recycling and cascading.


Some important areas for success in this field are material selection (e.g. mono-material products, or at least components), modular products, standardized components, design for disassembly and design-to-last; • new business model: changing from ownership to usageand/or performance-based payment models is essential to give a boost to companies in design-to-last products. By prioritizing access over ownership, consumers become users and manufacturers retain the goods’ ownership, selling the function (solution) instead (servitization). In a service economy, materials are treated as capital assets rather than as consumables. Consequently, they are designed for durability or more intensive use [9]; • reverse cycle: in order to create value from materials after their use, reverse logistics allows the collection of used products. In several cases reverse supply chains and second hand markets do not exist yet and they must be developed from greenfield for circular economy to happen; • enablers and system conditions: financing, education, crosscycle and cross-sector collaboration but especially digital technologies are needed in order to help the transition. Since circular economy envisages a shift from a salesoriented business model to a function (or solution) oriented one, a switch in the PSS offering is required. For instance, car sharing is usually indicated as a circular economy solution for the mobility sector [22], where firms do not sells cars but instead offer turnkey solutions through a use-oriented PSS scheme [23]. Car2go is a practical example of a B2C car sharing business model in which cars can be taken and left at any place within the city area (point to point model) and users are charged with a price-per-minute fee [23][24]. 3.Reshaping the washing machine industry The research project discussed in this paper focuses on the washing machine (WM) industry for several reasons. First, WMs reflect all the characteristics that make a product suitable for a PSS: they are relatively expensive and technically advanced; require maintenance and repair; relatively easy to transport; used infrequently by customers and fashion insensitive [19]. Second, PSSs are the sustainable strategy suggested when the usage phase of a product is predominant [25]: for WMs, the utilization phase affects more than the 60% of the Total Cost of Ownership [26] and its environmental impact is much higher than the production and transportation stages [27]. Third, WMs have large chances of environmental improvement: even though customers’ choice is mainly driven by price (instead of energy or water consumption) [28], publicizing information about WMs Life Cycle Costs to customers brings them to opt for products with less energy and water consumption [29]. However, this seems not to increase the sales volume, making this disclosure potentially unattractive from a business perspective. The suggested actions to develop a circular economy business model for WMs, built around the four building blocks mentioned in section 2.3, are presented below.

3.1.Circular product redesign According to Bocken et al. [30], manufacturers can (1) slow the resource flow through the design of longer-life products or the extension of the product-life, but can also (2) close the resource loop, through the design of products easy to reuse and recycle. Consequently, one or more of the following strategies can be chosen: • design for attachment and trust, which aims to create WMs that will be loved, liked or trusted longer by users, encouraging them to be careful with the product and thus postpone its replacement, since they will feel personally attached to it [30]; • design for reliability, which aims to enhance the ability of the WM to perform its function over a longer period of time without failing [31], e.g. through the performance of failure mode and effect analysis [32]; • design for durability, which aims to develop WMs that will last as long as possible [30], for instance by designing all components with the same expected life and thus avoiding the discard of the entire WM when only one component fails [32]; • design for serviceability, which aims to enable or facilitate the provision of WM related services during its usage phase, especially maintenance, repair or software and technical upgrading [30][31], for instance by locating the parts with the highest risk of failure (or requiring upgrade) in easily accessible place [32]; • design for standardization and compatibility, which encompasses the creation of WM with parts or components that fit other products as well [30]; • design for disassembly and reassembly, which ensures an easy separation of the WM parts and components, particularly with the aim to make refurbishment, maintenance, remanufacturing and recycling an easier, quicker and cheaper option to waste [30][33], e.g. through the reduction of the number of components or separate fasteners [32]; • design for End-of-Life, which aims to reduce the environmental and the economic impact of the WM end of use and to facilitate its reuse or recycle activities [30] [31], for instance by manufacturing WM subassemblies with the same or a compatible material [32]. 3.2.Establishing a new business model: Sharing, Pay per useperformance, Leasing of refurbished WMs Considering an average utilization of domestic WMs of 165 wash cycles per year [34], with an average duration of 2 hours per cycle, a WM is utilized less than 4% of its available time. Likewise, considering that an average European household washes around 700 kg of laundry per year [35], the average capacity utilization is around 60% (compared to a theoretical output of 1,155 laundry kg per year obtained multiplying 165 cycles/year with the average load drum capacity, 7 kg/cycle). Combining the two results above, an average WM produces each year a laundry output below 2.5% of its theoretical output. In order to increase this poor utilisation rate, one (large and top

