for implementing circular economy approach in an...
TRANSCRIPT
Modelling and analysis of cost based economic performance for implementing Circular Economy approach in an
industrial production system
NINA HASKOVEC
Master of Science Thesis 2016.691
Industrial Production Engineering and Management
Supervisor
Amir Rashid
Examiner
Lasse Wingård
SE-100 44 STOCKHOLM
ii
Abstract The concept of Circular Economy has been around since the seventies but the principles
described by it are ancient. For centuries people mended and re-mended their belongings
keeping the use of virgin resources at a minimum. Then came the industrial revolution and the
linear take-make-use-dispose philosophy was born. Circular Economy aims at closing the
material loop, retrieving and conserving our natural resources. The benefits of this transition
are being widely discussed but still few are measuring the economic performance of these
closed loop systems.
This thesis goal was to examine the cost based economic performance of a manufacturing
system where Circular Economy is implemented. The second objective was to identify high
level Key Performance Indicators to measure other aspects of performance. The first step was
to scout the body of knowledge of the field, consulting both scientific reports and collecting
qualitative information through interviews with business experts. A model was then developed
based on the gathered knowledge. By modelling the product life cycle cost for three predefined
scenarios a series of cost data could be studied. The results of the analysis showed that the
economic performance of a closed loop system could improve when compared to a linear one,
if the system was designed with the principles of Circular Economy taken into consideration.
To fulfill the second objective, economic performance, environmental impact and resource
conservation was defined as three high level indicators of performance. Based on the results it
was concluded that the performance of Circular Economy can and should be measured.
iii
Sammanfattning Cirkulär Ekonomi är ett koncept som myntades någon gång på sjuttiotalet, men de
bakomliggande principerna är äldre än så. I åratal har människor minimerat
råvaruanvändningen genom att laga och reparera sina tillhörigheter. Sen kom den industriella
revolutionen och den linjära ekonomin var ett faktum. Inom Cirkulär Ekonomi är målet att sluta
materialens kretslopp genom att återanvända och återgenerera våra naturresurser.
Möjligheterna med denna övergång diskuteras ofta men få undersöker hur de ekonomiska
faktorerna påverkas av dessa slutna system.
Det här examensarbetets mål var att undersöka nyckeltal kopplade till kostnader för ett
tillverkningssystem där Cirkulär Ekonomi implementerats. Ett andra mål sattes för att utforska
ytterligare nyckeltal som är lämpliga för att mäta Cirkulär Ekonomi. Det första steget i arbetet
var att undersöka kunskapen som redan existerar om detta ämne. Detta gjordes genom att både
konsultera vetenskapliga rön samt genom strukturerade intervjuer där kvalitativ information
från experter på området samlades in. Modellen som senare utvecklades var baserad på denna
information. Genom att modellera en produkts livscykelkostnad för tre fördefinierade scenarion
kunde därefter de resulterande kostnaderna studeras. Resultatet av analysen visade att det
kostnadsbaserade nyckeltalet kan förbättras för ett cirkulärt system, jämfört med ett linjärt, om
principerna inom Cirkulär Ekonomi tas i beaktning när systemet utformas. För det andra målet
definierades miljöpåverkan och resursåteranvändning som två nyckeltal på hög nivå som
tillsammans med ekonomiska nyckeltal kan användas för att mäta effekterna av Cirkulär
Ekonomi. Baserat på detta är slutsatsen att nyckeltal i cirkulära system kan och bör mätas.
iv
Acknowledgements The first person I would like to thank is my supervisor Mr. Amir Rashid at Industrial Production
and Management, who without his guidance, support and knowledge this thesis would not have
been possible. I also thank Mr. Michael Lieder and Mr. Farazee Mohammad Abdullah Asif
both at Industrial Production and Management who have given me their time for discussions
and support.
Two interviews were performed for this thesis and lastly I would therefore like to thank Erik
Pettersson at Inrego AB and Katarina Grönhaug and Eva Karlsson at Houdini Sportswear AB
for their time and highly valued answers on matters concerning the implementation of Circular
Economy in a business.
v
List of Abbreviations CE – Circular Economy
BaU – Business as Usual
EoL – End of Life
EU – European Union
GDP – Gross Domestic Product
IT – Information Technology
KPI – Key Performance Indicator
OEM – Original Equipment Manufacturer
RCS – Resource Conservation Strategies
RCL – Resource Conservation Level
SME – Small Medium Enterprise
USD – United States Dollars
VP – Value Proposition
vi
List of Figures and Tables Figure 1. Comparison of different Resource Conservation Strategies to manufacturing with respect to
economy, value recovery, energy consumption and environmental damage (Asif, 2011) ...................... 6
Figure 2. The different levels of value conservation in Circular Economy, the size of the loop show level
of value conserved. Small loops conserve higher levels of value than large ones (Ellen MacArthur
Foundation, 2013) ................................................................................................................................... 6
Figure 3. Level of value recovery for the three different RSA used in this study and their connections to
Refurbishing ............................................................................................................................................ 7
Figure 4. The ResCoM business model summarised: RCL0 - product with resource conservation level
zero i.e. New RCP branded product; RCLi - product with resource conservationlevel, i=1, 2, 3... i.e. the
RCP branded product (or components in it) with 2nd, 3rd, 4th .... designed lifecycle. The dotted lines
represent the information links (Rashid, et al., 2013). .......................................................................... 10
Figure 5. The circular product life cycle ............................................................................................... 25
Figure 6. Bar diagram showing the contribution of each stage to the total life cycle cost for cases in
scenario 1 and 2 ..................................................................................................................................... 41
Figure 7. Cost differences for each stage. Positive values indicate that the Buy Back case has a decreased
cost compared to BaU. Negative values indicate that the Buy Back case has an increased cost compared
to BaU. .................................................................................................................................................. 42
Figure 8. Bar diagram showing the contribution of each stage to the total life cycle cost for cases in
scenario 1 and 3 ..................................................................................................................................... 43
Figure 9. Total life cycle cost for cases at scenario 2 and 3 at RCLi and scenario 1. The total cost is
plotted as function of production cost per product, with a batch size of 1000 products. ...................... 44
Figure 10. Revenue streams for linear economy, buy back and leasing. ............................................... 49
Table 1. List of attended seminars ........................................................................................................... 3
Table 2. List of interviews ....................................................................................................................... 4
Table 3. Level of detail in cost estimation adapted from (Liu, et al., 2009; Zwickera, et al., 2016) ..... 12
Table 4. Components of a business model as defined by literature ...................................................... 15
Table 5. Different Value Propositions in Circular Economy divided after how the main product is used,
adapted from (De Jong, et al., 2015) ..................................................................................................... 17
Table 6. Different cost structures when modelling product life cycle cost ........................................... 32
Table 7. List of scenarios ...................................................................................................................... 33
Table 8. Cost Elements of the type activity. Producing 1000 products ................................................. 33
Table 9. Cost elements of the type cost per product or tonne. .............................................................. 34
Table 10. Miscellaneous cost elements ................................................................................................. 34
Table 11. Cost variations for scenario BuyBack 30% return rate compared to scenario 1 ................... 36
Table 12. Cost variations for scenario BuyBack 60% return rate compared to scenario 1 ................... 37
Table 13. Cost variations for scenario BuyBack 90% return rate compared to scenario 1 ................... 37
Table 14. Cost variations for scenario Leasing compared to scenario 1 ............................................... 38
Table 15. Cost data for all cases in Buy Back and BaU. Difference row presents the cost increase or
decrease compared to case BaU. ........................................................................................................... 40
Table 16. Cost data for all cases in Leasing, Difference row presents the cost increase or decrease
compared to case BaU ........................................................................................................................... 43
Table 17. Different cost structures when modelling product life cycle cost ......................................... 46
vii
Table of Contents
Abstract ...................................................................................................................................... ii
Sammanfattning ........................................................................................................................ iii
Acknowledgements ................................................................................................................... iv
List of Abbreviations .................................................................................................................. v
List of Figures and Tables ......................................................................................................... vi
1. Introduction ............................................................................................................................ 1
1.1 Background .................................................................................................................. 1
1.2 Aim ................................................................................................................................... 2
1.3 Objectives ......................................................................................................................... 2
1.4 Delimitations .................................................................................................................... 2
2. Research Methodology ........................................................................................................... 3
2.1 Theoretical Study .............................................................................................................. 3
2.2 Empirical Study ................................................................................................................ 3
3. Framework ............................................................................................................................. 5
3.1 Circular Economy ............................................................................................................. 5
3.2 Product Life Cycle Cost Estimation ............................................................................... 11
3.3 Business model components in Circular Economy ........................................................ 15
4. Life Cycle Cost Modelling ................................................................................................... 24
4.1 Circular Product life cycle .............................................................................................. 24
4.2 Cost Breakdown Structure .............................................................................................. 25
4.3 Separation of Resource Conservation Levels ................................................................. 31
4.4 Distribution of Costs ....................................................................................................... 32
5. Modelling Scenarios ............................................................................................................. 33
5.1 Scenario 1: Business as Usual ........................................................................................ 34
5.2 Scenario 2: Buy Back ..................................................................................................... 34
5.3 Scenario 3: Leasing ........................................................................................................ 38
6. Modelling Results ................................................................................................................ 40
6.1 Scenario 2: Buy Back ..................................................................................................... 40
6.2 Scenario 3: Leasing ........................................................................................................ 42
6.3 Sensitivity analysis ......................................................................................................... 44
7. Modelling Analysis .............................................................................................................. 46
7.1 Cost Structure ................................................................................................................. 46
viii
7.2 Maintenance for Circular Economy products ................................................................. 47
7.3 Resource Conservation Levels ....................................................................................... 48
7.4 Return Rates ................................................................................................................... 48
7.5 Margins ........................................................................................................................... 49
8. Key Performance Indicators ................................................................................................. 50
8.1 Definition of a Key Performance Indicator .................................................................... 50
8.2 Economic Performance ................................................................................................... 50
8.3 Resource Conservation ................................................................................................... 50
8.4 Environmental Impact .................................................................................................... 51
8.5 Analysis of the Key Performance Indicators .................................................................. 51
9. Conclusion and Future Work ............................................................................................... 53
References ................................................................................................................................ 54
Appendix 1 – Interview Questions
Appendix 2 – Detailed Cost Data
1
1. Introduction This report is a master thesis conducted at the Royal Institute of Technology, KTH, during the
spring and summer of 2016. It is the result of work performed during the final phase of the
engineering program Design and Product Realization. The author of this thesis was enrolled in
the master program Production Engineering and Management. The thesis was performed at the
department of Production Engineering, a part of the school of Industrial Engineering and
Management, ITM.
1.1 Background Today mass production is an important source of income for many countries in the world.
According to The World Bank approximately 37 percent (3 507 billion USD) of the GDP for
China came from the value added through manufacturing in 2013. In Sweden, where industrial
production has been viewed as an important part of the economy for a long time, manufacturing
accounted for 17 percent (86 billion USD) (The World Bank, 2016).
The effectiveness of the manufacturing industry is constantly increasing and since many
business models of today are built on a linear take-make-use-dispose scenario the demand of
new goods will continue to increase (Lieder & Rashid, 2016). As a result of this mentality
resource scarcity is becoming an increasing problem with volatile resource prices as a direct
consequence (Ellen MacArthur Foundation, 2013). With the goal of turning this development
around and transforming our linear economies into circular, efforts have begun in investigating
how these resources can be retrieved and reused, creating a Circular Economy.
The concept of Circular Economy is difficult to trace back to a specific author or report.
However, in the late 1970 the implementation of the concept began in the industrial and
economic sector (Ellen MacArthur Foundation, 2013). During the last decade the awareness of
the benefits occurring when closing the loop has increased (Ghisellini, et al., 2016).
In the end of 2015 the European Commission adopted a new action plan for Circular Economy.
The Commission identifies stakeholders such as business and consumers as key drivers for this
change, but acknowledges that the EU has an important supporting role and can induce change
through financial support and legislations (European Commission, 2015).
According to the Ellen MacArthur Foundation (2014) one of the key objectives in order to get
circular economies of large scale is identifying high quality materials where the cycle is possible
to close. The second objective identified is to catalyze mechanisms to facilitate efficient
material flows, quantifying the economic impact and secondary benefits for the stakeholder.
In general the scientific body of knowledge discussing the environmental impact of Circular
Economy is larger than the one for economic performance. At the same time measurements of
the economic performance for linear systems are constantly refined. Working towards the
second objective, it is clear that in order to demonstrate the potential benefits of Circular
Economy to stakeholders we have to start measuring the economic performance.
2
1.2 Aim
The aim of this thesis is to develop a model that can be used for understanding the cost based
economic performance of a closed loop manufacturing system, demonstrating the potential
benefits with Circular Economy for Original Equipment Manufacturers. It also aims at
investigating further possibilities of measuring performance of Circular Economy, CE.
1.3 Objectives Two research questions have been formulated for this thesis. They both seeks to investigate
how to measure the performance of Circular Economy, with the first one focusing on cost based
economic performance while the second considers broader perspective.
R1: How can the cost based economic performance of a manufacturing system be modeled
when the loop is closed and reuse, remanufacturing, recycling and scrap/landfill are possible
scenarios at End of Life.
When measuring economic performance there are a variety of indicators to choose from. The
more well-known measurements of economic performance are profit, revenue and cost. For this
thesis the cost based economic performance will be used.
R2: Which are the generic Key Performance Indicators necessary to model the performance of
a closed loop manufacturing system?
Apart from studying the cost based economic performance in detail this thesis aims at
identifying other generic high level KPIs that, in addition to the cost based economic
performance, can be used for estimating the performance of Circular Economy.
1.4 Delimitations
There are three different levels of implementing CE, micro; meso and macro. Ghisellini (2016)
explains micro level implementation as the adoption of Circular Economy programs in the
production sector. The meso level involves purpose-built facilities where industries work
together in Eco-Industrial Parks to generate economic and environmental performance (so
called “industrial symbiosis”). On macro level Circular Economy is implemented in larger
systems such as cities or regions. This involves redesigning the industry, the infrastructure, the
cultural framework and the social system.
In this thesis the implementation of CE will be on micro level, focusing on the implementing
Circular Economy strategies and principles in OEMs defined as Small Medium Enterprises
(SME).
Resources looped in Circular Economy are divided in biological and technical cycles where the
bio-cycle is regenerative and the technical nutrients are recovered and restored. In this thesis
only business models and life cycle strategies concerning the technical cycle will be discussed.
3
2. Research Methodology The research methodology followed in this thesis consists of two main parts, a theoretical and
an empirical study. These studies were conducted in parallel providing a substantial amount of
information from different points of view. The first part was focused on scouting the scientific
body of knowledge in order to get an orientation of the subject. In addition to this the empirical
study served as a way of gaining knowledge from business experts in the subject of
implementation of Circular Economy in existing processes. A series of scenarios were also
attended in order to further expand the empirical study.
In the following sections the theoretical and empirical studies will be described in detail.
2.1 Theoretical Study
The theoretical part of this thesis is based on knowledge gathered mainly by consulting books,
journal articles and scientific reports. In some cases news articles and websites have been used
as source. Initially the keyword “Circular Economy” was used to gain an understanding of the
field. Later in the search process keywords such as “closed loop production”, “circular business
model” and “economic performance” were added. A majority of the searches was made using
Primo (scientific database provided by KTH-library) with Google Scholar as compliment.
For providing examples from business cases, the interviews from the empirical study has been
used as input. The empirical part will be presented in detail below.
2.2 Empirical Study In order to get a deeper understanding of the concept of Circular Economy an empirical study
was performed. This study was divided in two parts with the first part consisting of attending
seminars discussing the future of Circular Economy in Sweden. The aim for the second part
was to gather qualitative information concerning actual implementation of Circular Economy
through structured interviews with business representatives.
2.2.1 Seminars
In total four different seminars were attended by the author. The seminars were held in Swedish
and they all took place in Stockholm, Sweden during the spring and early summer of 2016. In
Table 1 a list of the seminars can be found.
Table 1. List of attended seminars
Name of seminar Organizer Place Date
Beyond BNP growth KTH KTH 2016-04-12
Circular Business models U&We United Spaces 2016-04-14
Circular Fashion CradleNet KTH 2016-05-18
Circular Industry Syntell AB and CradleNet Syntell AB 2016-06-01
Even if the seminars are not referenced to in this thesis report the information gathered from
them have resulted in new knowledge used when scouting scientific reports. It has also been an
invaluable method of getting in contact with experts in the field of Circular Economy.
4
2.2.1 Interviews
To gain a deeper understanding of the performance of Circular Economy structured interviews
with business representatives were conducted. When selecting suitable companies, the main
criteria was that some part of the business had implemented CE in the process. In total two
structured interviews were performed with a duration of 30-45 minutes each. Question sheet
for the interviews can be found in Appendix 1. The interviewed are presented in Table 2 and a
short description of each company will follow.
Table 2. List of interviews
Company Name Position Date
Inrego AB Erik Petterson Sustainability
Manager
2016-03-21
Houdini Sportswear AB Katarina Grönhaug
Eva Karlsson
Production Manager
Managing Director
2016-04-07
Both companies have CE thinking in their processes, Inrego as a third party and Houdini as an
OEM. The representatives were contacted by email and the interviews took place at the
company.
