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Executive Report
M AY 2 0 1 0
Sustainability
Through Product
Service Systems &
Servicizing
Submitted to:
The Policy Research Initiative
B y : Ya c h n i n & A s s o c i a t e s
PAGE 1
Contents
1.0 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.0 Overview of Subject
2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Categorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Significance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.0 Examples
3.1 Business-to-Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Business-to-Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Consumer-to-Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.0 Other Jurisdictions
4.1 The United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 EU Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 UNEP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.0 Policy Linkages
5.1 Life Cycle Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Key Policy Issues/Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.0 Role for Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.0 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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1.0 Introduction
This report addresses the subject of sustainability through product service
systems and servicizing by explaining what Product Service Systems (PSSs)
and Servicizing are, and making use of examples and data from academic and
business literature.
The report provides indications of how PSSs and servicizing can result in
sustainability and business performance benefits including those related to life
cycle management, dematerialization and related innovation. The details of
the examples demonstrate various life cycle benefits associated with PSS and
servicizing. Such life cycle benefits include reductions in resource requirements,
better materials management as well as heightened opportunity for extended
producer responsibility.
The most agreed to and current definition of a PSS has two parts:
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Product Oriented
Value Creation: Add services to
products.
Examples: Extended warranties,
maintenance, upgrading, and
ended of life management.
Ownership: Customer owns
product.
User Oriented
Value Creation: Provide access
to the product and the function it
provides.
Examples: Leasing, rental.
Ownership: Customer does not
need to own the product.
Result Oriented
Value Creation: directly provide
function to the customer.
Examples: Waste management
[Tangible], Communication
[Intangible].
Ownership: Customer pays for
functionality rather than use of or
access to a particular product.
Servicizing
In result-oriented servicizing models the focus of the producer and consumer shifts
from the provision and acquisition of the product to provision and acquisition
of the functionality that the product provides (e.g. operational leases). In other
instances, such as use-oriented PSSs, the shifts from business as usual to a
higher service orientation involve various forms of service-product mix (such
as telephone with voice mail service as opposed to an answering machine).
2.3 Significance
PAGE 4
3.0 Examples
This report addresses the subject of sustainability through product service systems
and servicizing. It explains what product service systems (PSSs) and Servicizing
are and makes use of examples and data from the literature to illustrate.
3.1 Business-toBusiness
General Motors (GM) pioneering efforts in its use and management of chemicals
provides a helpful example of business-to-business PSS and Servicizing. For close
to two decades, GM has contracted out the management of its chemicals to
practitioners of chemical management services (CMS). Among the products
involved are metal removal fluids, metal-forming fluids, lubricants, greases,
adhesives, paints, and compressed gases.
GMs program outsources CMS providers the tasks of purchasing, delivering,
and inventorying its chemicals as well as facilitating all environmental reporting
and data tracking, and sometimes this involves orchestrating process efficiency
improvements. This arrangement has allowed GM to realize a 30% reduction in
its chemical use and a 30% reduction in the cost of purchased chemicals and
associated management activities. GM has now implemented CMS in nearly
90% of its manufacturing facilities worldwide and its approach has become a
widely emulated best practice in this and other industriesii.
The CMS model delivers results by aligning the incentives of chemical suppliers
and customers. In traditional supplier-customer relationships, the chemical
supplier's profitability is a function of the volume sold. The more chemicals sold,
the higher the revenue for the supplier. The customer, on the other hand, has
an opposite incentive to reduce costs or the amount of chemicals purchased.
Under the CMS model, suppliers become chemical management providers and
are remunerated for successfully delivering and managing chemicals while
working to minimize total life cycle cost. The supplier's profitability is based
on superior performance (e.g. number of cars painted), not on selling more
chemicals (e.g. gallons of paint sold) (see Figure 2).
PAGE 5
CMS Modelhim:
Aligned incentives
Customer
CMS Provider
Total Lifecycle
Cost
(material, labour,
waste, inventory)
Material Cost
(price, volume)
wants to
increase
Customer
wants to
decrease
wants to
decrease
wants to
decrease
In an increasingly environmentally
conscious and cost-conscious world,
suppliers can make their business both
more sustainable and more profitable
by focusing on services that extend the
efficiency and value of their products
Sandra Rothenberg,
Rochester Institute of Technology
PAGE 6
example, indicates that: its customers drive 50% less and purchase 40% fewer
cars; and, that each zipcar replaces approximately 20 privately owned vehicles.
Another example from the business-to-consumer area is that of the Bixi bicycle
sharing service. Now on three continents, Bixi currently has approximately 278
stations, 8,500 members and 77,000 occasional users. The organizations own
data indicates that usage has so far amounted to the equivalent of travelling
3.5 million kilometres, or 87 times around the world, and 910,000 kilograms
of avoided greenhouse gas emissions.
3.3 Consumer-toConsumer
PAGE 7
PAGE 8
Business Model
ESCOs
An ESCO provides energy-efficiency-related
and other value-added services and assumes
performance risk for their project or product
that is, their compensation and profits are tied
to energy efficiency improvements (and thus,
savings in purchased energy costs) actually
obtained by the client.
