5.1 Intro to operations + circular business models

circular business models

• creates product value while improving resource efficiency by extending useful life of resources/products

• purpose: environmental and social sustainability → meeting current needs but not comprising needs of future generations

  • not economic sustainability! that is consumption-oriented, eg having newer versions so that can have profit each year → not circular business model!

• production and consumption

• need to consider economic viability

linear business model

• focused on economic sustainability (or short term profit)

• planned obsolescence: “best before” → telling consumer that it will become obsolete so need to replace it → encourages repurchase but may damage reputation

types of circular business models

• circular supply models

• resource recovery models

• product life extension models

• sharing models

• product service system models

circular supply models

• approach that creates product value while improving resource efficiency by extending useful life of resources/products

• aim to reduce reliance on new raw materials/resources

• through using fully recyclable/renewable/biodegradable inputs that serve as essential materials for a different production process

• important for companies which depend on scarce resources

resource recovery models

• aim to obtain additional use from the raw materials and energy that were used to produce the original product

• convert waste (used output) into secondary raw materials (input)

• buying back products that were thrown away, sorting and processing them

• selling the resources from waste to other businesses to use

advantages of resource recovery models

• reduces dependence on high-cost new raw materials

• if can sell waste materials, new stream of income

• improve brand image: environmentally conscious, CSR → attract eco-minded consumers

disadvantages of resource recovery models

• high capital cost of location and equipment to recover resources

• energy and other resources

• not economically viable without gov support (alt: tax newly exploited resources to increase cost and encourage resource recovery)

• recycling sites need to be located away from habitated areas

product life extension models

• aim to maximise the useful life of goods by refurbishing or upgrading customer’s existing product, minimise waste levels and exploitation of new materials

• stakeholder conflict:

  • consumers want longer useful life

  • business wants consumer to replace so that there will be repeat sales, revenue and profit

    • usually planned obsolence: deliberately designed to fail over time → reputation damaged

    • consumerism encouraged by tech developments, replace with latest version even before useful life ends

    • leads to waste + using newly exploited materials to produce new products

advantages of product life extension models

• lower cost of production in long term, since exploiting new materials more expensive than refurbishing

• improve brand image: environmentally conscious, CSR → attract eco-minded consumers

• consumer protection laws becoming stricter, want products’ useful life longer → will avoid breaking these laws

• can sell spare parts and maintenance materials, new stream of income

disadvantages of product life extension models

• won’t work in all markets, some consumers rather latest model

• initial production cost higher since need higher-quality materials to be durable

• consumer expectations for lifespan increase → any problems with quality/performance will lead to negative publicity, affect brand image and sales

sharing models

• business connects owners of underutilised items with people willing to pay to use

  • encourages owners of products to increase the usage and value derived from them by sharing with others

  • for products that aren’t used constantly: share with other consumers so that don’t need produce as many products

advantages of sharing models

• owners: receive payment

• sharers: can use without fixed cost of buying → encourages small business startups since lower overhead costs

• business (sharing platform): receive fee without having to own/sell product

disadvantages of sharing business models

• owners: most fees go to business, less returns

• consumers: safety risks (eg car sharing), privacy risks of online sharing platforms

• less gov control → adds risk for owners and sharers

product service system models

• consumer buys service as and when needed, not the product itself (owned by business) → ensures products are fully utilised → fewer products need to be produced → reduces resource usage and resolves stakeholder conflict

• stakeholder conflict

  • business: want to use more resources to produce and sell more

  • customers: want to purchase less to have lower costs

• encourages both to reduce life cycle costs (material, labour, waste management costs)

  • long-term maintenance/replacement/recycling is at expense of business → encourages sustainability

  • customers don’t own the product since they only use when needed → reduce costs

  • more products are fully utilised more of the time → less energy/resources

advantages of product service system models

• reduce conflict between consumers and suppliers

• economy: more sustainable since fewer products produced

• workers: increased employment in service sector

• risk of poor performance passed onto supplier instead of consumer

• builds long-term customer relationships

disadvantages of product service system models

• customer resistance to not owning/controlling the asset

• locked-in to long-term contracts, disadvantage if product/supplier unreliable

efficiency

• produce more output with same input OR same output with less input

• areas

  • increasing sales per person

  • increasing output per worker

  • increasing output per machine hour

  • reduced average costs per unit of output: using EOS → only for bigger businesses

• ways to increase

  • increasing motivation

  • improved technology

  • improved training

role of operations manager

• increase efficiency of value-adding to business inputs

• value added = selling price – cost of raw materials

• process of:

  • adding value to inputs: land (including raw materials), labour, capital, enterprise

  • in order to produce output (product): goods or services

sustainability

• long-term benefits, not not short-term gains. consuming at a rate that does not deplete from future generations.

• improved by conserving resources or finding more efficient ways to produce or discover new resources

triple bottom line

model for sustainability

• social (people): focus not only on the local community but also consider the cultural norms and values within the external environment

• environmental (planet): retain biodiversity in long run. minimising negative environmental impact.

• economic (profit): continue functioning profitably over time