Inrego AB
Inrego AB is buying and selling professional IT equipment with a base in Täby, Sweden. They
only buy from professional users and offer certified erase of information as a service. The
refurbished equipment is then sold to companies, municipalities and resellers of IT-equipment
abroad. By collecting used IT equipment Inrego AB has implemented CE principles and as a
third party they aid in closing the loop.
Houdini Sportswear AB
Houdini Sportswear AB is an OEM of high end outdoor clothing. Sustainability has always
been important since the customers are found amongst people enjoying outdoor activity.
Because of this they have implemented a series of measures towards Circular Economy offering
rental clothes, second hand, and repair of used garments. They also work with limiting their
materials library in order to easily recycle clothes.
The information gathered from the interviews has been used as input to the theoretical study,
providing examples from business cases. When referenced to the information from the Inrego
interview, it is found in reference (Pettersson, 2016) and the information from the Houdini
interview is found in (Grönhaug & Karlsson, 2016).
2.2.3 Validity, Objectivity
The validity and objectivity of the interviews are questionable since interviews will only show
the selected companies point of view. Though these answers are not claimed to be generalizable
and will be used only as an example of current business practice it is important to be aware that
there might be other businesses where the answers would have differed.
5
3. Framework This chapter presents the knowledge gathered from the theoretical and empirical studies
undertaken for this thesis. It starts by presenting an orientation of Circular Economy and
concepts associated with the field, from the strategies used to recover value to how to measure
CE performance. Then the product life cycle and cost associated with it will be examined. Lastly
the business model design of Circular Economy will be analyzed in detail.
3.1 Circular Economy
In this part different parts of the concept Circular Economy relevant for this thesis will be
examined in detail. Starting with a short introduction to define the concept, thereafter
investigating the strategies used to recover resources. Then the Resource Conservative
Manufacturing framework will be explained. Lastly the measuring of Circular Economy
through Key Performance Indicators is investigated.
There are many definitions of Circular Economy but the Ellen MacArthur Foundation (2013)
defines it as“an industrial economy that is restorative or regenerative by intention and design”
This definition is considered by Lieder and Rashid (2016) as comprehensive as it includes both
environmental and economic benefits. The material cycles are separated by the Ellen
MacArthur Foundation into biological and technical, where the bio-cycle is regenerative and
the technical nutrients are recovered and restored.
3.1.1 Resource Conservation Strategies
When the product has reached the end of the current life cycle one of the Resource Conservation
Strategies (RCS), Reuse, Remanufacturing and Material Recycling, can be used to restore
value. The strategies can conserve different amount of value depending on the need of resources
to make a functional product. Resources can be labor, energy, materials. Each of these strategies
saves and induces costs to the product life cycle.
There are multiple models available showing the amount of value conserved by the Resource
Conservation Strategies. Figure 1 and Figure 2 show two different approaches.
6
Figure 2. The different levels of value conservation in Circular Economy, the size of the loop show level of value conserved.
Small loops conserve higher levels of value than large ones (Ellen MacArthur Foundation, 2013)
Figure 1. Comparison of different Resource Conservation Strategies to manufacturing with respect to economy,
value recovery, energy consumption and environmental damage (Asif, 2011)
7
In the model developed by the Ellen MacArthur Foundation (2013) the RCS Remanufacture is
coupled with Refurbish. In the model by Asif (2011) Refurbish is not mentioned. Refurbishing
is widely used in construction for updating built environments, it is also a term used by
companies selling used electronics (Shah, 2012; Apple Inc., 2016). Refurbished products from
Apple is given a one-year warranty and are said to be “as good as new”. Refurbishing for Apple
involve testing and if necessary repairing.
In Figure 2 the tighter loops preserve more value than the larger ones, the goal is to keep the
resources within the cycles but if necessary it might be sent to energy recovery or landfill. In
Figure 1, three additional factors are added demonstrating the economical, energy, and
environmental damage of the three RCS, adding manufacturing as well for comparison purpose.
In this study three different Resource Conservation Strategies will be studied with Refurbish as
a compliment that can be used at any level as shown in Figure 3 .
Figure 3. Level of value recovery for the three different RSA used in this study and their connections to Refurbishing
Refurbishing will be defined as a process that is used for checking, testing, repairing and
updating the product by replacing parts. When the product has been collected it will be named
as a core. The core will then be used according to one of the RCS for making new products.
Reuse
Humans have been reusing products in small scale for a long time, by first repairing them or
reusing them as they are. Today reusing happens at a larger scale through second hand stores
or through selling consumer to consumer online. Reuse at an industrial scale is rarer but as our
consumption increases so does the incentives for reuse as resource scarcity becomes a problem.
Reuse at a large scale can be performed by selling the cores in the state they are collected or as
described by Galbreth (2013) remanufacturing to original specifications or upgrading by
replacing components that have experienced innovation since the original product was
manufactured.
For products where the market moves fast and the innovation rate is high reuse is a validated
way of saving resources. In general reuse has a positive impact on the environment but a
conflicting impact is also received when the products that are being resold increase the overall
demand. This would result in an increased consumption (Galbreth, et al., 2013). Therefore,
8
redesigning a product for reuse is a better alternative for the environment than creating an
increased demand by developing new products that should be reused.
Since the process of reuse can be labor intensive it is important to minimize the level of manual
work required. At Inrego AB in Täby, Sweden, the reuse process for professional IT-equipment
has been kept at the level of reselling the cores received without performing any repairs or
upgrades because of the high cost of labor. To increase their circularity Inrego has begun
collecting parts from the lower end, where the quality of the collected cores is too poor to be
directly resold. These parts are then put into middle tier quality cores that can then be resold as
high end. Keeping the manual work at a minimum while increasing the profit (Pettersson,
2016).
Important activities when using this Resource Conservation Strategy is to check and test the
cores. Therefore, refurbishing will be needed to ensure that the end customer does not receive
a defective product.
Remanufacturing
During World War 2 a large part of the raw material was used for manufacturing new war
equipment such as planes and tanks resulting in a depleted level of resources. This led to a need
for reusing automotive parts and remanufacturing was born in the U.S in 1940 (Association
Automotive Parts Remanufacturers, 2016).
With profit margins of 20 percent (Sabharwal & Garg, 2013), remanufacturing is an important
RCS. In general, the price of a remanufactured product is lower than that of a new, with the
possibility of attracting new customer segments. In addition to this, remanufactured products
may also be marketed as environmentally friendly, attracting new customer segments. Amongst
some customer segments though, there is still a disbelief in the quality and performance of these
products, a challenge companies have to overcome (Linton, 2008; Sabharwal & Garg, 2013).
This disbelief slows down the development, but there are other reasons for this as well.
Specifically for remanufacturing, Linton (2008) describes two main reasons. One is the
disbelief from management that remanufacturing is economically feasible, the other is the risk
of cannibalization on the sales of new products. However, the same study also points to the risk
of a third party seizing the possibility to remanufacture the OEMs product, leading to a lost
opportunity and competition. When remanufacturing their own products, the OEM can deny
the competitors this opportunity by cannibalizing on its own sales.
To be cost effective Sabharwal (2013) points out the need of a capable remanufacturing. The
old product should have a new like condition in terms of quality and design after the process is
completed.
The Resource Conservation Strategies reuse and remanufacturing are often argued to be labor
intensive, partly due to the need of manual processing when inspecting and disassembling the
cores (Mukherjee & Mondal, 2009). The potential work opportunities to be created by
implementing Circular Economy is widely discussed (Ellen MacArthur Foundation, 2013) and
in a study performed for The Club of Rome (Wijkman & Skånberg, 2015) the simulation shows
9
a possibility of creating 100000 new work opportunities in Sweden if all efforts towards CE are
combined. This potential is argued by researchers Williander and Sarasini (2015). They point
to the fact that the work opportunities might be created in a transition stage and after this the
industry will automate these processes as have been done with the manufacturing processes of
today.
Material Recycling
When speaking about circularity in OEMs of today, recycling is often mentioned as important
and most companies have processes in place to valorize waste by recycling scrap from the
production. Recycling can also be used as a method for recovering material at the product’s
EoL. There are two different types of material recycling, functional recycling and downcycling.
Functional recycling recovers the material to be used for its original purpose whilst
downcycling has a negative impact on the material quality and can be seen as downgrading
(Ellen MacArthur Foundation, 2013).
Large scale functional material recycling only happens for materials where the volume is large
and fairly homogeneous. This is true with many metals but as described by UNEP (2011)
approximately one third of the sixty ferrous and nonferrous metals addressed in the report is
recycled to 50 percent or more. For half of the metals less than one percent is recycled either
because the technology required to recycle does not exist today or because it is not economically
feasible. Even if recycling rates are high the value loss is also significant, for example the annual
loss for alumininum is estimated to be 15 billion USD (Ellen MacArthur Foundation, 2013).
Ellen McArthur Foundation (2013) also addresses the need of designing for circularity.
Recycling is often used as an afterthought, resulting in downcycling and loose cycles where
loss of material occurs.
3.1.2 Resource Conservative Manufacturing
While the Ellen MacArthur Foundation (2013) examines the potential benefits of Circular
Economy the Resource Conservative Manufacturing framework, ResCoM, developed by Asif
and Rashid et al. (2011; 2013) aims at concretizing and defining the system that would enable
CE to be implemented. ResCoM is a holistic approach to closed loop production where the aim
is to transform traditional waste management at EoL to value management throughout the
product life cycle. Key points of ResCoM are (Rashid, et al., 2013):
Products are designed with multiple lifecycles
Customers are part of the business enterprise
Forward and reverse supply chains are integrated in a single business enterprise
The uncertainty of the quality level or even if the cores can be successfully collected to begin
with are key challenges for CE implementation. In the ResCoM framework the length of the
product life cycle is predetermined, giving a possibility to foresee the collected core quality.
A separation is made between the new products and products produced using cores. These
levels are defined as Resource Conservation Levels (RCL) and are described in detail by Asif
(2011). There are two main levels the zero level, where new products are produced and the i:th
10
level where products are reused, remanufactured and recycled. The RCL0 and the RCLi (i=1, 2,
3…) production chains are controlled by the same OEM. As a way of marketing and separating
products at different levels, ResCoM suggests that the products should be labeled according to
the current level.
As these approaches will require customer collaboration the customers are an important part of
the ResCoM business enterprise. Perhaps even more than in linear economy and therefore this
has been specified in the second key point.
Since the forward and reverse supply chains required to enable Circular Economy will be
integrated in a single business enterprise, the ResCoM framework includes a new business
model illustrated in Figure 4, where the manufactured products are named RCP, Resource
Conservative Products.
Figure 4. The ResCoM business model summarised: RCL0 - product with resource conservation level zero i.e. New RCP
branded product; RCLi - product with resource conservationlevel, i=1, 2, 3... i.e. the RCP branded product (or components in
it) with 2nd, 3rd, 4th .... designed lifecycle. The dotted lines represent the information links (Rashid, et al., 2013).
Since the reversed and forward supply chains are usually separated, the inclusion of these
material flows in the same business model requires active participation by the OEM. This is
also the case for adding remanufacturing to the original manufacturing process. Although they
might be physically separated they will both be handled by the OEM which is usually not the
case today (Rashid, et al., 2013).
3.1.3 Key Performance Indicators
Establishing a set of Key Performance Indicators that can be monitored and used as target values
for the process is a key challenge. From a larger set of metrics the KPIs should consist of critical
metrics that can be measured on a regular basis (Kerzner, 2013).
11
There exist multiple definitions for KPIs but Kerzner (2013) dissects the concept in to its
individual parts as shown below:
Key: A major contributor to the success or failure
Performance: A metric that can be measured, quantified, adjusted and controlled.
Indicator: Reasonable representation of present and future performance
According to (Eckerson, 2006) a KPI can be defined as “a metric measuring how well the
organization or an individual performs an operational, tactical or strategic activity that is
critical for the current and future success of the organization”
Performance in Circular Economy
When it comes to Circular Economy Lieder & Rashid (2016) defines the CE framework to
encompass environmental impact, resource scarcity and economic benefits. It therefore seems
reasonable to define KPIs for CE in these sectors. A KPI for resource scarcity is to measure
circularity, the Ellen MacArthur foundation together with Granta Design developed a tool to
measure how restorative the material flow is (Ellen MacArthur Foundation, 2015).
Since having an effective reuse, remanufacturing or material recycling process is important, the
development of the process will generate an initial start-up cost. To bring the collected core
back to new-like condition requires a capable process (Sabharwal & Garg, 2013). The
operational costs will wary depending on the RCS used to recover value but as argued by Rashid
et al. (2013) the products should be developed to fit with these strategies to begin with. When
this is the case, the environmental and economic performance of the Resource Conservation
Strategies can be improved.
3.2 Product Life Cycle Cost Estimation The life cycle cost of a product means the money spent during the entire life cycle on
development, manufacturing, recycling etcetera. As compared to product price, which is the
monetary value paid by the customer to gain access to the asset.
Cost estimating should be performed during the entire product development process starting in
the concept stage. The main concerns with early cost estimation are the lack of information
available and the uncertainty when identifying influential factors (Aram, et al., 2014). These
concerns are also applicable in Circular Economy, maybe even more than in a linear context.
Cost estimations often rely on old data and the CE approaches are new in this context, this
means that there is less information. The influential factors will have certain similarities with
linear economy, with some additions due to the CE concept.
Life Cycle Costing (LCC) is the umbrella term used for estimating the costs occurring during a
product life cycle. It includes the costs of development, production, usage and retirement of an
asset (Asiedu & Gu, 1998). There are different methods in LCC and they are in general divided
into subcategories depending on approach. Qualitative approaches provide results that show if
one design alternative is better than another but does not show the absolute value. If the goal is
to present a quantitative value, then a quantitative approach should be used (Layer, et al., 2002).
12
One important aspect of the LCC is the level of detail of the costs presented. On the first level
the aggregation is high and only an overall cost for the stage is shown. In a total of three levels
the third will show detailed costs of separate tools whereas the second level shows the overall
tool cost for that stage (Zwickera, et al., 2016). The level of detail in the costs will affect how
accurate the cost estimation will be. Liu, et al. (2009) named the second aggregation level Cost
Members and the third is in general called Cost Drivers. An example of the levels of detail in
the Manufacturing stage is shown in Table 3.
Table 3. Level of detail in cost estimation adapted from (Liu, et al., 2009; Zwickera, et al., 2016)
Product Life Cycle Stage Cost Members Cost Drivers
Manufacturing Stage Material Cost
Production Cost
Facility Cost
Individual manufacturing
processes
For the model developed in this study costs at the middle level of detail will be concerned when
evaluating different Circular Economy business models with closed production loops.
Therefore, the following section will investigate which stages the product life cycle consists of.
3.2.1 Product Life Cycle Stages
To investigate the costs occurring in a closed loop manufacturing system the stages in the
product life cycle needs to be defined. Low et al. (2014) applies LCC on a closed loop
production system, generating seven stages to involve in a circular product life cycle. This cycle
is separated in two main parts, the main production and end of life. As the intention of Circular
Economy is to have closed loops the divided cycle should be adapted to fit in this context.
Procurement Stage
In the framework developed by Low (2014) the procurement stage involves the acquisition of
outsourced parts in the product. In a Circular Economy this stage should also involve acquiring
recycled, remanufactured or reused material from the company or possibly other actors.
Sustainable procurement is used to create sustainable supply chains and is also known as
Environmental Purchasing. The concept is defined by policies in the company promoting
recycling, reuse and resource reduction. Selecting recycled material in favor of new for the
manufacturing process (Winkler, 2011). One challenge for companies that work with CE
approaches, without having leasing agreements or other strategies for take-back, is how to
acquire material for the production. A solution to this is to establish a department within the
company working with this acquisition through targeted marketing and advertising (Pettersson,
2016).
Manufacturing Stage
The manufacturing stage involves the manufacturing of components and the assembly process
(Low, et al., 2014). In Circular Economy this stage should also involve remanufacturing. But
in many OEMs of today these two processes are separated even if they are part of the same
business enterprise (Rashid, et al., 2013). The ResCoM approach suggest one way of integrating
the remanufacturing by separating the manufacturing of the core product from the
13
remanufacturing of the collected cores. Thus creating a zero stage production named Resource
Conservation Level 0 (RCL0) and an i:th production chain named RCLi. These two chains
should be controlled by the same company in order to be coherent with the ResCoM approach
and is thus suited for an OEM (Rashid, et al., 2013).
Distribution Stage
In this stage the final product is packed and shipped to retailers or customers (Low, et al., 2014).
Transportation in Circular Economy is generally discussed terms of reversed supply chains, i.e.
collecting cores from customers and transporting them back to the enterprise (Ellen MacArthur
Foundation, 2013). For the initial distribution stage the infrastructure available will result in
possible transport solutions.
Infrastructure challenges mainly concern the macro and meso level of implementing Circular
Economy. Eco-Industrial Parks (EIP) earlier mentioned as a concept at meso level can have
several economic benefits where the indirect can be securing a supply chain and thus facilitating
the acquisition of material or direct as shorter transportation distances (Ghisellini, et al., 2016).
Successful projects can be found in various countries of which two are the Netherlands and the
United States (Aigbe, 2011). However, as argued by Veleva (2015) the EIPs of the 21st century
could be more about sharing infrastructure and knowledge than physical exchanges of goods,
energy, etcetera.
Since this study focus on single enterprises the concept of EIP will not be investigated further.
