Step Five – Circular Business Models & Internet of Things
Products and services reach their end-users via direct or indirect channels from producers to end-users. The decision to go direct (straight from producer to end-user) or indirect (with wholesalers and retailers/dealers) is taken based on various criteria such as: volume, value of offer, standardized versus tailored product, proximity of markets, additional services, choice of customers, etc.
Along the way all channel partners play a role and add value to both the upstream suppliers and downstream customers. In every step in the channel, there are changes in ownership, risk and financial considerations. New circular business models will have an impact on the roles of the channel partners. It involves the transformation from the one way (linear) delivery stream from producer to end user, to a continuous management of the products as well as the reverse logistics required at the end of the first use-cycle of the product so the second use-cycle can begin.
Therefore presenting a business case where a customer will pay a premium for your product over a competitive product because it is “a circular product” is the worst business decision you can make. The circular economy will not become a reality simply because the products and services are circular. Your circular business and its marketing potential might initially bring you some educated customers in the first years of operations. But over time your business will only become successful if there is inherent value to all participants; customer, suppliers, channel partners and the environment.
Establishing a Go / No Go Checklist
Large multinationals like Proctor and Gamble and Unilever have marketing and innovation departments that design numerous new products every week. Product development is not a “once in a lifetime” experience for them. As such they also test various new product / market combinations in the supermarkets. They know that only a certain percentage will be successful. Knowing this, they predetermine strict “go / no go” criteria and they set clear goals and expectations. If you think you might fail in rolling out a potentially profitable product, the best thing you can do is “fail cheap!”
The Go / No Go Checklist¹
Below is a matrix that sets out what a Go/No Go Decision Checklist² should look like. Of course you will need to change the fields as required. The importance of a Go/No Go Checklist is due to ‘sunk costs’ which means “We invested so much time and resources already, it is a waste of money if we stop now”.
To avoid a sunk costs dilemma and to ensure the decision making process is more rational and not emotional, setting out a Go/No Go matrix before you start maybe a wise choice.
Using the Go / No Go Matrix as you transition towards the circular economy will further align your staff. While ending up with No Go may be the result, the team will know what is required to move to a Go.
♦ Have you clearly stated the desired end result of the project?
♦ Is the goal statement specific and measurable?
♦ Is the goal realistic and manageable?
Are all objectives
♦ Stated clearly and realistically?
♦ Written with an end result that is definable and measurable?
♦ Written with a beginning and an end (that is, they are finite)?
♦ Are the criteria stated as objectives that are to be accomplished?
Risks and Assumptions
♦ Have the major risks and assumptions been stated?
♦ Are the major risks and assumptions and any contingency plans realistic?
♦ Do the stated risks and assumptions allow stakeholders to assess benefits and costs associated with the project?
♦ Is the project overview statement understandable to an outsider?
♦ Would you plan, implement, and manage the project as stated in the project overview statement?
♦ Are you able to manage this project?
♦ Would you put your career or business on the line for this project?
The Internet of Things
Getting started with IoT will depend a lot on the size of your company. There is no doubt that, eventually, all companies will include some aspects or elements of IoT over time. This will be necessary just in the normal course of remaining competitive in business and as costs come down, platforms become easier to use and staff skills improve we will see wholesale adoption of connectivity between products, customers and manufacturers.
As already indicated in the circular economy all products are considered assets and the information IoT can provide will maximise the value of those assets adding, potentially, extra profits for a company. In addition IoT will be able to provide a wealth of other information crucial for any business such as consumer behaviour, product recovery, material separation, preventative and predictive maintenance, functionality and resource consumption.
According to McKinsey IoT will have a potential economic impact of up to $6.2 trillion by 2025.94 The circular economy provides plenty of scope to digitize your products and while there is an abundance of literature explaining the benefits of IoT it will simply come down to two questions, with the first “How will your company main competitive and profitable in the next 25 years?”
IoT and the use of sensors can provide an enormous amount of information, such as:
(1) Predictive maintenance: IoT can assist manufacturers predict a defect or faulty part before it can cause widespread damage or a shut down of the equipment.
(2) Energy management: Energy consumption can be reduced by up to 20% by using smart meters. For example compressors when left on can consume 70% of their full power. Sensors can rely information on unnecessary energy consumption by remotely managing manufacturing assets.
(3) Asset tracking: Increasingly one of the mainstays of the retail and logistics industry. Manufacturers, suppliers and customers can track location and status as well as condition of items from the time assets leave the warehouse to their final destination. If items are damaged or in danger of being damaged due to poor weather conditions, temperature changes, poor handling or at risk of being stolen, manufacturers, suppliers as well as customers can receive instant alerts allowing them to take immediate action.³
The implementation and application of sensors and the benefits of IoT are not simply about the use of technology. It comes down to accurate information for increasingly intelligent decision making processes. When you transition from selling products to acknowledging them as assets with additional value in a second or third use-cycle or reprocessed back into a raw material for feedstock to make new products, the second question you will need to ask is “How do I maintain the value of the products I make and keep track of them for return?”
The answer to these two questions lies in IoT. Technology is becoming less expensive and easier to use. Early adopters of both the circular economy and IoT will, in some cases, have a competitive advantage. While IoT is not the total answer as many products will have to be redesigned to accommodate the use of sensors and make them easier to reuse, repair, remanufacture and refurbish, the investment a company makes into IoT may open up more revenue streams.
¹ University of Washington Canvas ‘Go/No Go Checklist’ as part of their Introduction to Project Management course
² Table ‘Go/No Go Matrix reference: https://themarketect.wordpress.com/tag/no-go/
³ ‘Factories of the Future: The Rise of IIoT’ TechTarget / www.SearchERP.com
Image: Business Model Canvas copied from ‘Money make the world go round’, FinanCE, March 2016, The Netherlands