Posted By Shawn Price, April 24, 2012 at 9:21 AM, in Category: Sustainability
Have you ever been to a garbage dump? The number of washing machines you’ll see will astound you. Seemingly one of the biggest and longer-lasting purchases a household will make, and yet the appliance has an end of life cycle that is needlessly wasteful and expensive.
The current lifecycle of washing machines is wasteful and needs to be left behind; it has dire consequences for the environment, and customers won’t put up with it anymore. Customer demand is going to force manufacturers into a Subscription Economy and cradle to cradle model. Already manufacturers are starting to offer products as services such as razor blades, kitty litter, and reusable cloth diapers. Meanwhile, many manufacturers are working on cradle to cradle solutions, trying to minimize their environmental footprint. In five to ten years from now, it will be imperative for these two trends to converge.
In a few years, you will see General Electric and Maytag offer subscription washing machines or you will see these companies cede their position to startups. Customers will buy in for a lower price and then purchase a new machine in five years when the technology has changed. The old one will then be scraped and re-used by the company. Washing machines are 65% percent steel, and many other components are also salvageable. In fact, 84% of most household appliances are now recycled and by weight, most of these appliances are 75 percent steel. The Steel Recycling Institute saves the equivalent of 18 million households worth of electric energy every year by recycling steel.
Given that it’s an imperative that manufacturers move to a Subscription Economy supported by a cradle to cradle model, a manufacturer will need to secure a ready supply of raw materials.Despite the dire economic times, commodity prices tend to rise due to an overall increased demand from developing countries. By establishing a retour flow of used products, a manufacturer will always be certain of an influx of raw materials.
The proposed model also ensures that customers own the most up to date, energy efficient models. It’s great for the manufacturer because it ensures customer loyalty and creates a recurring revenue business. And, most importantly, it’s convenient for the customer because the unit’s service, maintenance, and replacement are included in the subscription. It’s also less daunting to pay a monthly fee than a large one-time payment.
Of course, this element of the Subscription Economy shouldn’t just be limited to washing machines. It can also be expanded to more consumer goods like television sets, dishwashers, home computers and industrial equipment. Most companies already use photocopiers and corporate computing power (such as cloud computing) via subscription. Manufacturers will also offer subscription desktop computers in offices, machinery on the shop floor, and fleet vehicles (especially given the popularity of services like ZipCar).
The cradle to cradle model is an imperative for manufacturing businesses that will a transformative affect not only on the customer and manufacturer relationship, but the entire manufacturing industry-- not only increasing sustainability, but core elements like finance and sales will be impacted as well. By implementing the C2C model, your company and its logistics and fulfillment processes will change, emphasizing return logistics because each production chain needs to reinvent the retour stream. This will have an effect on your company’s planning, as logistics processes become more complex. Procurement will change, since suppliers become customers and vice versa. This will challenge procurement professionals to partly redefine their work to get the maximum out of these business relationships.
All of this will impact finance, as the move to C2C will greatly impact pricing, invoicing and financing models. Your company’s sales and marketing approaches will alter as well. Instead of focusing on seducing the customer to make a buy decision at one specific moment in time, the approach will be centered around building a lasting relationship with the customer. This fits seamlessly within the existing ideas about CRM, but for many sectors this still proves difficult to achieve.
The question remains: Who are going to be the first companies to do this? We think by Earth Day 2017, or five years from now, a manufacturing company will offer a cradle-to-cradle subscription service. Yes, we have a serious environmental, resource constraint problem on our hands. But combining these two ideas may give a few leaders the chance to do good and make good. In the end, we believe that the business benefit is almost as great as the environmental benefit.
What would the application of this concept mean for your business?
Which chances and obstacles do you foresee? And even more important, can you visualize what your company could look like ten years from now and how you do business with your customers? Please share your thoughts about this.
About the Authors
Martin Putters is a Principal Consultant Capgemini. He is the author of the blog, “Free Thoughts on Procurement,” http://free-thoughts-on-procurement.cardueliss.nl/#home.
Shawn Price is Zuora’s President and a member of its Board of Directors. He is responsible for the company’s strategic direction and operations
Written by Shawn Price
I think your timeline may be a bit optimistic. When it comes to management decisions, our industry typically takes the easy route. (Like most using barbaric 1960 T&M method for making capital purchase decisions when analyzing downtime. Many still do that because they think it is easier than calculating true downtime cost, as they are not using automated data collection for TDC calculations.)
The task of starting a new company or even worse, redesigning an existing company to be C2C subscription based business model and then calculate the cost/savings/profit the new business model will bring, will be far from easy. And with the types you need to sell your great idea too, they would need those dollar numbers estimated, before they would sink time and money exploring, designing and ultimately changing to the proposed business model. (Even though I would like them all to take your advice tomorrow Shawn.:>)
That inherent complicity is why I think your time line is off. I do think it will be sooner and more likely for a new start up company to partner with manufacturer and manage the subscription based part of appliance business. Also if the Government set incentives, presidential initiatives, support, it may happen sooner.
My co-author, Martin Putters of Capgemini, had a thought about your comment:
I think that you have a fair point. I appreciate your comments. The idea is disruptive and executing it would mean a landslide change. The article is a bit provocative, meant to trigger people to start thinking about the concept. It is very difficult to predict the timelines for this change. The mindset of people, the setup of the economy and the structure of supply chains is not yet tailored to support this C2C subscription based business model. Changing that would require a huge effort. On the other hand: the speed of change in today’s society is staggering. Because we are in the middle of it, it is pretty difficult to keep a good overview, but there are so many things going on that seemed very futuristic as short ago as 10-15 years: mobile phones, mobile internet, green energy, electric cars, the amazing growth in developing countries, nanotechnology, biotechnology etc. When the going gets tough we will have to change, because there is no other way. The concept that we have presented seems to offer a direction in which to develop. Timing is difficult, but the trend is unequivocal.
I think a key element here is identifying a catalyst or incentive for manufacturers to do something. Probably the strongest incentive would be the inevitability of it. If population and prosperity in large parts of the world keep on growing, we will very soon end up in a situation that some raw materials become very scarce. Manufacturers might have no other option than securing raw materials by managing the return flow. That will set the tone.