The Distribution stage will be considered as a transport from company to customer and though
it is advisable to use sustainable transportation methods in a Circular Economy the main focus
for transportation will be the strategies used to collect cores.
Usage or Service Stage
In this stage the product will be sold, used and serviced during the warranty period (Low, et al.,
2014). In CE the customer needs to be educated in how to use a product in a sustainable manner,
but maintenance or service might still be needed during the usage period.
The service can include maintenance agreements securing that the service will be performed or
repair services offered by the company or by a third party (De Jong, et al., 2015). For year 2017
the Swedish government budget bill suggests a reduction of the sales tax on repair of smaller
consumer products such as bikes and clothes. The aim of reducing the tax from 25% to 12% is
to promote the possibility of prolonging the product life cycle by repair and creating work
opportunities (Swedish Finance Ministry, 2016)
For the model developed in this report the usage stage will not include repairs performed by a
third party. It will only include possible maintenance agreements between the company and
customer integrated in the business model.
Collection Stage
Research in the field of closed loop supply chain speak about collecting waste from production
or EoL products for recycling (Accorsi, et al., 2015; Winkler, 2011). In Circular Economy,
recycling is considered as a lower level of value recovery and the Ellen MacArthur Foundation
14
promotes reuse and remanufacturing that facilitates recovery at a higher level (Ellen MacArthur
Foundation, 2013). These strategies require a different collection strategy.
The transport from company to customer has experienced a great deal of innovation. For
Circular Economy the transport from customer to company might be even more important.
Creating an infrastructure adapted to CE will aid in closing both regional and global supply
loops. The Ellen McArthur Foundation (2014) mentions several examples of successful closed
loops both regionally and globally, one is the global carpet manufacturer Desso that since 2008
has a take-back strategy to facilitate material recovery from end of use carpet tiles.
Different strategies for securing the collection of used cores will be further investigated in
chapter 3.3 Business model components in Circular Economy.
Processing Stage
In this stage the collected cores, it may be products or parts, are inspected and processed (Low,
et al., 2014). This stage will determine if reuse, remanufacturing or material recycling will be
deployed as value recovery method.
As noted by researchers in the field of Circular Economy (Asif, 2011; Rashid, et al., 2013) the
state of the collected core will impact how much value that is possible to retrieve. The
uncertainty of the quality level or even if the cores can be successfully collected to begin with
are key challenges for CE implementation. In the ResCoM framework developed by Rashid et
al. (2013) the length of the product life cycle is predetermined, giving a possibility to foresee
the collected core quality. In practice the business model in this case would need to involve an
agreement between consumer and company, securing the take-back of the product at a given
time. The topic is further discussed in chapter 3.3.1 Value Proposition.
Disposition Stage
In this stage the parts and products retrieved from the processing are distributed throughout the
value chain. Possible actions in the framework developed by Low et al. (2014) are as inputs for
reuse in the system, or forwarding to third parties.
In CE the disposition stage will distribute the technical nutrients to be put through the processes
of either reuse, remanufacturing or material recycling. It is important to note that, as earlier
mentioned, the quality of the processed core will determine which Resource Conservation
Strategy to deploy. Several of these strategies might be used for one collected core, as an
example IT equipment reseller Inrego (Pettersson, 2016) removes broken components to
recycling but reuses part of the core and refurbish it with functional parts.
3.2.2 Objectives of Cost Estimating
Cost estimating usually deals with time, performance of the process or cost and it is strongly
advisable to present a quantitative value when the objective has been defined. The cost
estimation will usually assist some form of decision-making and the following objectives are
described by Nasr and Kamrani (2007):
Assist in submitting bids and offerings
Assist when negotiating quotations from suppliers or customers
15
Assist when evaluating alternatives or strategies
Control of manufacturing expenses
Assist in if the product should be manufactured or outsourced
Establish ground for selling price to customer
This list is not exhaustive but provides an understanding of how wide the area of application is
for cost estimation. Other objectives described in literature are to investigate the cost of a robot
system at an early production stage (Zwickera, et al., 2016) or evaluating the cost of engineering
design when developing a product (Roy, et al., 2001). For this study the objective of assisting
when evaluating alternatives or strategies is suitable since different scenarios of implementing
Circular Economy will be compared to business as usual.
3.2.3 Cost Drivers and Members
The factors influencing the cost are called cost drivers and the cost drivers can be separated in
cost members. Each stage of the life cycle is comprised by a number of cost members, see Table
3 for reference. In the beginning of a LCC analysis the desired level of detail needs to be
specified and the cost elements to include needs to be identified. The accuracy of each element
should be noted and to be comparable the cost elements must have the same quality (Zwickera,
et al., 2016).
There is no universal LCC model that encompass all elements (Liu, et al., 2009) and therefore
each model will be case specific. The cost elements included can be based on calculations,
expert estimations, or data from previous projects (Roy, et al., 2001), usually it is a combination
of these three.
3.3 Business model components in Circular Economy
To get an understanding of how the Resource Conservation Strategies affects the business
model this section will investigate the components of a business model. These components will
be explained and put in a Circular Economy context.
The concept of business models started developing during the 1990’s with Forge (1993) being
one of the first to describe its components. He distinguished the core business process and the
value chain as being two out of six elements of a successful business model. Since then business
model innovation has been identified as a success factor for companies (Osterwalder, et al.,
2005; Roos, 2014), because of the competitive advantage of having a superior business model.
However, literature has not converged yet on exactly which components that should be involved
(Frankenberger, et al., 2013).
When talking about Circular Economy business models, the components are roughly the same
as in linear models. In Table 4 functions or components encompassing a business model, as
defined by literature, can be found.
Table 4. Components of a business model as defined by literature
Author (Chesbrough, 2007) (Osterwalder, et al., 2010) (Johnson, et al.,
2008)
16
Components Value proposition
Target Market
Value Chain
Revenue mechanism
Value network or
ecosystem
Competitive strategy
Customer Segments
Value Proposition
Channels
Customer Relationships
Revenue Streams
Key Activities
Key Resources
Key Partnerships
Cost Structure
Customer Value
Proposition (CVP)
Profit Formula
(Revenue model,
Cost structure,
Margin model,
Resource velocity)
Key Resources
Key Processes
These models mainly focus on linear economy but in a study by Lewandowski (2016) an
adaptation for Circular Economy of the model developed by Osterwalder and Pigneur (2005)
is performed. The two components added are:
Take-Back System: “The design of the take-back management system including
channels and customer relations related to this system”
Adoption Factors: “transition towards circular business model must be supported by
various organizational capabilities and external factors”
The goal of all of these models are to be universal, they should be applicable in every company.
The adaptation to Circular Economy should also work universally for companies using Circular
Economy approaches in their processes. All business models are circular and linear
(Lewandowski, 2016) to some extent and the transition from a linear to a circular model is not
straight forward. The challenge is to run a linear and a circular model at the same time while
the transition is ongoing (Williander & Sarasini, 2015).
This study aims at investigating the economic performance of a Circular Economy business
model when the RCS of Reuse, Remanufacturing and Material Recycling are applied. First and
foremost it deals with the technical nutrients in the cycle. But all components in a CE business
model will be affected and needs to be adapted to the concept, therefore seven components that
are common in the models identifed from literature search will be further explained and put in
a CE context. The first five of these components are directly linked with the technical nutrient,
the two last, Market and Adoption Factors, are added since they are considered to be of high
importance for a succesful CE business model.
Value Proposition (VP) – Different Value Propositions demand different product design
approaches, and setups of support systems
Revenue Model – Closely linked with VP
Resources – The assets such as products and facilities
Processes – The Resource Conservation Strategies
Take-Back System – How to retrieve the cores
Market – How to reach customers
Adoption Factors – External and internal factors for a sucessful CE implementation
17
The authour would like to adress that all components in a business model are necessary for a
sucessful business, but as this study will focus on the economic performance when the Resource
Conservation Strategies are applied to a business model, and not what a Circular Economy
business model could look like or how to get there, the rest of the components are considered
to be out of scope. Or as Van Renswoude et al. (2015) describes it “100% of the circular
business models does not exist (yet)”.
From now the identified components will be explained and further investigated from a Circular
Economy point of view.
3.3.1 Value Proposition
The Value Propositions in a company are the products and/or services that creates value for a
customer. A Value Proposition desired by the market will make customers turn to the company
in favor of others (Osterwalder, et al., 2010).
Value Propositions in a Circular Economy business model are increasingly shifting towards
product-service or pure service (Roos, 2014). Pure product based models still exist, where in a
CE model the product life cycle is closely managed and one or several Resource Conservation
Strategies are used to recover value at the end of the current life cycle (Lewandowski, 2016;
Grönhaug & Karlsson, 2016). In Table 5 a comprehensive overview of the different Value
Propositions in CE can be viewed. They will be described in short below.
Table 5. Different Value Propositions in Circular Economy divided after how the main product is used, adapted from (De Jong,
et al., 2015)
Product
A business model based on selling ownership of products is often connected to linear economy.
For this Value Proposition to work in a CE context it is important to think about the whole
product life cycle, starting in the design of the product. The product should be developed to fit
one or several Resource Conservation Strategies. A durable product that can be easily
disassembled or reused with a minimum of refurbishing is well suited for Circular Economy.
The business model component “Take-Back System” will also play an important role when
retrieving the product from the consumer (Lewandowski, 2016). In general, an asset sale VP
has to be accompanied by a buy-back strategy in order to be circular.
18
Product Service System
If the Value Propositions are based on a combination of product and service, it is called a
Product Service System (PSS). Today this kind of VP is widely used and several setups exists.
Three main areas are defined by De Jong et al. (2015) and can be viewed in Table 5. Different
Value Propositions in Circular Economy divided after how the main product is used
Houdini Sportswear is leasing outdoor clothes as a way of providing high performing
equipment to consumers that may use them seldom or has a need for testing clothes before
purchasing (Grönhaug & Karlsson, 2016). This is an example of a use related Value Proposition
as shown in Table 5. Carpooling is another example (De Jong, et al., 2015).
A Value Proposition based on the PSS is not necessarily circular. But when the business model
is based on selling a service that depends on a product, incentives for a longer life-span will be
created (Roos, 2014). This will minimize the need for virgin material as products lasts longer.
As in a pure product VP the product in a PSS needs to be designed with the RCS in mind to fit
in a Circular Economy business model. The take-back system will however be built in
compared to the VP which involve consumer ownership since the company owns the product.
A PSS Value Proposition is mostly used for seldom used products, for products that are
expensive or for a combination of both. Carpooling is one example of this. In the Netherlands
there are approximately 8 million cars that stands unused on average for 23 hours each day
(SnappCar, 2016). SnappCar provides car owners with a possibility to lend their cars,
generating revenue for both car owner and company.
Service
The VP centered around pure service is hard to define. Almost all businesses use some kind of
product when performing a service. If the classification of the Value Propositions presented in
Table 5 is based on ownership and usage of a product from a customer point of view the Service
VP can be considered as;
“A service where the consumer and service provider does not use any product to get a result.
The service provider in turn will use a third party to provide the result to the consumer.”
Even if the service provider does not use a product in their VP, the product still exists. To be
circular the principles for VPs previously discussed should be applied in the third party
company.
One example can be found in the Nordic Council of Ministers report (Norden , 2015). The
company Godsinlösen deals with damaged goods through a joint venture with insurance
companies. Here the insurance company has a pure service VP of reimbursing customers that
has damaged goods. Godsinlösen takes care of the goods through two of the Resource
Conservation Strategies, Reuse and Recycling. The reusable products are then sold in a store
owned by the company and the net income is then shared with the insurance company.
19
3.3.2 Revenue Model
This component in a business model show how the enterprise will create value for itself while
providing value for the customer (Johnson, et al., 2008). The Revenue Model is closely linked
with the Value Proposition in any business model (Osterwalder, et al., 2010).
In a CE business model, the link is especially clear in a PSS. When a Product Service System
is applied the end product will be a function instead of ownership of a product. This demands
new revenue models like subscriptions or one time fees. The exact setup of a revenue stream
can have endless variations. For a PSS Value Proposition, the traditional setup of asset sale is
not applicable.
Other possible revenue streams are usage fees, with the fee increasing with use, or subscription
fees, where the fee is constant with use. Recurring fees such as lending, renting or leasing,
where agreements provide the customer with the product for a specified period of time, are also
common (Osterwalder, et al., 2010). Below some examples of the setup possibilities for renting
are described, the same diversity can be found for other revenue models.
Generating revenue streams through renting is gaining popularity both in Sweden and
worldwide and is being used by both OEMs and third party stakeholders. Companies such as
Swedish founded Flexidrive, bought by SnappCar in 2015, provides a platform for car owners
to rent their vehicle, the provision on the renting deal creates a revenue stream (DI Digital,
2015). An example of a company with ownership of the products they provide for renting is
Sporthyra, providing sporting equipment such as canoes or skis for rental (Källman, 2015).
Swedish apparel OEMs Houdini and Filippa K have generated revenue streams through leasing
clothes (Grönhaug & Karlsson, 2016; Filippa K, 2015).
3.3.3 Resources
Every enterprise has resources, it is the people, technology, products, facilities, brand etcetera
that are required for a successful delivery to the customer. This component focus on the key
assets, the ones that make the enterprise competitive, generic assets are not included but still
needed (Johnson, et al., 2008).
In Circular Economy the product and the materials used to manufacture are the resources with
highest focus. The materials should be sustainable, have high performance and preferably be
part of a closed loop (Lewandowski, 2016). However, all key resources need to be adapted to
the CE concept. The people involved in a CE venture needs to be educated and have access to
the tools necessary to implement Circular Economy in the processes. Branding the company as
CE conscious may generate revenue and is frequently used especially in the fashion industry
(H&M, 2016). Branding also connects to the market component in a circular business model
that will be discussed further down.
3.3.4 Processes
The component Processes in a business model involves training, development, manufacturing
planning and many more (Johnson, et al., 2008). Manufacturing and development are closely
linked to the product. In a Circular Economy business model, the Resource Conservation
Strategies can be considered as key processes.
20
Since the RCS have been discussed earlier in this report the development process will be in
focus in this part, more specifically the development of the product. However, not all processes
in a CE company are circular, especially processes that are performed without product
involvement such as planning. These processes could still be sustainable, for example by
minimizing the amount of printouts.
To have a product that fits the Circular Economy concept require purposeful design or in some
cases redesign. Choice of material, the composition of the product and the durability can be
considered as key concerns (Grönhaug & Karlsson, 2016). Houdini Sportswear is one company
that takes these three concerns into consideration in their development process. Innovation of
new materials is kept low in favor of establishing recyclable fabrics and also for avoiding
problems of mixed material. This also affects the composition of the product making it suitable
for recycling. Houdinis garments are made to last long and to encourage customers to use them
for a long time they offer repair as a service.
For an OEM the original manufacturing process may need adaptation if the business model was
not designed to be circular from the beginning. To get an effective use of the RCS, mainly
Remanufacture and Material Recycling, modularization is one development strategy that can
be used to facilitate the value recovery (Lacy, et al., 2014).
3.3.5 Take-Back System
The Take-Back component identified by Lewandowski (2016) is essentially a combination of
specific parts from the Revenue, Market and though not included in this study, the Channels
that is instead handled as the Collection stage under section 3.2.1 Product Life Cycle Stages. In
this stage the Take-Back system is the reverse supply chain that makes it possible to retrieve
the core, this might require different solutions, partners or customer relationships than in a
forward supply chain and that is the reason for why this component is identified.
To return a product the customer needs some kind of incentive, this only applies to the product
VP where assets are vended for a specified monetary value. In a PSS, the incentive will be built
in and the product will eventually return to the company since the customer does not own it.
Some products will be returned through recycling activities but to have a reliable source of
cores a buy-back incentive can be implemented if the VP is product centered. Today both third
party buy-back, such as buying used IT equipment like Inrego (Pettersson, 2016) and OEM
buy-back such as H&M offering discounts for customers that leave used clothes in designated
containers at H&M stores (H&M Conscious, 2016) exists. Buy-back strategies used by OEMs
can either be part of the business model from the beginning or added later on. The Market
component will influence how successful the buy-back strategy will be, this will be further
discussed in the section about the Market component.
As described by Lewandowski (2016) the management of the collected cores also needs to be
addressed. The last two stages in the product life cycle, Processing and Disposition, will require
standardized procedures for an effective handling of the cores. Activities that also are
encompassed by the Take-Back system.
21
The five components that have been presented are directly linked with the product, the next two
are in some way also connected to the product but not as strongly. The components Adoption
Factors and Market are more complex and dependent on both external and internal factors such
as customer relations, society and company culture.
3.3.6 Adoption Factors
This factor will impact the success of a circular business model and will therefore be analyzed.
Adoption Factors may be external or internal and a company implementing CE should be aware
of them and have necessary counter measures in place (Lewandowski, 2016).
In a study from 2014, representatives from 157 Chinese firms in the manufacturing sector were
interviewed on their beliefs in CE implementation. The result of the survey showed a striking
gap between the individual firm’s awareness and its actual behavior. The majority seemed to
know about the importance of CE but choose not to implement large parts of the concept due
to various barriers (Liu & Bai, 2014). Based on the answers, Liu (2014) distinguish three
categories. Structural barriers involving the management system, contextual barriers that is
influenced by governmental regulations as well as the market and lastly cultural barriers that
involve the ethics and values of a company. These barriers need to be countered in order for a
CE business model to be successful and will be further explained below.
