A FRAMEWORK FOR SUSTAINABLE PRODUCT SERVICE SYSTEMS: WITH PARTICULAR REFERENCE TO ICT INDUSTRIES

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1 A FRAMEWORK FOR SUSTAINABLE PRODUCT SERVICE SYSTEMS: WITH PARTICULAR REFERENCE TO ICT INDUSTRIES Ke Xing School of Advanced Manufacturing & Mechanical Engineering & Institute for Sustainable Systems and Technologies, University of South Australia, Mawson Lakes Campus, SA 5095, (618) , David Ness Institute for Sustainable Systems and Technologies, University of South Australia, Mawson Lakes Campus, SA5095, (618) , Suzanne Benn Graduate School of the Environment, Department of Environment and Geography, Macquarie University, Sydney, NSW 2109, (612) , Wei Qian School of Commerce, University of South Australia, City West Campus, SA5000, (618) , ABSTRACT The Sustainable Product Services Systems (S-PSS) philosophy is also known as sustainable servicizing. It focuses on minimizing materials, energy, emissions and the end-of-life waste produced in relation to the use of any manufactured good. The holistic management of a suite of services for the customer, of which the products form a part, differentiates the S-PSS approach from conventional leasing and renting. This paper develops a framework for guidelines that may assist organisations, both clients and service providers, in moving towards implementation of S-PSS in Information and Communication Technology (ICT) industries. The paper discusses the role of products and services in making a switch from buy-own methods of procurement to product service systems for both economic and environmental benefits. It further outlines some changes of management principles that may assist this switch, not only in ICT but also with possible extension to other industries. A number of considerations requiring further investigation are also highlighted. Keywords: Sustainability, Product-Service Systems, Resource Efficiency, Eco-efficiency INTRODUCTION As the ultimate form of product stewardship and extended producer responsibility, Product Service Systems (PSS) involve provision of a service to customers through producers maintaining ownership of products and the products being a part of the service a different procurement model to traditional buy and own approach. The notion of PSS originated in the business world due to perceived business benefits [1]. For example, PSS facilitates the establishment of a long-term business-customer relationship to create brand loyalty. Such systems improve product use efficiency, which may lower asset depreciation rates and lead to potential tax savings [2]. PSS can also increase product reuse and recycle values. More - 1 -

2 recently, it has been recognized that PSS may facilitate good maintenance of product and extend product use life, thereby reducing energy and virgin material consumption, lowering CO 2 emissions, and avoiding pre-mature material disposal and landfill waste [3, 4]. To customers, PSS will reduce their initial capitalised costs, increase affordability, productivity and service satisfaction, save operation and service costs, as well as save product disposal cost and time [1, 5]. So, if carefully managed, PSS can lead to economic, environmental, and social benefits, offering a win-win-win (people, planet, prosperity) scenario. This is known as Sustainable Product Service Systems (S-PSS) that combine sustainability concepts with powerful presence in the marketplace. The concept of S-PSS has gained in usage, especially in Europe, and exemplifies the service economy [6, 7]. As Ayers [8] realized, products are essentially carriers of service the trick is to find ways of delivering the service without wasting the material carrier, and he noted that this was facilitated by leasing and rental schemes. The messengers (such as PCs in schools) need to be used many times, not just once. This service oriented approach has increasingly been used in other industries, with business applications including lighting services, chemicals, air comfort, paint, mobility (as in car sharing), floor coverings, waste and energy management, water treatment and communications, and even vertical transportation (lifts) [5, 9-11]. Computing and other business equipment appears especially suitable for PSS due to rapid technological change in ICT, with equipment quickly becoming out of date and having a relatively short life. Hewlett Packard (HP), for example, which has had recycling programmes in place for 20 years, has sought to exemplify S-PSS, with components being kept in a closed loop as far as practicable, for reducing resource consumption and waste and improving energy efficiency of products and services supplied [12]. Electronic waste and emissions have been identified as major problems in Australia and internationally. There are approximately 9 million computers, 5 million printers and 2 million scanners in households and businesses across Australia. Nearly 1.6 million computers are being sent to landfill each year and the manufacture, use and disposal of electrical and electronic equipment purchased by Australians is estimated to generate over 42 million tonnes of greenhouse gases per year [13]. Furthermore, as we purchase and dispose of these products, we increase consumption of raw materials, take up landfill space, and produce hazardous wastes that have a detrimental impact on the natural environment. At present, takeback and re-use/recycling initiatives are being introduced in the Information and Communication Technology (ICT) industry via product stewardship. The business benefits of PSS have been recognised and quantified through some business cases [1], and Application Service Providing (ASP) offering outsourced computing power on a rental basis - has been put forward as a less material intensive alternative to traditional computing with potential to provide both economic and environmental benefits [14]. However, a clear roadmap for original equipment suppliers (OES) and their clients to follow in planning and implementing S-PSS is not yet widely available. This paper intends to outline some key points, summarised from review of existing research outcomes and best industry practices, as a framework from which to build guidelines that may assist companies to develop and implement S-PSS. It also briefly outlines the potential for this framework and associated guidelines to be extended to other industries