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quality) WM could be shared among various households. For instance, a block of flats could install a common washing area, where WMs could be used by all condominium inhabitants. At present, almost 100% of WMs are sold in a traditional way [2]. However, the ownership of a physical good requires to take it home, install it, purchase detergents and maintain it when it breaks down. A new pay-per-use or pay-perperformance business model can be set up, in which the output generated is billed instead of the product ownership. This approach is commonplace in other sectors, such as business printers and multi-function photocopying machines [3][36]. To be successful, this approach requires the supplier to provide a full set of services “included in the bill”, like consumables (energy, water, detergents), a full lifecycle 24-7 machine service and customer support, with an end-of-life or end-ofservice product recycling or disposal. Given the low utilization mentioned previously, WMs are still available for use after 10 years in operation (a standard life at the customer’s [35]), hence parts or entire products could be reused. Unfortunately, it is acknowledged that in the European market, while 30-40% of end-of-life WMs is collected, not more than 10% of them gets refurbished [2]. As an alternative, a top quality WM could be leased, following the pay per use scheme, for 4 sequential 5 years terms [2]. After each term, the machine could be reconditioned by checking and changing the 2-3 most critical (or worn-out) components, if needed, and upgrading the control firmware with the latest version, in a way to incorporate up-to-date energy and water saving washing programs. 3.3.Reverse cycle: supply chain redesign The actions described in 3.2 require a redesign of the WM supply chain, in order to facilitate and encourage the return of products from the user to the manufacturer. To do so, three main processes must be established [36]: the (1) acquisition process, in order to collect the right volumes of products or materials of the right quality and for a reasonable price, the (2) recovery process, which aims to refurbish, remanufacture or, at least, recycle the products and materials collected and the (3) remarketing process, in order to find markets that want to buy the recovered products. Moreover, also spare logistics can be redesigned, given demand lumpiness and point of use geographical dispersion. For these reasons, the level of service frequently fails to meet the final customer’s expectations, while stocks (and connected inventory costs) skyrocket. Harnessing big data and related analytics (see 3.4) together with more focused logistics tools can sharply increase the spare parts supply chain’s efficiency and effectiveness. These tools could be: • spares classification, which aims to identify different classes that should be planned in a customized way [37]; • spares demand planning and forecasting, which could be obtained both by extrapolating data from past demand dataset [38] [39] or by establishing fault models that link the components’ probability of field failure to appropriate drivers [40];

• spares geo-localization and stock in transit planning, which enables the monitoring of spares in each supply chain tier and enhances the planning of spares-in-transit, especially through algorithmic approaches like [41]. 3.4.Technology as enabler: Internet of Things, Cloud support, Big data & analytics WMs and other white goods are typically conceived as static pieces of stand-alone hardware. However, the Internet of Things (IoT) [42] allows several opportunities such as diagnostic data generation, remote control and service, single user access, metering, payment and firmware updating. Moreover, the current way to support WMs in field is through a (direct or indirect) network of service providers. Although well-established, this operating model has several limitations, such as the requirement of repairmen close to customers or the inadequacy of small operators due to a lack of competence. By generating and sharing in the cloud the analytic machine technical data, a community of professional repairman can be established. Thus, when a failure occurs, users or directly machines can place a service request in the net and, after the intervention, the service quality of the involved repairman could be rated by the user through an appropriate platform. This community could encompass both professionals as well as part-time practitioners with appropriate competence, increasing the job opportunities e.g. for workforce previously active as blue collars in manufacturing firms that have laid them off. Once a large amount of smart and connected WMs is in operation, a vast volume of data will be generated, regarding machine type, ownership and location, utilization and functioning status, diagnostic data, metering of main consumables (energy, water, or detergents), login access and usage by single users and their respective bills, repairmen or service providers connected. These data should be stored in an appropriate data repository in the cloud, from where they can be retrieved in order to support the development of predictive analytics, for instance to forecast the future statuses of the WMs, and consequently the future needs of maintenance and repair activities, as well as spare parts. 4.Results and discussion The actions envisaged in Section 3 should not be considered individually, since major benefits come from a combination of them [2]. For instance, the IoT technology can enable a pay per performance business model where the manufacturer leases top quality WMs and retains their ownership. Thus, the manufacturer has the incentive to design long lasting and highly efficient products and to collect them when they reach the end of use. Consequently, the competition shifts from price to value. Although several combinations of actions are possible, this paper tries to give a preliminary idea about the potential impact of a circular economy transition. Few among the possible benefits of the actions described above are roughly estimated hereafter, based on very preliminary data. For instance, households can indirectly benefit from (1) a reduction of the