Structural Barriers
Internal adoption factors caused by structural barriers have to be countered by the enterprise
itself, with possible help from third party. Management activities have to promote CE concepts
to the rest of the employees and include education in how to implement Circular Economy in
the processes.
Policymaking can also help in countering structural barriers. In a report targeting policymakers
the Ellen MacArthur Foundation (2015) provides a toolkit aimed to aid enterprises in decisions
concerning Circular Economy. The report points out that some of the barriers inflicting the
implementation of CE are non-financial and could be countered by educating companies in how
to enable CE through policymaking. One example of this problem is described by Pettersson
(2016), sustainability manager at Inrego. He describes companies with policies demanding IT-
equipment to be physically destroyed for security reasons, even if there are certified methods
to securely remove data from most IT-equipment today (Blancco, 2015). Therefore, they as
well as the Ellen MacArthur Foundation tries to educate enterprises in making informed policies
enabling Circular Economy approaches.
Contextual Barriers
The contextual barriers are the external factors that are hardest to counter for a single enterprise
and therefor they need to be handled by a governmental function. Informative measures, such
as information campaigns, content indexes or eco-labelling act as decision-making guide for
consumers. Administrative measures involve legislation, usually prohibitions (Gröndahl &
Svanström, 2010). The contextual barriers can inflict both customers and enterprises.
In Sweden, green tax switching was implemented in year 2000 when part of the raise of the
carbon dioxide and energy taxes was used for lowering the income and payroll tax (Flood,
22
2015). Green tax switching can be performed with many different taxes and one tax closely
connected to Circular Economy is a tax on virgin raw material. A taxation connected to raw
material is briefly discussed in a report from Naturvardsverket (2004) but it is not advised to
implement a raw material tax unless the rest of the world has a similar system. Therefore, the
advice was to discuss this further in the European Union.
Though a tax on raw materials is not being discussed today in the European Union there are
several initiatives concerning the use of raw materials and a sustainable supply in the future is
concerned as a key objective for the EU (Euorpean Commission, 2016).
In the contextual barriers Liu and Bai (Liu & Bai, 2014) also include the market. The market
will be discussed as a separate business model component following this section about
Adoption Factors. The market as a contextual barrier can and should be influenced by the
company itself. For example, Houdini Sportswears main contextual barrier is the difficulty of
finding recycled fabrics for their production (Grönhaug & Karlsson, 2016). This barrier is
related to market, in that the supply follows demand and by promoting CE the sales may
increase. It is also related to legislations because of the purchase price of virgin material being
lower compared to recycled, something that could be countered by raw material taxation.
Cultural Barriers
Cultural barriers as defined by Liu and Bai (2014) mainly concern the values and ethics of the
enterprise. Lewandowski (2016) describes the culture as inflicting both internal and external
factors. The education mentioned to counter structural barriers is also needed to develop human
resources and teams in CE thinking to counter cultural barriers. To be successful, the employees
must understand the purpose of Circular Economy.
Externally the culture will also inflict consumers. These barriers may be countered by designing
the Market component accordingly.
3.3.7 Market
This component is a combination of the components relating to customers, communication and
market presented in Table 4. It concerns which customers to target and how to target them. As
described by Osterwalder, et al. (2010) the business model should be designed based on the
identified customer segments, they are the heart. Through market targeting these customers can
be reached. Successful market targeting may reach customers that previous enterprises failed
to target (Chesbrough, 2007).
Identifying customer segments interested in CE labeled products is important. If companies are
uncertain of the market’s response to eco-labeled products they will not be produced (Liu &
Bai, 2014). Pearce (2009) lists six types of customers that could be suitable targets for a
company offering remanufactured products. These segments have customers who (1) need to
retain a specific product because it has a technically defined role in their current processes; (2)
desires to avoid the need to re-specify, re-approve or re-certify a product; (3) rarely utilizes new
equipment; (4) possess a product discontinued by the original manufacturer and wish to
continue using it; (5) want to extend the service lives of used products, whether discontinued
or not; and (6) are interested in environmentally friendly products.
23
When suitable segments have been identified the challenge is to reach the customers. In the CE
context the problem is twofold. First there needs to be a demand for CE products and second
there also needs to be an awareness of the possibility to return used products among the
customers. Houdini Sportswear and Inrego face these challenges. They both have problems of
collecting cores and spreading the knowledge of their brand as a sustainable alternative of
buying products made from virgin material (Grönhaug & Karlsson, 2016; Pettersson, 2016). To
counter this, Inrego has a dessignated marketing function aimed at targeting potential customers
willing to return used equipment. Due to this the market function in a CE enterprise might need
more resources than a linear one, atleast from the beggining in order to raise awerness.
The willingness and interest in providing cores to collect is also inflicted by customer
relationship. Circular Economy business models that gives the companies a way of retaining
customers for a longer time through use of PSS can also generate loyalty and eventually
feedback. This provides valuable insights that may strengthen customer relations (Van
Renswoude, et al., 2015).
24
4. Life Cycle Cost Modelling With the knowledge presented in the previous chapter the modelling of the cost based economic
performance will be described and presented in this part. Starting with defining a circular
product life cycle and thereafter developing a set of equations used for calculating the product
life cycle cost. The last section will further explain and demonstrate assumptions made based
on the principles of Circular Economy
4.1 Circular Product life cycle
By combining the knowledge gathered about product life cycles and the Resource Conservation
Strategies a model for a circular product life cycle can be developed. This model will be used
for defining the stages that should be included when analyzing the economic performance of a
closed loop manufacturing system where reuse, remanufacturing and material recycling are
possible scenarios at EoL.
A circular product life cycle consists of a closed loop where the stages are connected with
arrows showing the direction of the mass flow and the order of the stages. Stages suggested to
be included in the model, based on the framework developed by Lowa (2014), are:
Procurement
Manufacturing
Distribution
Usage or Service
Collection of Core
Processing
Disposition
Since this framework focuses on the production loop, the development stage is not included in
the framework. For companies and especially OEMs the development stage is important when
implementing Circular Economy (Lacy, et al., 2014). Therefore, this stage will be added to the
model.
The flow of technical nutrients will thus go through eight stages where the final stage in the
loop is the Disposition where the material flow is divided in three parts to go through one of
the RCS that has been mapped in the Processing stage. The circular product life cycle can be
viewed in Figure 5.
25
Figure 5. The circular product life cycle
This model pictures the flow of technical nutrients in an OEM. Some assumptions are made:
The Reuse process will not be used without Refurbishing in order to ensure that the
products sent to Distribution fulfills the quality requirements
The Disposition stage may, in addition to the three flows pictured, result in products or
parts being sent for disposal or sold to a third party. These mass flows are not included
in the model since they are considered to be out of scope.
The Remanufacturing process is not necessarily the same process as the original
manufacturing. It can have parts that contain common or separate processes.
The duration of the Usage/Service stage will be the same for all cases that will be
evaluated in this thesis.
4.2 Cost Breakdown Structure
For each stage of the circular product life cycle the cost members to include in the analysis
needs to be defined. These costs represent the middle level of detail and each cost member is
described by an equation. The equations are based on work performed by Nasr & Kamrani
(2007) in the subject of life cycle cost modelling for computer based design and manufacturing.
The cost breakdown structure presented by Nasr & Kamrani (2007) includes costs that fit within
most of the stages of the circular life cycle earlier presented and is therefore considered as a
suitable base. In the following section the equations will be presented with modifications and
simplifications explained accordingly. The modifications are based on knowledge gathered
from literature search and discussions with experts in the subjects of manufacturing and CE.
A cost breakdown structure is case specific and this model does not claim to include all possible
costs. To get a higher level of detail, each cost member can be further divided. The majority of
the costs presented by Nasr & Kamrani are based on activities, an example for cost C is shown
below
iC C (1)
where
Ci = cost of specific activity i
N = number of activities
26
This way the cost for each activity can be presented or, as will be the case in the model in this
report, the cost of an activity in a specific stage can be estimated and the N and activity cost
can be adapted to the scenario in order to compare different ones. The scenarios are explained
in section 5. Modelling Scenarios in this chapter. Below equations 1-18 that describes each
cost in this life cycle cost analysis will be presented.
4.2.1 Development Cost (CD)
The costs for development is represented by four cost members and includes costs for
engineering design, prototyping and design modifications. Management cost is included as
well. The development cost is
modD Deng D Dprep DmanC C C C C (2)
where
mod
Engineering Design Cost
C Design Modification Cost
C Production Preparation Cost
Managment Cost
Deng
D
Dprep
Dman
C
C
Engineering Design Cost (CDeng)
This cost includes designing and developing the product. It is primarily costs associated with
major design changes or development of a new product. Activities can include design
specifications, functional analysis, life cycle design etcetera. The engineering design cost is
i
Deng DengC C (3)
where
cost of specific activity i
N = number of activities
i
DengC
Design Modification Cost (CDmod)
This cost includes minor changes to existing product. In the context of Circular Economy some
changes might be needed in order for the product to be compatible with the operational demands
of a closed loop. The design modification cost is
mod mod
i
D DC C (4)
where
mod cost of specific activity i
N = number of activities
i
DC
Production Preparation Cost (CDprep)
This cost is adapted from the research and development cost presented by Nasr & Kamrani
(2007, p. 34). The production preparation cost is comprised by three sub costs concerning the
prototyping and testing of the product before the manufacturing process can begin. In a CE
context the disassembly process will be important to test as well. The production preparation
cost is
27
i
Dprep Dpfa Dpm DptC C C C (5)
where
cost for prototype fabrication
cost for prototype material
cost for individual test
N = number of tests
Dpfa
Dpm
i
Dpt
C
C
C
Management Cost (CDman)
When developing or redesigning a product for Circular Economy extra management activity
will be needed. The management will ensure that the product and associated processes fits in a
CE context. The management cost is
i
Dman DmanC C (6)
where
cost of specific activity i
N = number of activities
i
DmanC
4.2.2 Procurement Cost (CPC)
The procurement cost includes recurring costs for acquiring material that will be used when
producing the product. The material can be sourced from external suppliers or from material
streams within the OEM such as recycled material or reused parts. The procurement cost is
1 1
N Mi j
PC PCa PCm
i j
C C C
(7)
where
cost of specific procurment activity i
C cost of material acquired from specific source j
N = number of activities
M = number of sources
i
PCa
j
PCm
C
4.2.3 Manufacturing Cost (CM)
This cost is comprised by two major parts. Nasr & Kamrani (2007, p. 37) divides costs
associated with manufacturing in recurring and nonrecurring costs. The manufacturing cost
used for this model is simplified since some of the costs are dealt with in other stages. However,
CM is still comprised by recurring and nonrecurring costs. The manufacturing cost is
M Mp MfaC C C (8)
where
28
Production Cost
Facility Cost
Mp
Mfa
C
C
Production Cost (CMp)
The cost of producing a product consists of a fixed cost for each operator working one shift of
8 hours for one working year (250 days). Each product is also given a cost that represent fixed
costs in the manufacturing process such as tooling and maintenance. CMpva represent the
recurring costs associated to value addition, like manufacturing or assembly operations as well
as added material. The production cost is
1 1
( )N M
i i j
Mp Mpf Mpva Mpl
i j
C C C C
(9)
where
fixed cost for producing one product
= cost for value added to one product
fixed cost for one operator
N = number of produced products
M = number of operators
i
Mpf
i
Mpva
j
Mpl
C
C
C
Facility Cost (CMfa)
This cost accounts for the costs of running the facilities. The cost is fixed per facility and
includes energy costs, maintenance costs, etcetera. The facility cost is
i
Mfa MfaC C (10)
where
fixed cost for one specific facility
N = number of facilities
i
MfaC
4.2.4 Distribution Cost (CDI)
The distribution cost includes costs occurring when the products are transported to the
customer. Packaging of the products is included as well. The distribution cost is
1 1
N Mi j
DI DIt DIp
i j
C C C
(11)
where
29
fixed cost for transportation activity i
packaging cost for one product
N = number of transportation activities
M = number of packaged products
i
DIt
j
DIp
C
C
4.2.5 Usage/Service Cost (CMI)
During the time that the product is used by the customer there might be a need for maintenance.
Service agreements can be a part of a circular business model and will represent a cost for the
OEM. The cost for maintenance includes labor, parts needed for repair and transportation and
is adapted from Nasr & Kamrani (2007, p. 41).
i i i
MI MIl MIp MItC C C C (12)
where
labor cost for i:th activity
cost for spare/repair parts for i:th activity
transport and handling cost for i:th activity
i
MIl
i
MIp
i
MIt
C
C
C
The following equations 13-18 concerns the stages that will close the loop. Since the work
performed by Nasr & Kamrani (2007) does not involve Circular Economy or closed loops these
equations are built based on knowledge gathered from literature search. The composition will
be similar to previous equations.
4.2.6 Collection of Core Cost (CC)
The cost for retrieving the product will be influenced by the business model. The collection cost
has similarities with the cost for distribution, CDI, it involves transportation and packaging of
the cores. The cost for collection of core is
i
C CC C (13)
where
cost for retrieval of one product
N = number of retrieved products
CC
4.2.7 Processing Cost (CPS)
This cost includes activities associated with processing of the collected cores. It is comprised
by the sub costs for disassembly, reprocessing and landfill. In Circular Economy landfill should
be seen as a last resort but it represents a cost and will therefore be included. The processing
cost is
PS PSd PSr PSlC C C C (14)
where
30
Disassembly Cost
Reprocessing Cost
Scrap and Landfill Cost
PSd
PSr
PSl
C
C
C
Disassembly Cost (CPSd)
The disassembly cost is similar to the production cost, CMp, but it will be highly dependent on
the state of the collected core. Operator cost as well as other recurring costs associated with
dismantling are included. The cost for disassembly is
1 1
N Mi j
PSd PSl PSda
i j
C C C
(15)
where
cost for one operator
cost for specific disassembly activity i
N = number of operators
M = number of activities
i
PSl
j
PSda
C
C
Reprocessing Cost (CPSd)
Some of the collected cores might not need to be dismantled and can be reused. All collected
cores still need to be processed and this costs includes testing, cleaning and light refurbishing.
The reprocessing cost is
i
PSr PSrC C (16)
where
cost for reprocessing one product
N = number of reprocessed products
PSrC
Scrap and Landfill Cost (CPSd)
The products and collected cores that do not remain within the loop are scrapped or in worst
case sent to landfill. This cost represents the cost for the OEM when disposing material. The
scrap and landfill cost is
i
PSl PSlC C (17)
where
cost for disposal of one tonne of scrap
N = number of tonnes disposed
PSlC
31
4.2.8 Disposition Cost (CDSP)
When the collected cores have been processed, dismantled or disposed of the disposition stage
represent the costs associated with distributing the material or products to go through the proper
RCS. This might include transportation within the company or elsewhere, it also includes
administrative activities connected to the cores.
i
DSP DSPC C (18)
where
cost for dispositioning one product
N = number of products
i
DSPC
The equations presented are considered to represent the defined stages in a sufficient way. Each
stage is represented by one or several costs. The goal is not to include all possible costs but to
present a model that can be used for estimating the potential of circular economy when applied
to a manufacturing system. The focus when developing these equations has been costs
associated with the product.
4.3 Separation of Resource Conservation Levels By adapting the approach of Resource Conservation Levels (RCL) developed by Asif (2011),
a part of the ResCoM framework described by Rashid et al. (2013), a distinction between the
zero level and the i:th level of resource conservation is possible. In this setup the RCL0 and the
RCLi (i=1, 2, 3…) production chains are controlled by the same OEM. The RCL approach also
suggests that the products should be labeled according to the current level, as a way to market
and separate different levels of conservation. For this model the labeling of the remanufactured
products will not be considered.
At the zero level the new product is manufactured to desired performance and entered to the
loop. This product can contain components that have been produced from recycled materials.
But as the customers today have a mixed belief in the reliability in a remanufactured product
the RCL0 product has not been remanufactured or reused.
This level will be of high importance for the overall success of the closed loop. As previously
mentioned the product must be designed for closed loop production in order for the
implementation of Circular Economy to result in an improved economic and environmental
performance. The development stage at RCL0 can involve development of entirely new
products or redesign of existing ones for a specific purpose such as disassembly or recycling.
For the i:th level the production chain will handle cores which have been collected as specified
by the business model. When collected, the cores are processed and then distributed to different
stages depending on which Resource Conservation Strategy that is suitable. The material that
cannot be used by the OEM is vended or scrapped.
32
4.4 Distribution of Costs
For calculating the total product life cycle cost two main distributions of costs are possible.
Distribution 1 makes no difference between the different RCLs and includes the collection of
core at both RCL0 and RCLi. For distribution 2 the RCL0 only includes the costs up to Usage
stage, then the Collection stage is the first stage of RCLi. The cost structures are presented in
Table 6.
For the calculations in this thesis the second alternative will be used.
Table 6. Different cost structures when modelling product life cycle cost
Cost Distribution 1 Cost Distribution 2
RCL0 RCLi RCL0 RCLi
Development Development Development Collection
Procurement Procurement Procurement Processing
Manufacturing Manufacturing Manufacturing Dispositon
Distribution Distribution Distribution Development
Usage Usage Usage Procurement
Collection Collection Manufacturing
Processing Processing Distribution
Dispositon Dispositon Usage
For Cost Distribution 2 the implementation of CE will increase the costs for the development
at RCL0 and the full effect of Circular Economy will occur at RCLi, when the cost of
manufacturing is decreased. The development cost at RCLi represents upgrades and minor
design changes of replacement components.
