Madonna was right – we’re living in a material world. And material is the new carbon. Whereas the noughties were all about curbing carbon emissions and imposing policy levers to drive the desired reductions, the teens are focused squarely on materials – where we get them, how we use them and what happens when we’re finished with them. And this time the levers are economic.
Our insatiable demand for stuff – fuelled by population growth and increasing urbanisation -is creating a resource crunch that drives price volatility, causing much more immediate stresses on business than carbon ever did. If a key resource needed as feedstock suddenly becomes difficult or expensive to get, revenue and profit targets get missed and that makes it a tangible and very real issue in the boardroom. So the smart businesses are paying close attention to materials efficiency.
So how can materials innovation not just mitigate risk, but create commercial advantage? In terms of the direct risk, there are three primary interventions. First, substitution of materials that are constrained or subject to price inflation. Second, designing waste out of manufacturing processes. And finally, redesigning the product itself so that it uses less material. KYOCERA’s key design innovation was the development of “cartridge-free” laser printers, back in 1992. Instead of including most of the moving parts in a consumable cartridge that’s discarded every time the toner powder runs out, KYOCERA builds long life components into the hardware and has a consumable that contains only toner. This drastically reduces embodied energy, manufacturing and transport impacts and waste during the product’s use phase.
But the real innovation comes from thinking not just about the product but about the actual customer need that it addresses, which in the most extreme cases might even mean designing the physical product right out of the business model – or at changing the ownership model.
In KYOCERA’s case, this is illustrated by the transition to offering managed document services. Rather than selling printers and copiers, it rents them as part of a service which includes document management software designed to reduce reliance on hard copy and charges the customer per page printed. Hardware revenue may be reduced by selling the customer fewer devices than they had previously, but is more than offset by new revenue potential from maintenance contracts, professional services and software licences. And, ultimately, the customer saves money because its energy, paper and consumables bills are reduced.
For KYOCERA, this strategy offers additional commercial benefits. Traditionally the printer market has operated on a “razor and blade” model, where vendors loss lead with highly discounted hardware in order to create a lucrative after-market for premium-priced consumables. Because KYOCERA’s revenue model didn’t rely on consumables profits to subsidise hardware losses, it could not discount hardware aggressively, and would lose competitive bids which focused exclusively on hardware price.
Managed document services has improved KYOCERA’s ability to compete by moving the focus away from hardware prices, to include the entire lifecycle cost of owning and running the equipment. Its more cost-efficient consumables system, combined with the economic benefits of owning and running fewer devices and consuming less energy and paper, provides the basis for a compelling financial case as well as helping customers meet environmental targets. And, rather neatly, the document management software provides management information that can be used as the basis for strong
Making the product to service shift is never easy but KYOCERA’s early design innovation established its reputation for sincere commitment to sustainability that provides added credibility when proposing to customers that they think differently about their procurement. And two other factors have also helped smooth the transition – customers were already comfortable with the idea of renting or leasing heavy duty copiers, and these devices are well-known to require regular routine maintenance to operate efficiently. As a result, the move towards managed document services was more evolution than revolution, the key challenge being to gain acceptance for the inclusion of desktop devices.
The other significant upside of renting rather than selling your product is that it gives you more control over what happens to it when the customer has finished with it. The UK legislation that applies to Waste Electrical and Electronic Equipment – WEEE – requires that producers pay to join a compliance scheme. The scheme’s targets are volume-based so recycling processes are geared towards mass shredding of mixed products, so the quality and commercial value of the resulting recyclate tends to be poor.
For a manufacturer, putting your end of life product through a WEEE compliance scheme doesn’t deliver any commercial benefits in terms of closing your materials loops or promoting re-use of either whole products or their service parts. Once you transfer title of the product to your customer, you lose control over what happens to it at end of life. But if you retain title, you can recover it at the end of the contract and either refurbish it, harvest spare parts or recover virgin-equivalent materials for use as feedstock.
As the population grows towards a projected 9 billion by 2050, with an ever greater proportion living in urban areas, stress on materials – not to mention food and water – will become increasingly difficult to manage. Early adaptation to this new reality can ensure not just a lower and more consistent cost base now, but future-proof your business against resource shocks to come and improve its ability to compete.
Written by Tracey Rawling Church, Kyocera