Primary customer sectors
Manufacturing facilities, institutions, and offices,
including government
IT Lifecycle Solutions
IT Lifecycle Solutions are business offerings
that bundle provision of corporate IT equipment
(particularly personal computers, servers
and printers) with associated services. The
solutions provider is responsible for most or all
configuration, maintenance, repair, and upgrade.
Primary customer sectors
Large corporations & institutions, government
Environmental Performance:
Improvement Mechanisms and Findings
PAGE 9
4.2 EU Commission
Of particular interest in the current context is the reports coverage of PSSs and
servicizing as part of effective approaches to design for sustainability. Here,
UNEP is indicating that PSSs are an important consideration in any product
design planning and execution.
4.4 Other
The details of the examples demonstrate various life cycle benefits associated
with PSS and Servicizing. These include reductions in resource requirements,
better materials management as well as heightened opportunity for extended
producer responsibility.
Reductions in Resource Requirements
PSSs and Servicizing can result in substantial reductions in consumption of
water, energy, and other natural and human resources. In some cases, as
in the examples from the transportation sector of car and bicycle sharing
discussed above, servicizing can reduce the number of individual copies of
products (i.e. cars and bicycles), and the associated resources required to
service a given functional demand. In other cases, as in the result-oriented
functional procurement examples of GM, ESCOs, and Resource Management
Contracting highlighted previously, innovative performance-based contractual
relationships are established to align incentives of both the customer and the
PAGE 11
producer toward providing the same level of functionality with fewer resources,
including through waste minimization, reuse, and recycling.
Better Materials Management
Such models can also make significant contributions to better overall materials
management. In the example of GM, outsourcing chemicals management to
a specialist service provider has resulted in fewer spills and other such issues.
This is largely due to the fact that the specialist tends to be more experienced
and more focused on the specific tasks associated with chemicals management
than individual operators/employees and can have superior access to required
equipment and facilities.
The IT Lifecycle Solutions example detailed in Table 1 also indicates how
sustainability-oriented PSSs and Servicizing can lead to better materials
management. It again points out that under functional procurement orientations,
equipment providers have a stronger financial incentive to reuse, recycle or
salvage the equipment they lease. The example also indicates that there is likely
to be a reduced incidence of improper disposal and uncontrolled recycling since
end-of-lease responsibilities are placed on the equipment provider which is
much more likely than the customer to have appropriate disposal and recycling
practices/facilities in place.
Heightened Opportunity for Extended Producer Responsibility
PSSs and Servicizing business models also offer a heightened opportunity for
extended producer responsibility. This is because in functional procurement,
such as IT equipment leasing as highlighted above, the tendency is for the
producer to maintain more of the responsibility for environmental stewardship
throughout the product life cycle than in traditional models.
The encouragement of further development and expansion of such business
models therefore holds promise for addressing policy requirements for extended
producer responsibility through voluntary and non-regulator approaches. This is
of particular interest to North American jurisdictions where there are relatively
few federal laws and regulations for extended producer responsibility and the
potential gains from servicizing may therefore be greatest.
PAGE 12
model variants differ in the degree to which they are green and
there is little certainty that the greenest versions of these models
are the ones that will expand and become business as usual.
The US EPA report, in particular, points to the need for policy that:
PAGE 13
7.0 Conclusion
Innovative and emergent sustainability-oriented PSSs are becoming increasingly
common with well established examples now in many sectors.
These sustainable business models have been demonstrated to have many
environmental and business performance benefits. This is particularly true for
the result-oriented functional procurement type models in which the emphasis
is on the service-led delivery of functionality. Such models have been found
to be associated with many life cycle benefits including reductions in resource
requirements, better materials management as well as heightened opportunity
for extended producer responsibility.
Other jurisdictions are active in working to better understand these models and
on advancing them. From the US EPA work, in particular, the takeaway is that
supportive policy development is required if opportunities are to be maximized.
PSSs and Servicizing can form an important part of any governments orientation
to enhanced life cycle approaches. A key first step for interested governments
moving along this pathway is to develop understanding about what is currently
taking place within their jurisdictions.
PAGE 14
Tukker A, C van den Berg and U Tischner, Chapter 2: Product-services: a specific value
ii
iii
iv
A detailed assessment of the efforts of other jurisdictions is beyond the scope of the original
vi
terms of reference of the background papers upon which this Executive Research Report is
based. It awaits a more thorough investigation that could include direct contact to assemble a
more complete perspective including what jurisdictions are doing with their research outputs
and how they are acting on findings.
United States, Environmental Protection Agency, Green Servicizing for a More Sustainable US
vii
Economy: Key Concepts, Tools, and Analyses to Inform Policy Engagement, 2009.
Tellus Institute, Servicizing The Quiet Transition to Extended Producer Responsibility, 1999.
viii
ix
xi
xii
Approach, 2010.
See, for example, Japan, Ministry of Economy, Trade and Industry, Green Servicizing Businesses
xiii
xiv
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