Cost Distribution 2 will result in clearer association between the collected core and the product,
presenting the costs for collection at the same level as the manufacturing of the product
produced from the cores. It also balances the costs as the costs of collecting can be balanced
with the decrease in manufacturing.
33
5. Modelling Scenarios Three scenarios will be defined in order to compare the life cycle costs of different closed loop
manufacturing systems. One of these is based on a “business as usual” case with a linear
economy. This scenario will serve as base for each analysis. The other two will be derived from
typical circular business models.
In order to be comparable all scenarios contain the same amount of life cycle stages, even if the
stage in question does not result in any costs. In Table 7 a list of the scenarios can be found.
Except for Business as Usual each scenario will be analyzed for both RCL since the production
of RCL0 products differs from RCLi products as earlier mentioned. The zero level include
production of new products in all scenarios.
Table 7. List of scenarios
Scenario Value Proposition RCL0
cases [#]
RCLi
cases [#]
Return rate [%]
1: Business as Usual Asset sale 1 n/a 0
2: Buy Back Asset sale 3 3 30, 60, 90
3: Leasing Product Service System 1 1 100
In Circular Economy the ability to retrieve cores is an important part in order to have a
successful business. The return rate, or the probability that the customer will return the product
will serve as a second feature of each scenario. In total nine different cases will be modelled.
Scenario 1,2 and 3 all have a common base. Company X is an OEM producing consumer home
appliances. Each batch of product Y consist of 1000 units. Company X is a linear SME with a
desire to transition their open loop production into a closed one.
The cost based data used in the model has been gathered using the authors own knowledge in
discussion with experts in the field of manufacturing and Circular Economy. The cost elements
can be divided in three categories and will be similar for all cases, the cost data are presented
in Table 8, Table 9 and Table 10, more detailed data sheets can be found in Appendix 2.
Table 8. Cost Elements of the type activity. Producing 1000 products
Cost Element Variable Cost [€]
Cost of one operator CMpl 50000
Engineering design activity CDeng [i] 5000
Design modification activity CDmod [i] 3000
Management activity CDman [i] 5000
Procurement activity CPCa [i] 5000
Material actvity CPCm [j] 5000
Transportation activity CDIt [i] 3000
Labor cost maintenance activity CMIl [i] 500
Spare/repair parts for maintenance CMIp [i] 200
Transport and handling manitenance CMIt [i] 300
Disassembly activity CPSda [i] 10
34
Table 9. Cost elements of the type cost per product or tonne.
Cost Element Variable Cost [€]
Fixed production cost per product CMpf [i] 100
Value adding cost CMpva [i] 50
Packaging cost per product CDIp [i] 2
Retrieval of one product CC [i] 10
Reprocessing cost for one product CPSr [i] 5
Scrap and landfill cost per tonne CPSl [i] 150
Disposition cost per product CPSP [i] 100
Table 10. Miscellaneous cost elements
While this cost data was set not to change in any of the cases the multiples of these costs change.
Depending on the scenario the number of development activities was changed as was the
volume of collected products. When modelling the costs of each scenario some assumptions
have been made based on the knowledge gathered from qualitative research in the field of
Circular Economy. Each scenario will be explained in detail in the following sections.
5.1 Scenario 1: Business as Usual A majority of the OEMs today have manufacturing systems which are open loop and based on
linear economy. The characteristics are “take-make-dispose” or “cradle to grave”. The aim of
this report is to investigate the economic performance of a closed loop manufacturing system.
When modelling this, it is also of interest to compare the implementation of Circular Economy
to a status quo scenario. Therefore, the “Business as Usual”, BaU, scenario will serve as base
in the analysis, with certain characteristics listed below:
The products produced will only be used for one life cycle and then disposed of. The
cost of disposal is added to the life cycle cost.
Only one case will be analyzed with a probability of return of 0%
As previously mentioned scenario 1 will serve as a reference scenario. Business as Usual is a
linear scenario and does not have any costs in the stages Collection of Core and Disposition and
only a small cost for waste handling in the stage of Processing. Data for scenario 1 can be found
in Appendix 2.
5.2 Scenario 2: Buy Back
As earlier explained in the part about 3.3.1 Value Proposition, buy back is one strategy that can
be used for turning a pure linear asset sale into a circular business model. In order for this to be
successful the business model component “Take-Back System” plays an important role. Studies
Cost Element Variable Cost [€]
Prototype fabrication CDpfa 10000
Prototype material CDpm 7000
Cost of individual test Ct [i] 5000
Facility cost CMfa [i] 50000
35
in the area of core management or return of cores point out that the key concern, especially if
remanufacturing, will be to acquire cores (Wei, et al., 2015; Lechner & Reimann, 2014). Other
concerns of importance are the quality of these cores and the customer demand for the reused
or remanufactured products.
In this report the economic performance was evaluated based on the life cycle cost. Demand
and quality of cores affects the profitability of the system and since this was not evaluated these
two concerns were not included, this is further explained in chapter 7. Modelling Analysis. Only
the probability of return serve as a characteristic for each case together with the two Resource
Conservation Levels.
To determine suitable return rates, literature has been consulted. In an article Monga (2014)
claims that most successful remanufacturers have a probability of return at 90-95 percent. This
is made possible by implementing core acquisition strategies. Wei & Tang (2014) use three
return rates as a way of reflecting that the probability of return might change during a product
life cycle. These three rates are 25, 50 and 75 percent. Based on this information three rates of
30, 60 and 90 percent was defined for the “Buy Back” scenario. Other characteristics were:
In total six different cases were evaluated, three at RCL0, three at RCLi
The collected cores are either reused, remanufactured, recycled or disposed
Distribution of cores at RCLi - Reuse 60%, Remanufacturing 20%, Recycling 20%
The assumptions on cost variations vary depending on the probability of return. In this thesis
the CE implementation has a cost reducing effect on the manufacturing cost. The Next
Manufacturing Revolution provides a summary of studies presenting reduction of the input
costs for remanufacturing, specifically material, machining and energy. Based on the gathered
data it is concluded that a costs reduction of 70 percent is reasonable (Lavery, et al., 2013). This
cost decrease is consistent with the 20-80 percent reduction of production costs for
remanufacturing identified by Lund (1996).
Since the cost for manufacturing consists of three parts, operators, value addition and fixed
costs. The cost reduction for each part will be different when applying Circular Economy. The
number of operators will decrease with higher return rates, instead they will be needed when
processing the cores. The cost for value addition when remanufacturing will be reduced with
the same percentage in each scenario where CE is implemented. This cost reduction is set to 70
percent based on the work by Lavery, et al. (2013).
For the fixed costs, like machines and tooling, the reduction will be influenced by volume. The
fixed cost for production will therefore decrease with return rate. A cost reduction of 70 percent
assumes that the system is matured and that the return rate of cores is substantial enough.
Therefore, the 70 percent reduction of the fixed production cost in the manufacturing stage will
be applied to the case of 90 percent return rate. In a similar way the return rate of 60 percent
will have a cost reduction of 40 percent. Finally, the 30 percent return rate will have a small
reduction of 10 percent. The cost reduction only occurs at RCLi. The span of 70, 40 and 10
percent reduction of fixed production costs corresponds with the range presented by Lund
(1996), with the exception of 10 percent. As a 30 percent buy back rate is considered to be very
36
low, it is questionable whether a reduction at all is plausible. The 10 percent reduction is used
because it differentiates the RCLs and can also be viewed as conservative compared to 20
percent.
In the following sections each case of return rate will be described in detail and assumptions
concerning cost variations will be explained.
5.2.1 Return Rate 30 percent
For the lowest return rate Company X did not consider any design modifications for adapting
the product to Circular Economy. The return rate was too low and the development cost was
not changed compared to scenario 1. As seen in Table 11 the cost for Manufacturing decreased
at RCLi level. This is due to the collected 30 percent which will decrease the fixed cost for
producing by 10 percent and the value addition cost by 70 percent. The need for labor is constant
compared to scenario BaU.
Table 11. Cost variations for scenario BuyBack 30% return rate compared to scenario 1
Stage 30% RCL0 30% RCLi
Development 0 0
Procurement 0 0
Manufacturing 0 ↓
Distribution 0 0
Usage/Service 0 0
Collection 0 ↑
Processing 0 ↑
Dispositon 0 ↑
The cost for the take-back system is increasing compared to scenario 1. It should be mentioned
that the cost for retrieving cores when the return rate is low will be higher due to the system not
being fully developed. The cost of the take-back system (Collection, Processing, Disposition)
is only added at RCLi.
5.2.2 Return Rate 60 percent
When the probability of return is 60 percent efforts will be put on the Development stage. The
product will now be redesigned to fit within a CE context. As earlier described the development
process is very important for a successful implementation of Circular Economy. This means
that the cost will increase as can be seen in Table 12. Then at RCLi the development cost will
be the same as in BaU. Development at i:th level involve upgrading of components and small
design changes.
37
Table 12. Cost variations for scenario BuyBack 60% return rate compared to scenario 1
Stage 60% RCL0 60% RCLi
Development ↑ 0
Procurement 0 ↓
Manufacturing 0 ↓
Distribution 0 0
Usage/Service 0 0
Collection 0 ↑
Processing 0 ↑
Dispositon 0 ↑
The cost for developing a CE compatible product will always be higher at RCL0 than at RCLi
because of the need for initially large design changes. This will be shown in the Results but can
also be viewed detail in Appendix 2. In similar with a probability of return at 30 percent, a 60
percent return rate will result in higher costs for the Collection, Processing and Disposition
stages at RCLi.
For a return rate of 30 percent the cost for manufacturing decreased, this is also the case for 60
percent. Since a larger volume of cores is collected the fixed cost for producing each product
will decrease by 40 percent. The value addition cost will be decreased by 70 percent as material
and operational costs etcetera will be less than if manufacturing new products. Due to this there
will also be a decrease for Procurement stage at RCLi as some material purchases can be
replaced with recycled material.
5.2.3 Return Rate 90 percent
At a return rate of 90 percent Company X is almost guaranteed that the product will be
retrievable. But as in the case of 60 percent, large design modifications are most probably
needed. The aim is to have a product that is durable and that can be reused or remanufactured
easily. As can be seen in Table 13 the cost variation for each stage is similar to the case of 60 %.
Table 13. Cost variations for scenario BuyBack 90% return rate compared to scenario 1
Stage 90% RCL0 90% RCLi
Development ↑ 0
Procurement 0 ↓
Manufacturing 0 ↓
Distribution 0 0
Usage/Service 0 0
Collection 0 ↑
Processing 0 ↑
Dispositon 0 ↑
However, the monetary value of the increase or decrease is in most stages not the same. One
example is the last three stages of the life cycle. Both Processing and Disposition stages are
dependent on the volume of cores collected and will increase with return rate. For the Collection
38
stage the cost of collecting cores will decrease with volume because of a better designed take-
back system.
Similar to the case of 60 percent return rate, both the cost for the Manufacturing and
Procurement stages will decrease. When reaching this level of collection rate a large part of the
production will come from products that have gone through any one of the Resource
Conservation Strategies. This will result in less operational personnel needed in the
manufacturing process. They are instead transferred to the Processing Stage. The fixed cost for
manufacturing one product is set to decrease by 70 percent as explained in the beginning of this
chapter. This is also the case for the value addition cost.
5.3 Scenario 3: Leasing
This scenario is built on a use related PSS. The customer will not own the product and therefore
it will be returned at end of use which ensures a probability of return of 100 percent. Depending
on the setup of the leasing agreement maintenance might be included or not. In both cases if
maintenance is needed it will result in a cost in the product life cycle. Other characteristics for
this scenario are:
In total two different cases will be evaluated, one at RCL0 and one at RCLi
The collected cores will either be reused, remanufactured, recycled or disposed
For this scenario the customer will not be owning the product. The leasing arrangement will
ensure that the product is retrieved at end of use. The distribution of cores to each Resource
Conservation Strategy will depend on the RCL.
Distribution of cores at RCLi – Reuse 65%, Remanufacturing 20%, Recycling 10%,
Scrap 5%
This is based on the assumption that cores collected from RCL0 products will be in less need of
remanufacturing than products originated from RCLi level.
As can be seen in Table 14 the cost increase for development at RCL0 will be similar to the
cases of Buy Back 60 and 90 percent. Since the product will then be adapted to Circular
Economy the development cost will decrease to the level of scenario 1 since no major design
changes will be done at RCLi, only small adjustments and upgrades.
Table 14. Cost variations for scenario Leasing compared to scenario 1
Stage Leasing RCL0 Leasing RCLi
Development ↑ 0
Procurement 0 ↓
Manufacturing 0 ↓
Distribution 0 0
Usage 0 0
Collection 0 ↑
Processing 0 ↑
Dispositon 0 ↑
39
Like the case was in scenario 2 the costs for the Procurement and Manufacturing stage will
decrease as a large part of the produced products and used material will use the collected cores
as supply. The fixed cost for manufacturing one product is set to decrease by 70 percent as
leasing has a high return rate that motivates a substantial reduction of the production cost. The
value addition cost (material, operations, etcetera) is decreased by 70 percent as well, at RCLi.
Also the need for operators will change with a decreased amount in production and an increased
amount in the disassembly and processing of cores.
40
6. Modelling Results In previous parts information has been presented that will aid in answering the research
questions asked in the beginning of this work. This part aim at answering R1, the question is
repeated below for clarification.
R1: How can the cost based economic performance of a manufacturing system be modeled
when the loop is closed and reuse, remanufacturing, recycling and scrap/landfill are possible
scenarios at End of Life.
R1 will be answered by presenting the results from the modelling of the product life cycle costs
for scenario 1,2 and 3.
In order to model the cost based economic performance equations 1-18 were developed. These
were then used to calculate the product life cycle cost for three scenarios based on different
Circular Economy principles. The assumptions made for each case has been presented and
motivated. To show the performance of the scenarios where CE has been implemented the
Business as Usual scenario will be used as reference.
6.1 Scenario 2: Buy Back For the comparison of scenario 1: Business as Usual and 2: Buy Back, seven different life cycle
costs have been calculated. The total cost for the stages in each case is presented in Table 15 as
well as the total cost for each of the cases. For more detailed cost data consult Appendix 2.
Table 15. Cost data for all cases in Buy Back and BaU. Difference row presents the cost increase or decrease compared to
case BaU.
Cost [€]
Stage BaU 30%
RCL0
30%
RCLi
60%
RCL0
60%
RCLi
90%
RCL0
90%
RCLi
Development 108000 108000 108000 120000 108000 141000 108000
Procurement 50000 50000 50000 50000 40000 50000 30000
Manufacturing 450000 450000 405000 450000 325000 450000 245000
Distribution 17000 17000 17000 17000 17000 17000 17000
Usage 5000 5000 5000 5000 5000 5000 5000
Collection 0 0 9000 0 12000 0 9000
Processing 1500 0 3200 0 55000 0 110000
Dispositon 0 0 30000 0 60000 0 90000
Total Cost 632000 630000 627000 642000 622000 663000 612000
Difference -0,3% -0,8% +1,6% -1,6% +4,9% -3,2%
It can be seen that the case with the highest life cycle cost is 90% RCL0 where the total cost is
increased with 4,9 percent. For 90% RCLi the life cycle cost is decreased by 3,2 percent to the
lowest value of all seven cases. It can also be seen that for all return rates the total life cycle
41
cost at RCLi will be lower than in the case of BaU. This is also clear when studying
Figure 6 below.
Figure 6. Bar diagram showing the contribution of each stage to the total life cycle cost for cases in scenario 1 and 2
Here the contribution to the total life cycle cost for each case can be studied. The total cost for
case 30% RCLi is 1500 € (-0,3%) less than the BaU case. The higher cost in the BaU case
represent the waste handling at EoL of the product. For 30% the development cost is constant
compared to BaU since the return rate is too low to motivate any design changes at RCL0. The
case of 30% RCL0 is the only case were the implementation of Circular Economy does not
result in an increased development cost. For the case of 60% and 90% the cost for redesign will
increase, resulting in an investment needed at RCL0.
632 000 € 630 000 € 627 000 € 642 000 € 622 000 €
663 000 € 612 000 €
0
100000
200000
300000
400000
500000
600000
700000
BaU 30% RCL0 30% RCLi 60% RCL0 60% RCLi 90% RCL0 90% RCLi
Contibution of each stage to the total life cycle cost (Scenario 1 and 2)
Development Procurement Manufacturing Distribution
Usage Collection Processing Dispositon
632 000 € 630 000 € 627 000 € 642 000 € 622 000 €
663 000 € 612 000 €
0
100000
200000
300000
400000
500000
600000
700000
BaU 30% RCL0 30% RCLi 60% RCL0 60% RCLi 90% RCL0 90% RCLi
Contibution of each stage to the total life cycle cost (Scenario 1 and 2)
Development Procurement Manufacturing Distribution
Usage Collection Processing Dispositon
42
The cost differences are visualized in
Figure 7 where positive cost difference indicates that the cost is less than for the case with BaU.
The cost difference diagram show that for the RCLi level the cost of the last two stages will
increase with return rate and since the case of BaU contain no take-back system the resulting
cost difference will be negative. This negative difference is balanced by the decreased cost for
manufacturing.