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washing cost, while environment and society as a whole can benefit from (2) total savings in water and energy consumption and from (3) a reduction of the amount of scrap generated at the end of life. The expected impact of these three benefits was estimated for Germany, France, United Kingdom and Italy, since these four countries boast nearly 60% of the European household WM installed base [34]. Table 1 and 2 summarize respectively an educated guess of the electricity and water data for the current installed base (based on [34]) and for the average best in class WM (based on [43]) that a hypothetical dealer could provide to households under a pay per performance scheme. Some adjustments were made to take into account the country average household size [44]. Detergents typically have a significant impact on costs too [26], but their consumption was not taken into account since it depends more on user habits rather than on the type of WM [27]. Table 1. Detail of the WM electricity consumption Country

Germany France UK Italy

Wash cycle per yeara wash cycle 160 165 165 170

Current energy consumptiona kwh/wash cycle 0.87 0.94 1.14 1.05

Best in class consumptionb

Electricity pricec

kwh/wash cycle 0.45 0.45 0.45 0.45

€/kwh 0.295 0.165 0.215 0.245

Source: own calculation based on a[34], b[43], c[45] and [44]

Table 2. Detail of the WM water consumption Country

Wash cycle per yeara wash cycle

Current water consumptiona liter/wash cycle

Germany

160

57

Best in class consumptionb liter/wash cycle 45

France

165

60

45

2.16

UK

165

60

45

1.63

Italy

170

63

45

0.40

Water pricec €/m^3 2.26

Source: own calculation based on a[34], b[43], c[46] and [44]

Table 3. Yearly saving for a single household

Germany France UK Italy

Current energy and water cost per year €/year 61.68 34.72 40.61 29.27

Best in class energy and water cost per year €/year 37.51 28.29 28.07 21.80

Table 4. Total yearly energy and water saving for each country Country

Number of WMsa

Total energy saving

x1000

Twh/yr

%

Germany

37,165.9

2.50

France

23,787.3

1.92

UK

23,774.5

Italy

22,145.1

Share of the electricity generation

Total water saving

Share of the public water abstractionc

%

0.49

km^3/y r 0.071

0.47

0.059

1.07

2.71

0.89

0.059

1.01

2.26

0.80

0.068

0.72

b

1.40

Source: own calculation based on a[34], b[47], c[48]

Finally, Table 5 shows the current collection rates of large household appliances for the selected countries [49], under the assumption of a purely replacement market. On average, only 30% of appliances put on the market are currently collected. Even though providing an accurate estimation of the collection rate for the supposed circular scenario is difficult, we can assert that it may asymptotically tend to 100%, since manufacturers retain the WM ownership. Table 5. Large Household Appliances (LHA) collection rate (2013) Country

LHA put on the market Tonnes

LHA collected from households Tonnes

Current collection rate %

Germany

762,654

248,618

32.6

France

908,067

263,338

29.0

UK

739,247

255,406

34.5

Italy

482,864

107,305

22.2

Source: own calculation based on [49]

From a single household point of view, the estimations projects a yearly saving ranging from 18.5% in France, where the electricity price is considerably lower than other countries, up to 40% in the case of Germany (Table 3). On average, households can reduce their washing cost by almost 30%.

Country

(e.g. oil, carbon, gas) used for the electricity generation, in a way that depends on the country energy mix. Moreover, the total water saving can amount to 0.26 cubic kilometres per year, about 1% of the total water abstraction for public water supply of the selected countries [48]. The results, detailed for each country, are depicted in Table 4.

Single household total saving % 39.2 18.5 30.9 25.5

From a national point of view, moving towards a circular scenario allows, under the condition that all households have chosen the new business model, to a total energy saving of almost 9.4 terawatt hour per year. This figure accounts for around 0.62% of the total electricity generated in 2014 in these countries [47], reducing the pressure on non-renewable sources

5.Conclusion and future research This paper provides a set of actions aiming to reshape the WM industry and an estimate of some relevant impacts. These results contribute to bridge the lack of knowledge and reduce the uncertainty that characterizes circular economy at least for this particular case, helping stakeholders to start the transition towards a more circular scenario. For instance, WM manufacturers may use the information about the washing cost savings in order to define the pay per performance fee in a PSS scheme. Moreover, policy makers may use the total electricity and water savings estimate in order to set supportive incentives and legislation. However, all the figures reported above are based on reasonable but still preliminary assumptions, and thus can provide only approximate information. Furthermore, aspects such as the relation between wash cost, drum capacity and WM load size, consumer habits or simply what could happen to WM sales, are all factors that have not been fully considered and,

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