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How Servitization and PaaS Models Drive Sustainability for OEMs

Updated: Oct 12, 2023


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I recently completed a lecture-based course on Circular Economy and Industrial Systems at the KTH Royal Institute of Technology. This experience truly expanded my understanding of the interconnected relationship between circular economy principles, servitization, and the concept of Product as a Service (PaaS). Interestingly enough, these ideas are revolutionizing the way Original Equipment Manufacturers (OEMs) approach sustainability while conducting successful business operations and fulfilling their obligations to both the environment and future generations.


At its core, the circular economy revolves around the 6Rs—Refuse, Reduce, Reuse, Repair, Refurbish, and Recycle. These principles are designed to decrease waste, enhance resource utilization, and safeguard our planet through innovative product designs, processes, and business models. Servitization, advanced services, and the PaaS model have emerged as invaluable approaches for OEMs to reinforce sustainability while simultaneously providing value to clients.


Servitization requires a fundamental transformation in OEM business models, shifting from simply selling tangible products to delivering a blend of products and services that satisfy customer needs. Advanced services, which contain value-added offerings alongside products, frequently capitalize on digital technologies and data analytics.


On the other hand, PaaS plays a vital role in both servitization and advanced services, offering clients the ability to utilize products without the burden of ownership. The implementation of the PaaS model can efficiently fulfill sustainability commitments and responsibilities for OEMs and their clients. A key advantage of PaaS is resource optimization, aligning with the circular economy principles of "refuse" and "reduce." By avoiding unnecessary materials and minimizing resource use, OEMs are more motivated to create durable, modular, and easily maintained products. This emphasis on long-lasting products not only mitigates waste from overproduction and disposal but also ensures a continuous revenue stream over time. Moreover, the PaaS model prompts OEMs to embrace the concepts of repair and refurbishment by maintaining, fixing, and restoring products to prolong their usefulness, thereby decreasing the demand for new products and lowering the environmental footprint associated with manufacturing and disposal.

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Transitioning to a PaaS model results in the adoption of performance-oriented metrics, with customers paying for a product's value or performance rather than the product itself. This similarity of interests between the OEM and the customer fosters more efficient and sustainable resource use, supporting the circular economy's objectives of reusing and reducing resources. In addition, PaaS models often incorporate digital technologies and data analytics to monitor product performance, usage patterns, and maintenance requirements. This data enables OEMs to refine product design, control resource consumption, and proactively address potential issues, ultimately contributing to the circular economy principles of repair, refurbishment, and recycling.


Finally, the PaaS model encourages collaboration among OEMs, customers, and other stakeholders. By joining forces, these parties can enhance product design, service delivery, and resource management, leading to the development of more sustainable products and services that contribute more to the circular economy's principles and the healthy future of our planet.


For those eager to dive further into this subject, I recommend browsing the report recently published by Circular Sweden, Cradlenet, and Stena Circular named "Product-as-a-Service in the Circular Economy: The nine critical challenges and How to fix them", as well as a review article on Circular Economy definition by Julian Kirchherr, Denise Reike, and Marko Hekkert.

 

The 6Rs principle of Circular Economy:

  1. Refuse: Avoid the use of unnecessary materials or products in the first place.

  2. Reduce: Minimizing the consumption of resources and generation of waste through more efficient usage.

  3. Reuse: Using products and materials for their original purpose as many times as possible before considering recycling or disposal.

  4. Repair: Fixing damaged or malfunctioning products to extend their useful life.

  5. Refurbish: Restoring used or worn-out products to a like-new condition.

  6. Recycle: Collecting, processing, and converting waste materials into new products.

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