-150000 -100000 -50000 0 50000 100000 150000 200000 250000
30% RCL0
30% RCLi
60% RCL0
60% RCLi
90% RCL0
90% RCLi
Cost Difference for all life cycle stages in each case [€]
Bu
y B
ack
Cas
eCost difference [Business as Usual - BuyBack]
Processing
Dispositon
Collection
Usage
Distribution
Manufacturing
Procurement
Development
43
Figure 7. Cost differences for each stage. Positive values indicate that the Buy Back case has a decreased cost compared to
BaU. Negative values indicate that the Buy Back case has an increased cost compared to BaU.
In this model the manufacturing cost does not change at RCL0 since the products produced at
this level should be completely new in order to appeal to consumers. This results in no cost
difference compared to linear production. At RCLi this difference will be positive since the
manufacturing cost is decreasing due to less need of new material, operators, energy etcetera.
The decrease of the fixed cost per produced product is set to be 10 percent for Buy Back 30%,
40 percent for Buy Back 60% and 70 percent for Buy Back 90% as has been previously defined.
In the product life cycle cost model developed for this thesis the fixed cost for producing one
product has been set at 100 €/product and the value added cost to 50 €/product. It seems to be
the decrease of the production cost that results in an improved cost based economic performance
for the Buy Back scenario compared to Business as Usual.
From the results it is also clear that the return rate is an important factor when designing a CE
production system as the cost based economic performance for the Buy Back scenario will
improve only for 90 percent return rate.
6.2 Scenario 3: Leasing For the comparison of scenario 1: Business as Usual and 3: Leasing, three different life cycle
costs have been calculated. The cost for scenario 1 is the same as in the last comparison made.
The total cost for the stages in each case is presented in Table 16 as well as the total cost for
each of the cases. For more detailed cost data consult Appendix 2.
-150000 -100000 -50000 0 50000 100000 150000 200000 250000
30% RCL0
30% RCLi
60% RCL0
60% RCLi
90% RCL0
90% RCLi
Cost Difference for all life cycle stages in each case [€]
Bu
y B
ack
Cas
eCost difference [Business as Usual - BuyBack]
Processing
Dispositon
Collection
Usage
Distribution
Manufacturing
Procurement
Development
44
Table 16. Cost data for all cases in Leasing, Difference row presents the cost increase or decrease compared to case BaU
Cost [€]
Stage BaU Leasing RCL0 Leasing RCLi
Development 107000 136000 107000
Procurement 50000 50000 30000
Manufacturing 450000 450000 245000
Distribution 17000 17000 17000
Usage 5000 5000 5000
Collection 0 0 10000
Processing 1500 0 107000
Dispositon 0 0 100000
Total Cost 631000 658 000 621000
Difference +4,1% -1,6%
Similar to what was the case in the Buy Back scenario, the setup costs for a circular production
loop will increase at RCL0 and then decrease for the i:th level. For the Leasing scenario the
increased cost comes as a result of the high return rate of 100 percent. When designing this
system, the return rate will be known and therefore the development cost increase. In Figure 8
the added costs of the Processing and Disposition stage at RCLi can be seen, these costs will be
balanced by the decreased manufacturing cost, resulting in an improved cost based economic
performance by 10 000 € (1,6%) compared to the case of BaU. The main reason for the
increased cost of Leasing at RCLi compared to the similar case of Buy Back 90 % at RCLi is
the costs related to handling of the cores. The costs of collection and disposition are slightly
increased due to a higher volume of returned products.
Figure 8. Bar diagram showing the contribution of each stage to the total life cycle cost for cases in scenario 1 and 3
631 000 € 658 000 €
621 000 €
0
100000
200000
300000
400000
500000
600000
700000
BaU Leasing RCL0 Leasing RCLi
Co
st [
€]
Case
Contibution of each stage to the total life cycle cost (Scenario 1 and 3)
Development Procurement Manufacturing Distribution
Usage Collection Processing Dispositon
45
6.3 Sensitivity analysis
In all of the cases presented the cost for the Manufacturing stage is significant for the total life
cycle cost for the product, in the case of BaU this cost is 71 percent of the total cost. The
manufacturing cost has two cost elements, facility cost and production cost. As earlier defined
the production cost is described by equation 9 repeated below.
1 1
( )N M
i i j
Mp Mpf Mpva Mpl
i j
C C C C
(19)
where
fixed cost for producing one product
= cost for value added to one product
fixed cost for one operator
N = number of produced products
M = number of operators
i
Mpf
i
Mpva
j
Mpl
C
C
C
Since the collection of cores in all cases at RCLi will have a decreased CMpva as outcome a test
is performed to see how the total life cycle cost is affected by an increase or decrease of CMpva.
The results of this sensitivity test for scenario 1,2 and 3 are presented in Figure 9.
Figure 9. Total life cycle cost for cases at scenario 2 and 3 at RCLi and scenario 1. The total cost is plotted as function of
production cost per product, with a batch size of 1000 products.
46
In the results presented previously the fixed cost for producing one product was set to 100
€/product in BaU and RCL0. As the total cost for scenario 1 is highly dependent on the
manufacturing stage the cost will increase quickly when the fixed cost is increased. Up to a cost
of 50 €/product the Business as Usual scenario will have the lowest total life cycle cost.
From this point Buy Back 30% has a slightly better cost based economic performance. Buy
Back 90 % has an improved performance at 72 €/product. Buy Back 60% benefits from a
slightly higher production cost per product of 75 €/product and Leasing requires 85 €/product
respectively in order for the total cost to be lower than for BaU.
From a fixed cost per product of 75 €, Buy Back 90% will have the best cost based economic
performance, closely followed by Leasing.
The reason for why Buy Back 90% has the best cost based economic performance is due to the
fact that at a return rate of 90 percent the total life cycle cost is not as dependent on the
production cost per product as the other scenarios since a large part of the produced product
will originate from the collected cores. This is represented by the 70 percent fixed cost decrease
at RCLi earlier defined. Since Leasing has a slightly higher cost for handling of the collected
cores the point of where the total life cycle cost is decreased compared to BaU will occur at a
higher fixed cost per product.
47
7. Modelling Analysis In the previous chapter the cost based economic performance of the developed closed loop
manufacturing system was presented. This part aims at analyzing these results by discussing
the cost structure, the need of maintenance in a CE system and the reasons for different return
rates occurring. In the last section the margins of the scenarios will be analyzed.
7.1 Cost Structure As the cost structure is one of the main parts of the model the choices made when developing
this structure will be analyzed in this section. Then the included costs and the possibility of
expanding the model will be discussed.
7.1.1 Design of Cost Structure
As mentioned in 4.4 Distribution of Costs two main possibilities of distributing the costs were
identified. Distribution 2 was then recognized to be the most suitable alternative. For
clarification the two options from Table 6 are repeated in Table 17.
Table 17. Different cost structures when modelling product life cycle cost
Cost Distribution 1 Cost Distribution 2
RCL0 RCLi RCL0 RCLi
Development Development Development Collection
Procurement Procurement Procurement Processing
Manufacturing Manufacturing Manufacturing Dispositon
Distribution Distribution Distribution Development
Usage Usage Usage Procurement
Collection Collection Manufacturing
Processing Processing Distribution
Dispositon Dispositon Usage
If distribution 1 would have been applied the cost of collecting the core used for producing
products at RCLi would have been placed at RCL0. It is more suitable to put the costs of
collecting cores at the same RCL as the production of the products that will be manufactured
using these cores. Structure 2 presents a clearer connection between the collection and
production.
As the cost for manufacturing at RCL0 is at the same level as the case with BaU, and the
development cost is increased the addition of the costs of the take-back system would result in
a substantial increase that is not possible to balance with structure 1. In structure 2 however,
the cost of collecting will be balanced by the decreased manufacturing cost.
Since the RCL0 has many similarities with the BaU case the comparison between the different
cases is also improved by applying structure 2. It becomes clearer that an investment at
development stage is needed when setting up a CE system and that it is possible to balance the
costs for the take-back system with the decreased costs of manufacturing at RCLi.
48
7.1.2 Included costs
For this thesis the cost data were developed and not based on actual case data. The main reason
behind this decision was the difficulties of acquiring such data. Both because of the information
being a business secret and also due to the costs when transitioning to CE not being available.
With this taken into consideration the model has been developed for a system where a majority
of the value for each cost element would not change for different cases. Instead the multiples
of these costs were set to increase or decrease based on assumptions, mitigating the effect of
the possibility that the developed cost data might not resemble a real life scenario. Bearing this
in mind it would be interesting for future work to acquire a business case and test the model
with this cost data.
As previously mentioned in this report a product life cycle model will always be case specific
and the costs to include are specified by requirements set up by the developer. The model
developed in this thesis could therefore be altered to include more costs for a new case. One
example of such a cost could be the cost for marketing a Circular Economy product. In the
theoretical study the business model component Market was found to be an important part of a
successful CE venture. To estimate marketing costs experts in the field would need to be
consulted adding to the interdisciplinary of the model and maybe increasing the setup cost for
a CE system.
The cost for electricity and other resources the product is using during usage stage is not
included in the model. The product should be manufactured to the same standard, for all
scenarios this cost would then be the same. Though it is likely that a CE product will be designed
with sustainability taken into consideration, thus it will use less resources during usage. Since
the specific design of the product is not discussed in this thesis, the resource use is considered
to be the same for all scenarios and is not included since it would not affect the cost difference.
Another factor that has not been included in the model is the inventory, or more specifically the
cost for waiting time. This is because customer demand not being taken in to consideration. If
this were to be added to the model this would induce a cost for waiting time when the customer
demand is higher than the inventory. This is easily managed in the case of leasing where the
return time is set by agreement and therefore known. For the scenario where buy back is
implemented the risk of waiting time would be higher as there is no guarantee that a
remanufactured product is in stock. A solution for this could be to offer a RCL0 product instead
of the customer having to wait even if a RCLi product would be desirable.
7.2 Maintenance for Circular Economy products Maintenance costs are caused by product malfunction and in this model this cost has been
included in the total life cycle cost. However, all the scenarios have the same cost for
maintenance. In early stages of the development of the model, this cost also changed according
to scenario but this was later removed due to it not being in focus in this thesis. As the disbelief
in remanufactured products currently exist many assume that the need for maintenance might
be higher for a CE product. This contradicts with one of the main characteristics of these
49
products, that they should be manufactured to be durable and last for many life cycles. If this is
not true, the design is not sufficient and should be altered. With this as argumentation the
maintenance cost would be expected to decrease as the product has been developed to last for
its entire life cycle and then be reused. However, break down might happen and therefore the
cost during Usage/Service stage was set at the same level for all three scenarios.
7.3 Resource Conservation Levels For this thesis only two main levels of resource conservation are examined, RCL0 and RCLi.
This implies that the costs are not changing for different RCLi which would probably not be the
case in reality. The approach of RCLs requires that the number of life cycles is predetermined,
the range for i is set. If this number is 4 then the products and cores of the 1:st level should be
expected to have different characteristics when compared to the 4:th level.
As an example the state of the core could be expected to change, resulting in a decreased volume
possible to remanufacture. Instead theses cores would be recycled for material. This affects the
costs for the different stages in the life cycle. Therefore, the model would need to be expanded
to get the full effects of Circular Economy for the different RCLs.
7.4 Return Rates To be able to model the different Circular Economy scenarios Buy Back and Leasing a set of
return rates where developed based on findings in the theoretical study. For the Buy Back
scenario three probabilities representing a low, middle and high possibility that the customer
would return the product at end of use was defined. As compared to the Leasing scenario where
a 100 percent of the products will return. But what would be the mechanisms behind such return
rates and how could the company improve them?
For a leasing agreement the return rate should be 100 percent if there exists no possibility of
the customer buying that product at the end of the leasing agreement. If this is not the case the
return rate could decrease slightly but would still be high.
For the Buy Back scenario different return rates could reflect different things depending on the
setup of the CE system. The different return rates could:
Reflect a gradual increase caused by a maturing system, starting at a low return rate and
continuously developing the system to handle larger volumes of collected core over
time. Thus spreading the investments needed to set up a CE system.
Be caused by insufficient marketing efforts from the company about the possibility for
the customer to return the product.
Reflect a non-coherency between the customer and company valorization of the used
product. If the compensation (monetary value, discounts etcetera) is not deemed
sufficient enough by the customer the product might not be returned
Be decided by the company as desirable return rate based on the capacity of the system.
As has been shown in the results of the modelling of the cost based economic performance it is
important to be aware of the return rate when developing a CE system. It is also clear that the
50
company could affect the rate by implementing suitable measures, but for this to be possible
the mechanisms behind why customers chose to return their products should be investigated.
7.5 Margins
Although the margins of the Circular Economy system in this thesis have not been further
investigated the revenue streams of such a system was studied during the theoretical study. For
the Buy Back scenario the revenue stream would be similar to a linear economy because of
them both being an asset sale. As can be seen in Figure 10 both of these scenarios will have a
positive effect on the revenue at time 1. Then at end of use (time 4) the Buy Back scenario will
have a negative effect due to the compensation given to the customer.
Figure 10. Revenue streams for linear economy, buy back and leasing.
For the Leasing scenario the revenue stream will be spread out which will affect the margins of
such a system. Even if the total revenue will not be changed the payback time is prolonged
which is important to take into consideration if developing a take-back system where leasing
agreements will be used as a way of retrieving the core.
Based on this, other factors of implementing a CE system might result in better margins than in
a linear economy. Customers that cannot afford or want to buy a product might be interested in
leasing such a product, causing the number of customer segments to increase. A CE product
might also attract new customers that are interested in sustainable products. The compensation
given at return of the product could also cause better customer relations and as a result of this,
increased sales.
51
8. Key Performance Indicators The second part of this thesis was to identify generic Key Performance Indicators that can be
used for monitoring the performance of a closed loop manufacturing system. This chapter will
define three high level KPIs based on the knowledge gathered about Circular Economy in the
theoretical and empirical studies. The relevance and importance of these KPIs will then be
analyzed. For clarification R2 is repeated below.
R2: Which are the generic Key Performance Indicators necessary to model the performance of
a closed loop manufacturing system?
8.1 Definition of a Key Performance Indicator The results from the theoretical and empirical study show that the economic performance of the
system is important to have a successful business. This is also mentioned by Lieder & Rashid
(2016) who defines the CE framework to encompass environmental impact and resource
scarcity in addition to economic benefits. This has therefore been the starting point when
identifying generic KPIs.
As earlier explained there exist multiple ways of defining Key Performance Indicators. The
definition used for deriving theses KPIs has been the one developed by Kerzner (2013) who
dissects the concept in to its individual parts as shown below:
Key: A major contributor to the success or failure
Performance: A metric that can be measured, quantified, adjusted and controlled.
Indicator: Reasonable representation of present and future performance
Based on these findings three high level KPIs for modelling the performance of a closed loop
has been defined.
8.2 Economic Performance
In this thesis the cost based economic performance has been in focus but economic performance
can also be measured by modelling the revenue or profit. The economic performance is a make
or break point in most businesses and this is also true for Circular Economy. This performance
might be positively affected by a green image communicated to customers but to be successful
and create margins the processes needs to be adapted to CE in order to gain the benefits of such
a system.
The KPI economic performance fulfills all three criteria by being a major contributor, by being
measurable as shown in this thesis and by being a representation of present and future
performance as it may indicate how successful the business venture is or will be.
8.3 Resource Conservation
The second KPI has also been a central part in this thesis. Circular Economy aims at reducing
the use of material resources and in the best case, conserve them. The RCS Reuse,
Remanufacturing and Recycling all play an important part towards this goal.
52
From this high level KPI others can be derived. For example, a KPI showing how large part of
the production that originate from reused, remanufactured or recycled products could be used
to monitor the CE performance of the system. It could also be a KPI that measures the
percentage of conserved material in the product (Ellen MacArthur Foundation, 2015). By this
it fulfills criteria two and three. Since the conservation of resources is the base of Circular
Economy this KPI also meets the first criteria of being a major contributor to success or failure.
8.4 Environmental Impact This third KPI has not been that thoroughly investigated in this thesis because, as stated in the
introduction, the body of scientific knowledge in this area is substantial. This is most probably
due to the fact that environmental impact as well as economic performance are KPIs applicable
also in linear economy. Similar to economic performance, the impact on the environment is
important for Circular Economy as well.
Apart from reducing the use of virgin material the changed production processes will need less
energy, water, etcetera. These decreases can be measured and also show the performance of the
system, if it is well adapted to CE or not. A CE well designed system will most probably also
pollute less than a linear system. If this is not the case and the environmental impact increases
when implementing Circular Economy, the purpose of reducing the use of natural resources has
not been met. Therefore, the KPI Environmental Impact is a major contributor for success or
failure and the third criteria in the definition of a KPI is met.
8.5 Analysis of the Key Performance Indicators The defined KPIs all meet the specified criterions developed by Kerzner (2013). This part will
analyze how well these KPIs are connected to Circular Economy and for the last part the
importance of measuring performance will be discussed.
8.5.1 Relevance
In this thesis the key feature of the CE system has been the closing of the loop. This is one of
the main characteristics of Circular Economy and the main thing that separates it from being
linear. The high level KPI measuring resource conservation is directly linked to the closed loop
as it will demonstrate if material resources are conserved or not.
