Advancing the Circular Economy via Product-Service Systems

Today, the economic models of many countries are mostly built on the premise of ‘take-make-consume-and-dispose’ patterns of growth. Business and industry have customarily followed such a linear model that assumes that resources are abundant, available and cheap to dispose of. Every product is usually bound to reach its ‘end of life’ at some stage or another. When products are no longer useable or required, they are usually discarded as waste.

Several academic commentators claim that product-service systems (PSS) are moving society towards a resource‐efficient, circular economy as the sale of tangible products may also include service systems such as repair and maintenance, updates and upgrades and disposal‐services such as recycling. In a nutshell, PSS involves selling physical products as well as the provision of after-sales services so that businesses are capable of satisfying consumers’ demands.

PSS providers are in a position to design "need‐fulfillment" systems with lower impacts to the environment, by either replacing an alternative product‐service mix or by influencing the customers’ activities to become more eco‐efficient. For-profit organizations have an incentive to prolong the service life of their products and to make them as cost‐ and material‐efficient as possible.

Moreover, PSSs would typically extend beyond purchase, affecting the use and disposal of resources. Hence, these systems could lead to the minimization of material flows in the economy whilst maximizing the businesses’ service output and their users’ satisfaction. There are three types of PSSs that prescribe different product service components and ownership packages:

(a) a product‐PSS that adds extra services, but the ownership of the product(s) is transferred to the consumer(s);

(b) the results‐PSSs that would involve both parties agreeing to achieve target results, as they recast product(s) as utilized materials;

(c) in use‐PSSs, the provider(s) lease, share or pool their product(s); however, they retain the ownership of the product(s).

For instance, Philips, a diversified technology company utilizes the use‐PSS approach, as it provides a lighting service to customers and is responsible for its technology risk. The Dutch company installs its lighting equipment (including street lighting), maintains it, and ensures that it runs for a very long time. Eventually, it reclaims back its equipment when it is the right time to recycle materials. This property rights are distributed amongst Philips and its clients, over the lifetime of the products.

Philips has recognized an untapped opportunity to retain ownership of its products, as it has committed itself to dispose of the infrastructure and its constituent parts at their end of life. At the same time, customers (including the government) do not have to pay high upfront costs for their lighting equipment. Interestingly, Philips is also adopting a similar PSS within health care environments where it has established leasing relationships with clients for its medical infrastructure. Again, the company will eventually reclaim back its equipment and upgrades it when necessary. When the medical equipment is refurbished with the state‐of‐the art technology, the multinational firm will reuse it for another customer; it provides a warranty and guarantees its products as new.

The idea of shared ownership is conspicuous with the results‐ and use‐PSSs. These systems have led to upstream effects (through sustainable design) and increased throughput. PSSs are sustainable in the long run, as they reduce the use of finite resources, and result in less externalities, in terms of waste and emissions. PSSs are intended to reduce the use of finite resources.

Everyone has a responsibility to bear for the products’ disposal at their end of the life. There are opportunities as well as threats facing our organizations’ and environmental sustainability in the foreseeable future. The main challenge is creating the right environment where businesses collaborate together to benefit from resource efficiency and increased throughput. Indeed, PSSs can be facilitated through stakeholder engagement and the formation of clusters at supply chain level. The development of Eco Industrial Parks (EIPs) would help businesses turn their unwanted externalities into useable materials for others. Therefore, local institutions and governments are encouraged to support PSSs as they maximize the functioning of global ecosystems.

Parts of this contribution appeared in an academic paper that was recently accepted by Sustainable Development (Wiley).

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