The environmental performance will also be affected by the state of the loop. A closed loop
will mean that the cores can be collected and thus the use of other natural resources than material
will also decrease as has been previously explained. If there is leakage in the system this will
affect the environmental performance in a similar way as the resource conservation would be.
For the economic performance the dependency on the state of the loop reminds of the other
KPIs. Even if the cost based performance could be positive for a semi closed loop, as has been
shown when modelling the Buy Back scenario, the performance will improve as the leakage is
minimized. This is largely due to the decreased use of resources in the production.
The three high level KPIs defined are also linked with the economic performance of a CE
system. For the KPI Economic performance the link is clear, for the other two the link is the
decreased use of natural resources. This decrease does not only impact the environment, by
53
reducing the use of resources the cost for using virgin material, electricity, water etcetera will
also decrease, affecting the economic performance of the closed loop system in a positive way.
As mentioned earlier these three KPIs are high level and could also be seen as KPI categories
where KPIs used for monitoring the performance in detail can be searched for.
8.5.2 Importance of measuring performance
In the scientific reports that has been consulted for this thesis the benefits of CE are often
mentioned but rarely specified. This is in most cases because of them not being measured. Of
the defined KPIs the environmental impact is the benefit that is most widely discussed and
though the Ellen MacArthur Foundation (2013; 2015) provides examples of measurements of
both economic performance and resource conservation, they seem to be one of few who does
this.
When measuring the performance of Circular Economy it becomes comparable to a linear
economy. This is desirable since the aim is to demonstrate the possibilities of such a system. If
the performance is not monitored there is no way of knowing how the CE system performs or
will perform in the future. The KPIs could also be used when comparing different CE setups
with each other.
54
9. Conclusion and Future Work This chapter aims at summarizing the results found in this master thesis as well as proposing
possibilities for future research work.
The aim of this thesis has been to study Circular Economy from a business point of view by
examining the cost based economic performance of a closed loop manufacturing system. Based
on the results from the modelling the conclusion is that a CE system is relatively easier to
implement if transitioning gradually from a linear economy. For the best possible outcome
however, the products and business model should be designed with Circular Economy taken in
to consideration at the development stage. It is also important to have a Take-Back strategy.
From the developed circular product life cycle a series of costs were designed for each of the
stages. Three scenarios describing different strategies for implementing CE were used as input
to the model, the cost differences were motivated by characteristics of Circular Economy. The
model was used for measuring the cost based economic performance of Circular Economy
making it comparable to a linear scenario. The results demonstrated that it is possible to have
an improved performance of a CE system compared to a linear, with a maximum cost decrease
of 3,2 percent, based on the assumptions and limitations of the developed model. Being aware
of the initial investment necessary the challenge will be the transition, running a linear and
circular business simultaneously.
For future work the model in this thesis could be expanded with more costs. In such a case it
would be interesting to compare the profit generated in a linear system compared to a circular.
If the profit would be investigated, the pricing mechanisms for CE products would also be
important to study.
Another expansion of the model could be to investigate the characteristics of different RCL as
was discussed in the analysis of the model. The first step would be to determine how many life
cycles the product could have, then each of these levels would be analyzed in detail.
Since the Circular Economy has a special relation to its customers, the customer motivation and
attitude towards buying a CE branded product could be further investigated. Today we know
that there exists a mixed attitude, but few studies have been made concentrating on the Swedish
market. As markets are generally not similar this attitude might differ from attitudes in other
countries.
Though the environmental and resource conservation benefits seem to be unquestioned, or at
least mostly viewed as positive, still an investigation of the consequences when material
resources are kept in loops that are monitored by OEMs could be useful and should be
conducted. Especially for highly valued materials where the supply is scarce today. Could a
Circular Economy create a resource monopoly, even if the initial intentions are good?
55
References Accorsi, R., Manzini, R., Pini, C. & Penazzi, S., 2015. On the design of closed-loop networks
for product life cycle management: Economic, environmental and geography considerations.
Journal of Transport Geography 48, pp. 121-134.
Aigbe, O. T., 2011. A Decision-Based Design Process for Eco-Industrial Parks, Maryland:
Faculty of the Graduate School of the University of Maryland.
Andrews, D., 2015. The circular economy, design thinking and education for sustainability.
Local Economy vol. 30(3), pp. 305-315.
Apple Inc., 2016. Refurbished and Clearance. [Online]
Available at: http://www.apple.com/shop/browse/home/specialdeals
[Accessed 9 May 2016].
Aram, S., Eastman, C. & Beetz, J., 2014. Qualitative and Quantitative Cost Estimation: A
Methodology Analysis. Computing in Civil and Building Engineering , pp. 381-389.
Asiedu, Y. & Gu, P., 1998. Product life cycle cost analysis: State of the art review.
International Journal of Production Research, 36:4, pp. 883-908.
Asif, M. A. F., 2011. Resource Conservative Manufacturing - A New Generation of
Manufacturing, Stockholm: KTH Production Engineering, Royal Institute of Technology.
Association Automotive Parts Remanufacturers, 2016. History of Automotive
Remanufacturing. [Online]
Available at: http://www.apra-europe.org/main.php?target=history
Blancco, 2015. Certifications Fact Sheet UK. [Online]
Available at: http://www.blancco.com
[Accessed 23 06 2016].
Brännlund, R., 2005. Grön Skatteväxling - frälsning eller förbannelse, Umeå, Sweden:
Instutionen för skogsekonomi.
Chesbrough, H., 2007. Business model innovation: it's not just about technology anymore.
Strategy & Leadership, vol. 35 Iss 6, pp. 12-17.
De Jong, E., Engelaer, F. & Mendoza, M., 2015. Realizing opportunities of a circular
business model, s.l.: Whitepaper.
DI Digital, 2015. Holländska snappcar köper svenska flexidrive. [Online]
Available at: http://digital.di.se/artikel/hollandska-snappcar-koper-svenska-flexidrive
[Accessed 18 May 2016].
Eckerson, W., 2006. Performance Dashboards: Measuring, Monitoring and Managing Your
Business. Hoboken, NJ: John Wiley and Sons.
56
Ellen MacArthur Foundation, 2013. Towards The Circular Economy vol. 1 - Economic and
business rationale for an accelerated transition, s.l.: Ellen MacArthur Foundation.
Ellen MacArthur Foundation, 2015. Delivering the Circular Economy - A Toolkit for
Policymakers, s.l.: Ellen MacArthur Foundation.
Ellen MacArthur Foundation, 2015. Programmes-insight-circularity indicators. [Online]
Available at: https://www.ellenmacarthurfoundation.org
[Accessed 3 May 2016].
Ellen McArthur Foundation, 2014. Towards the Circular Economy vol. 3 - Accelerating the
scale-up across global supply chains, s.l.: Ellen McArthur Foundation.
Euorpean Commission, 2016. Growth - Raw materials, metals, minerals and forest-based
industries. [Online]
Available at: http://ec.europa.eu/growth/sectors/raw-materials/
[Accessed 29 03 2016].
European Commission, 2015. Closing the loop - An EU action plan for the Circular
Economy, Brussels: European Commission.
Filippa K, 2015. Lease the look - how it works. [Online]
Available at: http://www.filippa-k.com
[Accessed May 2016].
Flood, L. M. C., 2015. Optimala skatter och grön skatteväxling, Stockholm: Fores.
Forge, S., 1993. Business models for the computer industry for the next decade - when will
the fastest eat the largest. Futures November, pp. 923-948.
Frankenberger, K., Weiblen, T., M., C. & Gassmann, O., 2013. The 4I-framework of business
model innovation: a structured view on process phases and challenges. Int. Journal of Product
Development vol. 18, pp. 249-273.
Galbreth, M. R., Boycai, T. & Verter, V., 2013. Product Reuse in Innovative Industries.
Production and Operations Management Vol. 22, No 4, pp. 1011-1033.
Ghisellini, P., Cialani, C. & Ulgiati, S., 2016. A review on circular economy: the expected
transition to a balanced interplay of environmental and economic systems. Journal of Cleaner
Production, 15 February, Volume 114, pp. 11-32.
Gröndahl, F. & Svanström, M., 2010. Hållbar Utveckling - en introduktion för ingenjörer och
andra problemlösare (Swedish). Stockholm: Liber AB.
Grönhaug, K. & Karlsson, E., 2016. Production Manager, Managing Director at Houdini
Sportswear [Interview] (7:th April 2016).
57
H&M Conscious, 2016. Garment Collecting. [Online]
Available at: http://www.hm.com/se
[Accessed 22 June 2016].
H&M, 2016. About - Sustainability - Commitments - Reduce Waste - Closing the Loop.
[Online]
Available at: http://about.hm.com/en
[Accessed 22 June 2016].
Huang, R. H., Yang, C. L., Lin, C. C. & Cheng, Y. J., 2012. Performance evaluation model
for reverse logistics- the case of recycled computers. Journal of Statistics and Management
Systems , Issue 15:2-3, pp. 323-343.
Johnson, W. M., Christensen, M. C. & Kagermann, H., 2008. Reinventing Your Business
Model. Harward Business Review, pp. 1-11.
Kerzner, H., 2013. Project Management Metrics, KPIs, and Dashboards. New York, NY:
International Institue for Learning, Inc. New York.
Krajewski, M., 2014. IEEE Spectrum - The Great Lightbulb Conspiracy. [Online]
Available at: http://spectrum.ieee.org/geek-life/history/the-great-lightbulb-conspiracy
[Accessed 06 April 2016].
Källman, M., 2015. Cirkulär affärsmodell hos sporthyra. [Online]
Available at: http://circulareconomy.se
[Accessed May 2016].
Lacy, P., Keeble, J., McNamara, R. & al., e., 2014. Circular Advantage - Innovative Business
Models and Technologies to Create Value in a World without Limits to Growth, s.l.:
Accenture Strategy & Sustainability.
Lavery, G., Pennel, N., Brown, S. & Evans, S., 2013. The Next Manufacturing Revolution -
Non - Labour Resource Productivity and its Potential for UK Manufacturing, s.l.: NMR.
Layer, A. et al., 2002. Recent and future trends in cost estimation. International Journal of
Computer Integrated Manufacturing, 15:6, pp. 499-510.
Lechner, G. & Reimann, M., 2014. Impact of product acquisition on manufacturing and
remanufacturing strategies. Production & Manufacturing Research, 2(1), pp. 831-859.
Lewandowski, M., 2016. Designing the Business Models for Circular Economy—Towards
the Conceptual Framework. Sustainability, vol. 8, pp. 1-28.
Lieder, M. & Rashid, A., 2016. Towards circular economy implementation: a comprehensive
review in context of manufacturing industry. Journal of Cleaner Production 115, pp. 36-51.
Linton, J. D., 2008. Assessing the Economic Rationality of Remanufacturing Products.
Journal of Production Innovation Management, pp. 287-302.
58
Liu, H., Gopalkrishnan, V., Nhu Quynh, K. T. & Ng, W. K., 2009. Regression models for
estimating product life cycle cost. Journal of Intelligent Manufacturing 20, p. 401–408.
Liu, Y. & Bai, Y., 2014. An exploration of firm's awareness and behaviour of developing
circular economy: An empirical research in China. Resources, Conservation and Recycling
87, pp. 145-152.
London, B., 1932. Ending the depression through planned obsolescence. s.l.:Photocopy
available at: http://babel.hathitrust.org/cgi/pt?id=wu.89097035273;view=1up;seq=1.
Lowa, J. S. C., Lu, F. W. & Song, B., 2014. Product Structure-Based Integrated Life Cycle
Analysis (PSILA): a technique for cost modelling and analysis of closed-loop production
systems. Journal of Cleaner Production 70, pp. 105-117.
Low, J. S. C., Lu, F. W. & Song, B., 2014. Product Structure-Based Integrated Life Cycle
Analysis (PSILA): a technique for cost modelling and analysis of closed-loop production
systems. Journal of Cleaner Production 70, pp. 105-117.
Lund, R., 1996. The Remanufacturing Industry: Hidden Giant, Boston, Massachusetts:
Boston University.
Monga, A., 2014. Cracking the Code behind 'Cores' in Automotive Remanufacturing.
[Online]
Available at: https://www.linkedin.com/pulse/20140807055033-155874099-cracking-the-
code-behind-cores-in-remanufacturing
[Accessed 10 June 2016].
Mukherjee, K. & Mondal, S., 2009. Analysis of issues relating to remanufacturing technology
– a case of an Indian company. Technology Analysis & Strategic Management 21:5, pp. 639-
652.
Nasr, E. A. & Kamrani, A. K., 2007. Chapter 2 Product Life Cycle Cost Model. In: Computer
Based Design and Manufacturing. s.l.:Springer.
Naturvardsverket, 2004. Fortsatt grön skatteväxling - förslag till utformning, Bromma:
Naturvårdsverket.
Norden , 2015. Moving towards a circular economy – successful Nordic business models,
Copenhagen: Nordic Council of Ministers.
Osterwalder, A., Pigneur, Y. & Clark, T., 2010. Business Model Generation : A Handbook for
Visionaries, Game Changers, and Challengers (1). s.l.:Wiley.
Osterwalder, A., Pigneur, Y. & Tucci, L. C., 2005. Clarifying Business Models: Origins,
Present and Future of the Concept. CAIS vol. 15, pp. 1-40.
Pearce, J. A., 2009. The Profit-Making Allure of Product Reconstruction. MIT Sloan
Managment Review, 50(3), pp. 59-65.
59
Pettersson, E., 2016. Sustainability Manager at Inrego AB [Interview] (21 March 2016).
Rashid, A., Asif, F. M. A., Krajnik, P. & Nicolescu, C. M., 2013. Resource Conservative
Manufacturing: an essential change in business and technology paradigm for sustainable
manufacturing. Journal of Cleaner Production 57, pp. 166-177.
Roos, G., 2014. Business Model Innovation to Create and Capture Resource Value in Future
Circular Material Chains. Resources vol. 3, pp. 248-274.
Roy, R., Kelvesjö, S., Forsberg, S. & Rush, C., 2001. Quantitative and qualitative cost
estimating for engineering design. Journal of Engineering Design, 12(2), pp. 147-162.
Sabharwal, S. & Garg, S., 2013. Determining the cost effectiveness of remanufacturing: A
graph theoretic approach. Int. J. Production Economics 144, pp. 521-532.
Shah, S., 2012. Sustainable Refurbishment. s.l.:Wiley - Blackwell.
SnappCar, 2016. Snappcar.se - Hur funkar det. [Online]
Available at: https://www.snappcar.se/hur-funkar-det
Su, B., Heshmati, A., Geng, Y. & Yu, X., 2013. A review of the circular economy in China:
moving from rethoric to implementation. Journal of Cleaner Production 42, pp. 215-227.
Swedish Finance Ministry, 2016. Finansdepartementet - Skatteförslag för ökad
återanvändning och momsbefrielse för solelsproducenter m.fl.. [Online]
Available at: http://www.regeringen.se
[Accessed 20 March 2016].
Temin, P., 1994. NBER Working series on historical factors in long run growth - The Great
Depression, Cambridge, MA: National Bureau of Economic Research .
The World Bank, 2016. Manufacturing, value added (% of GDP). [Online]
Available at: http://data.worldbank.org/indicator/NV.IND.MANF.ZS
[Accessed 16 03 2016].
UNEP, 2011. Recyling Rates of Metals - A Status Report, s.l.: s.n.
Van Renswoude, K., Wolde, A. & Joustra, D., 2015. Circular Business Models. Part 1: An
introduction to, Amsterdam: IMSA.
Wei, S. & Tang, O., 2014. Real option approach to evaluate cores for remanufacturing in
service markets. International Journal of Production Research, 53(8), pp. 2306-2320.
Wei, S., Tang, O. & Sundin, E., 2015. Core (product) Acquisition Management for
remanufacturing: a review. Journal of Remanufacturing, 5(4), pp. 1-27.
Veleva, V. e. a., 2015. Understanding and addressing business needs and sustainability
challenges: lessons from Devens eco-industrial park. Journal of Cleaner Production vol. 87,
pp. 375-384.
60
Wijkman, A. & Skånberg, K., 2015. The Circular Economy and Benefits for Society - A study
pertaining to Finland, France, the Netherlands, Spain and Sweden, s.l.: The Club of Rome.
Williander, M. & Sarasini, S., 2015. Jobb kan rationaliseras bort även i en cirkulär ekonomi.
Dagens Nyheter, 23 June.
Winkler, H., 2011. Closed-loop production system - A sustainable supply chain approach.
CIRP Journal of Manufacturing Science and Technology 4, pp. 243-246.
Zwickera, C., Hammerstingla, V., Possina, C. & Prof. Dr.-Ing., R. G., 2016. Life Cycle Cost
Estimation of Robot Systems in an Early Production Planning Phase. Procedia CIRP 44, pp.
322-327.
i
Appendix 1 – Interview Questions This appendix presents the interview questions posed during the structured interviews
conducted for the master thesis “Going circular: Quantifying the cost based economic
performance of a closed loop production system”. The questions were developed in english and
later translated as the interviews were help in swedish.
1. Name, Company, Position [Namn, Företag, Position]
2. What is your business model? [Hur ser er affärsmodell ut?]
3. What is Circular Economy for your company? [Hur skulle du beskriva vad
Cirkulär Ekonomi är för ert företag]
4. How do you work with CE? [Hur arbetar ni med CE på företaget?]
i. How do you gathering material? [Hur samlar ni in material]
5. Circular Economy in Sweden, what are the boundaries? [Vad är de största hindren
för CE i Sverige enligt dig?]
6. Circular Economy in Sweden, what are the incentives? [Vad är de största
möjligheterna med CE?]
7. Do you see any possibilities to expand the market share with CE? [Har ni några
möjligheter att expandera i CE? Använda återvinning, återanvändning,
återtillverkning]
8. About KPI, which KPIs are important when measuring economic performance in
your company? [Vilka faktorer är viktiga för ert företag när ni mäter ekonomisk
lönsamhet]
9. About KPI, do you measure any CE-indicators? [Mäter ni några nyckeltal som har
att göra med CE?]
i
Appendix 2 – Detailed Cost Data This appendix presents the detailed cost data used for calculating the product life cycle costs in
the master thesis “Going circular: Quantifying the cost based economic performance of a
closed loop production system”. First the cost data for scenario 1: Business as Usual is
presented, then the data for scenario 2: Buy Back and lastly the data for scenario 3: Leasing.
For all three scenarios the following product data has been used:
Products produced: 1000 products
Product weight: 10 kg
Total weight produced: 10000 kg or 10 tonnes
The tables with cost data will be presented on the following pages.
ii
Cost Data Scenario 1 – Business as Usual
Table 2.1 presents the cost data used for calculating the product life cycle costs in scenario 2:
Buy Back.
Table 2.1. Cost Data Scenario 1 – Business as Usual.
Cost element Abbrevation Cost No N No M Sum
Development CD 108000
Engineering design CDeng [i] 5000 5 25000
Design modification CDmod [i] 3000 5 15000
Production preparation cost CDprep 43000
Prototype fabrication CDpfa 10000 1 10000
Prototype material CDpm 8000 1 8000
Cost of individual test CDpt [i] 5000 5 25000
Management cost CDman [i] 5000 5 25000
Procurement CPC 50000
Procurement activity cost CPCa [i] 5000 5 25000
Material cost CPCm [j] 5000 5 25000
Manufacturing CM 450000
Production Cost CMp 400000
Fixed Production Cost CMpf [i] 100 1000 100000
Value Adding Cost CMpa [i] 50 1000 50000
Labor Cost CMpl [j] 50000 5 250000
Facility Cost CMfa [i] 50000 1 50000
Distribution CDI 17000
Transportation cost CDIt [i] 3000 5 15000
Packaging cost CDIp [j] 2 1000 2000
Usage/Service 5000
Maintenance cost CMI
Labor Cost for i:th activity CMIl [i] 500 5 2500
Spare/repair parts for i:th activity CMIp [i] 200 5 1000 Transport and handling for i:th activity CMIt [i] 300 5 1500
Collection of Core 0
Retrieval cost CC [i] 0
Processing CPS 1508
Disassembly cost CPSd 0
Labor cost disassembly CPSl [i] 0
Specific disassembly activity CPSda [j] 0
Reprocessing cost CPSr [i] 0
Scrap and Landfill cost CPSl [i] 150,75 10 1508
Disposition CDSP 0
Disposition cost CPSP [i] 0
Sum for all cost stages 631 508 €
iii
Cost Data Scenario 2 – Buy Back
Table 2.2 – 2.7 presents the cost data used for calculating the product life cycle costs in scenario
2: Buy Back.
Table 2.2 Cost Data Scenario 2 – Buy Back 30% RCL0
Cost element Abbrevation Cost No N No M Sum
Development CD 99000
Engineering design CDeng [i] 5000 4 20000
Design modification CDmod [i] 3000 4 12000
Production preparation cost CDprep 42000
Prototype fabrication CDpfa 10000 1 10000
Prototype material CDpm 8000 1 7000
Cost of individual test CDpt [i] 5000 5 25000
Management cost CDman [i] 5000 5 25000
Procurement CPC 50000
Procurement activity cost CPCa [i] 5000 5 25000
Material cost CPCm [j] 5000 5 25000
Manufacturing CM 450000
Production Cost CMp 400000
Fixed Production Cost CMpf [i] 100 1000 100000
Value Adding Cost CMpa [i] 50 1000 50000
Labor Cost CMpl [j] 50000 5 250000
Facility Cost CMfa [i] 50000 1 50000
Distribution CDI 17000
Transportation cost CDIt [i] 3000 5 15000
Packaging cost CDIp [j] 2 1000 2000
Usage/Service 5000
Maintenance cost CMI 0
Labor Cost for i:th activity CMIl [i] 500 5 2500
Spare/repair parts for i:th activity CMIp [i] 200 5 1000 Transport and handling for i:th activity CMIt [i] 300 5 1500
Collection of Core 0
Retrieval cost CC [i]
Processing CPS 0
Disassembly cost CPSd
Labor cost disassembly CPSl [i]
Specific disassembly activity CPSda [j]
Reprocessing cost CPSr [i]
Scrap and Landfill cost CPSl [i]
Disposition CDSP 0
Disposition cost CPSP [i]
Sum for all cost stages 621 000,00 €
iv
Table 2.3 Cost Data Scenario 2 – Buy Back 30% RCLi
Cost element Abbrevation Cost No N No M Sum
Development CD 108000
Engineering design CDeng [i] 5000 5 25000
Design modification CDmod [i] 3000 5 15000
Production preparation cost CDprep 43000
Prototype fabrication CDpfa 10000 1 10000
Prototype material CDpm 8000 1 8000
Cost of individual test CDpt [i] 5000 5 25000
Management cost CDman [i] 5000 5 25000
Procurement CPC 50000
Procurement activity cost CPCa [i] 5000 5 25000
Material cost CPCm [j] 5000 5 25000
Manufacturing CM 405000
Production Cost CMp 355000
Fixed Production Cost CMpf [i] 90 1000 90000
Value Adding Cost CMpa [i] 15 1000 15000
Labor Cost CMpl [j] 50000 5 250000
Facility Cost CMfa [i] 50000 1 50000
Distribution CDI 17000
Transportation cost CDIt [i] 3000 5 15000
Packaging cost CDIp [j] 2 1000 2000
Usage/Service 5000
Maintenance cost CMI 0
Labor Cost for i:th activity CMIl [i] 500 5 2500
Spare/repair parts for i:th activity CMIp [i] 200 5 1000 Transport and handling for i:th activity CMIt [i] 300 5 1500
Collection of Core 9000
Retrieval cost CC [i] 300 9000
Processing CPS 3155,25
Disassembly cost CPSd 600
Labor cost disassembly CPSl [i] 0 0
Specific disassembly activity CPSda [j] 60 600
Reprocessing cost CPSr [i] 300 1500
Scrap and Landfill cost CPSl [i] 150,75 7 1055,25
Disposition CDSP 30000
Disposition cost CPSP [i] 300 30000
Sum for all cost stages 627 155,25 €
v
Table 2.4 Cost Data Scenario 2 – Buy Back 60% RCL0
Cost element Abbrevation Cost No N No M Sum
Development CD 120000
Engineering design CDeng [i] 5000 6 30000
Design modification CDmod [i] 3000 6 18000
Production preparation cost CDprep 42000
Prototype fabrication CDpfa 10000 1 10000
Prototype material CDpm 8000 1 7000
Cost of individual test CDpt [i] 5000 5 25000
Management cost CDman [i] 5000 6 30000
Procurement CPC 50000
Procurement activity cost CPCa [i] 5000 5 25000
Material cost CPCm [j] 5000 5 25000
Manufacturing CM 450000
Production Cost CMp 400000
Fixed Production Cost CMpf [i] 100 1000 100000
Value Adding Cost CMpa [i] 50 1000 50000
Labor Cost CMpl [j] 50000 5 250000
Facility Cost CMfa [i] 50000 1 50000
Distribution CDI 17000
Transportation cost CDIt [i] 3000 5 15000
Packaging cost CDIp [j] 2 1000 2000
Usage/Service 5000
Maintenance cost CMI 0
Labor Cost for i:th activity CMIl [i] 500 5 2500
Spare/repair parts for i:th activity CMIp [i] 200 5 1000 Transport and handling for i:th activity CMIt [i] 300 5 1500
Collection of Core 0
Retrieval cost CC [i]
Processing CPS 0
Disassembly cost CPSd
Labor cost disassembly CPSl [i]
Specific disassembly activity CPSda [j]
Reprocessing cost CPSr [i]
Scrap and Landfill cost CPSl [i]
Disposition CDSP 0
Disposition cost CPSP [i]
Sum for all cost stages 642 000,00 €
vi
Table 2.5 Cost Data Scenario 2 – Buy Back 60% RCLi
Cost element Abbrevation Cost No N No M Sum
Development CD 108000
Engineering design CDeng [i] 5000 5 25000
Design modification CDmod [i] 3000 5 15000
Production preparation cost CDprep 43000
Prototype fabrication CDpfa 10000 1 10000
Prototype material CDpm 8000 1 8000
Cost of individual test CDpt [i] 5000 5 25000
Management cost CDman [i] 5000 5 25000
Procurement CPC 40000
Procurement activity cost CPCa [i] 5000 4 20000
Material cost CPCm [j] 5000 4 20000
Manufacturing CM 325000
Production Cost CMp 275000
Fixed Production Cost CMpf [i] 60 1000 60000
Value Adding Cost CMpa [i] 15 1000 15000
Labor Cost CMpl [j] 50000 4 200000
Facility Cost CMfa [i] 50000 1 50000
Distribution CDI 17000
Transportation cost CDIt [i] 3000 5 15000
Packaging cost CDIp [j] 2 1000 2000
Usage/Service 5000
Maintenance cost CMI 0
Labor Cost for i:th activity CMIl [i] 500 5 2500
Spare/repair parts for i:th activity CMIp [i] 200 5 1000 Transport and handling for i:th activity CMIt [i] 300 5 1500
Collection of Core 12000
Retrieval cost CC [i] 600 12000
Processing CPS 54803
Disassembly cost CPSd 51200
Labor cost disassembly CPSl [i] 1 50000
Specific disassembly activity CPSda [j] 120 1200
Reprocessing cost CPSr [i] 600 3000
Scrap and Landfill cost CPSl [i] 150,75 4 603
Disposition CDSP 60000
Disposition cost CPSP [i] 600 60000
Sum for all cost stages 622 803,00 €
vii
Table 2.6 Cost Data Scenario 2 – Buy Back 90% RCL0
Cost element Abbrevation Cost No N No M Sum
Development CD 141000
Engineering design CDeng [i] 5000 8 40000
Design modification CDmod [i] 3000 8 24000
Production preparation cost CDprep 42000
Prototype fabrication CDpfa 10000 1 10000
Prototype material CDpm 8000 1 7000
Cost of individual test CDpt [i] 5000 5 25000
Management cost CDman [i] 5000 7 35000
Procurement CPC 50000
Procurement activity cost CPCa [i] 5000 5 25000
Material cost CPCm [j] 5000 5 25000
Manufacturing CM 450000
Production Cost CMp 400000
Fixed Production Cost CMpf [i] 100 1000 100000
Value Adding Cost CMpa [i] 50 1000 50000
Labor Cost CMpl [j] 50000 5 250000
Facility Cost CMfa [i] 50000 1 50000
Distribution CDI 17000
Transportation cost CDIt [i] 3000 5 15000
Packaging cost CDIp [j] 2 1000 2000
Usage/Service 5000
Maintenance cost CMI
Labor Cost for i:th activity CMIl [i] 500 5 2500
Spare/repair parts for i:th activity CMIp [i] 200 5 1000 Transport and handling for i:th activity CMIt [i] 300 5 1500
Collection of Core 0
Retrieval cost CC [i]
Processing CPS 0
Disassembly cost CPSd
Labor cost disassembly CPSl [i]
Specific disassembly activity CPSda [j]
Reprocessing cost CPSr [i]
Scrap and Landfill cost CPSl [i]
Disposition CDSP 0
Disposition cost CPSP [i]
Sum for all cost stages 663 000,00 €
viii
Table 2.7 Cost Data Scenario 2 – Buy Back 90% RCLi
Cost element Abbrevation Cost No N No M Sum
Development CD 108000
Engineering design CDeng [i] 5000 5 25000
Design modification CDmod [i] 3000 5 15000
Production preparation cost CDprep 43000
Prototype fabrication CDpfa 10000 1 10000
Prototype material CDpm 8000 1 8000
Cost of individual test CDpt [i] 5000 5 25000
Management cost CDman [i] 5000 5 25000
Procurement CPC 30000
Procurement activity cost CPCa [i] 5000 3 15000
Material cost CPCm [j] 5000 3 15000
Manufacturing CM 245000
Production Cost CMp 195000
Fixed Production Cost CMpf [i] 30 1000 30000
Value Adding Cost CMpa [i] 15 1000 15000
Labor Cost CMpl [j] 50000 3 150000
Facility Cost CMfa [i] 50000 1 50000
Distribution CDI 17000
Transportation cost CDIt [i] 3000 5 15000
Packaging cost CDIp [j] 2 1000 2000
Usage/Service 5000
Maintenance cost CMI
Labor Cost for i:th activity CMIl [i] 500 5 2500
Spare/repair parts for i:th activity CMIp [i] 200 5 1000 Transport and handling for i:th activity CMIt [i] 300 5 1500
Collection of Core 9000
Retrieval cost CC [i] 900 9000
Processing CPS 106450,75
Disassembly cost CPSd 101800
Labor cost disassembly CPSl [i] 2 100000
Specific disassembly activity CPSda [j] 180 1800
Reprocessing cost CPSr [i] 900 4500
Scrap and Landfill cost CPSl [i] 150,75 1 150,75
Disposition CDSP 90000
Disposition cost CPSP [i] 900 90000
Sum for all cost stages 612 250,75 €
ix
Cost Data Scenario 3 – Leasing
Table 2.8 and 2.9 presents the cost data used for calculating the product life cycle cost for
scenario 3: Leasing.
Table 2.8 Cost Data Scenario 3 – Leasing RCL0
Cost element Abbrevation Cost No N No M Sum
Development CD 136000
Engineering design CDeng [i] 5000 8 40000
Design modification CDmod [i] 3000 8 24000
Production preparation cost CDprep 42000
Prototype fabrication CDpfa 10000 1 10000
Prototype material CDpm 8000 1 7000
Cost of individual test CDpt [i] 5000 5 25000
Management cost CDman [i] 5000 6 30000
Procurement CPC 50000
Procurement activity cost CPCa [i] 5000 5 25000
Material cost CPCm [j] 5000 5 25000
Manufacturing CM 450000
Production Cost CMp 400000
Fixed Production Cost CMpf [i] 100 1000 100000
Value Adding Cost CMpa [i] 50 1000 50000
Labor Cost CMpl [j] 50000 5 250000
Facility Cost CMfa [i] 50000 1 50000
Distribution CDI 17000
Transportation cost CDIt [i] 3000 5 15000
Packaging cost CDIp [j] 2 1000 2000
Usage/Service 5000
Maintenance cost CMI 0
Labor Cost for i:th activity CMIl [i] 500 5 2500
Spare/repair parts for i:th activity CMIp [i] 200 5 1000 Transport and handling for i:th activity CMIt [i] 300 5 1500
Collection of Core 0
Retrieval cost CC [i]
Processing CPS 0
Disassembly cost CPSd
Labor cost disassembly CPSl [i]
Specific disassembly activity CPSda [j]
Reprocessing cost CPSr [i]
Scrap and Landfill cost CPSl [i]
Disposition CDSP 0
Disposition cost CPSP [i]
Sum for all cost stages 658 000,00 €
x
Table 2.9 Cost Data Scenario 3 – Leasing RCLi
Cost element Abbrevation Cost No N No M Sum
Development CD 107000
Engineering design CDeng [i] 5000 5 25000
Design modification CDmod [i] 3000 5 15000
Production preparation cost CDprep 42000
Prototype fabrication CDpfa 10000 1 10000
Prototype material CDpm 7000 1 7000
Cost of individual test CDpt [i] 5000 5 25000
Management cost CDman [i] 5000 5 25000
Procurement CPC 30000
Procurement activity cost CPCa [i] 5000 3 15000
Material cost CPCm [j] 5000 3 15000
Manufacturing CM 245000
Production Cost CMp 195000
Fixed Production Cost CMpf [i] 30 1000 30000
Value Adding Cost CMpa [i] 15 1000 15000
Labor Cost CMpl [j] 50000 3 150000
Facility Cost CMfa [i] 50000 1 50000
Distribution CDI 17000
Transportation cost CDIt [i] 3000 5 15000
Packaging cost CDIp [j] 2 1000 2000
Usage/Service 5000
Maintenance cost CMI 0
Labor Cost for i:th activity CMIl [i] 500 5 2500
Spare/repair parts for i:th activity CMIp [i] 200 5 1000 Transport and handling for i:th activity CMIt [i] 300 5 1500
Collection of Core 10000
Retrieval cost CC [i] 1000 10000
Processing CPS 109075,375
Disassembly cost CPSd 104000
Labor cost disassembly CPSl [i] 2 100000
Specific disassembly activity CPSda [j] 400 4000
Reprocessing cost CPSr [i] 1000 5000
Scrap and Landfill cost CPSl [i] 150,75 0,5 75,375
Disposition CDSP 100000
Disposition cost CPSP [i] 1000 100000
Sum for all cost stages 621 075,38 €