3 Key Principles of PSS SERVICE SOLUTIONS IN ICT INDUSTRIES The holistic management of a suite of services and a fleet of products by the solution provider differentiates PSS from leasing and renting. PSS involves a partnership between the provider and the customer (not consumer), where the outsourced provider manages and reports on the performance of assets that enable the customer/ business client to undertake its core business. In the case of ICT, a PSS contract involves the provider managing all the ICT related issues for the client with remuneration being based upon service delivery improvement rather than sale of products. The shift from procuring products to services requires new sets of skills and fundamental changes underpinned by a more sophisticated relationship between producer and customer. PSS approaches, whereby ownership remains with the producer, can be categorized as two major types [1, 15]: a) Use-oriented services: These provide consumers with access to the product and the function it provides without the need to own the product e.g. rental, leasing. Business applications to date include services such as lighting, chemicals, air comfort, paint, mobility (e.g. car sharing), floor coverings and business equipment; b) Result-oriented services: These provide a function to the customer who in turn pays for this function rather than use of, or access to, a particular product. Applications include waste and energy management, water treatment and communications. This paper focuses on ICT equipment, which falls into the category of use-oriented services. Examples of Best Practices At present, there appear to be few examples of PSS implementation within the ICT industry, where large amount of waste and emissions are generated every year. This section presents a number of best practices of ICT companies observed that provide a pathway towards implementing service solutions for managing the life-cycle of ICT products and product stewardship exercise as a means of achieving economic and environmental benefits. Byteback programme in Victoria, Australia, has been operating since 2005 [16]. Byteback is a free service, available to residents and small business owners who want to dispose of unwanted, old and unused computers in a safe and environmentally responsible manner. Initially piloted by Sustainability Victoria in partnership with HP in June 2005, the scheme now involves the Australian Information Industry Association (AIIA) in association with HP and other partners, including Apple, Canon, Dell, Epson, Fujitsu, Fuji-Xerox, IBM, Lenovo and Lexmark. Personal computer systems are all deposited at collection points and transported to a specialized electronic recycling and recovery centre after collection, where they are disassembled into parts (e.g. plastic, metals, chemicals and glass) for recovery and recycling in Australia as well as overseas. Since its launch, the Byteback scheme has collected close to 500 tonnes of e-waste, with an overall diversion from landfill of 97 per cent. Materials reuse versus virgin material manufacture has resulted in a carbon offset of 2700 tonnes (1 tonne of computer waste equates to 5.45tonnes of carbon). The project, IT on demand - towards an environmental conscious service system for Vienna had a good start in Vienna with the goal of offering a service to the customers that would provide the same value as the purchase and ownership of a product and to - 3 -

4 explore the necessary conditions for creation of such service system. The project was aimed at developing strategies of turning the existing system into product service system (PSS) in order to stop the trend of shortening lifetimes of IT products and to significantly reduce the amount of waste out of this sector. The most intriguing is the example Overcoming the digital gap taken from a company which is a computer service and repair centre, selling refurbished units at a low price. The company is also a social-service company in Vienna. It is officially recognised as environmentally sound, and in the last few years, it has gained a lot of different prizes for waste reduction and improvement of the social situation of the employees. Krung Thai Bank, Thailand, uses a Desktop Lifecycle Solution, part of HP s suite of End User Workplace Solutions, to manage its PCs. The solution provides desktop PCs and laptops, bundled with software and services as a utility, priced on a per-seat (user) per month basis for ease of procurement, ease of financing and a single source of vendor accountability. It aims to reduce desktop Total Cost of Ownership and increase quality of service to end-users. These services span the entire life cycle of the desktops from acquisition, deployment, management, operation, maintenance right through to disposal and technology refresh. The service also includes a central helpdesk and a service level agreement. This enables the Bank to focus more on its strategic core competencies, to be free of the burdens and risks of IT desktop management, to have flexible and costeffective access to expertise, and to have increased agility to respond to new business opportunities. The Universal College of Learning (UCOL), New Zealand, works with HP in an outsourced environment, procuring three HP services: Desktop Solutions, Service Desk Solutions, and Server Management. UCOL s heterogeneous desktop environment made hardware refreshes very labour intensive. The HP Desktop Solutions now provide full support for the assortment of end-user devices used by students and staff. Greater efficiency and utilization of the computing fleet has been achieved, allowing UCOL to eliminate more than 200 desktops from the network. Periodic hardware refresh ensures desktops stay compatible with the IT industry. Another feature is a Standard Operating Environment (SOE), with UCOL being able to upgrade and expand regularly, quickly and uniformly across its computer fleet. Software for specific courses can be introduced readily to a group of computers. UCOL now has achieved higher levels of productivity for end users and IT staff through industry-standard technology, defined service level agreements, rapid problem resolution, and a well-documented process for change management. The results show a 133 per cent return on investment (ROI) in 5 years. Although strategies for PSS are often regarded as capable of facilitating sustainable development, as noted by some researchers, there is no guarantee that PSS is automatically sustainable [2, 15]. For instance, while a lease-based maintenance and take-back strategy may extend the use life of products and increase the fitness for reuse, it can also create additional transportation, packaging, or energy consumption for the individualised delivery of services, causing extra environmental impact. Furthermore, other authors have noted a possible rebound effect where more efficiencies in PSS are outweighed by overall increases in consumption, otherwise known as Jevon s Paradox 1 [17, 18]. Therefore, a full realisation of PSS strategies potential for sustainability without negative side effects requires strategic planning and implementation which leads to the development of S-PSS [19, 20]. 1 Jevons discovered that the benefits of the invention of steam engine, although it burnt coal more efficiently, were actually outweighed by the resultant increase in total consumption - 4 -

5 A Roadmap towards S-PSS A FRAMEWORK FOR S-PSS IN ICT INDUSTRIES Pathways for original equipment suppliers (OES) and their clients to follow in planning and implementing S-PSS often involves a shift from standard equipment to optimal devices, coupled with a shift from buy and own to managed fleet, as shown in Figure 1 below. The figure presents estimated merits of product-service strategies for computers. An important aspect illustrated in the figure is that a change route for both the product-service provider and recipients (customers) must be identified and negotiated: this change is from the traditional near client/buy and own model (high cost, low service, high carbon footprint) to the remote client/s-pss model (low cost, high service, low carbon footprint). Provider Service Level Managed Fleet (S-PSS) Low Cost / High Service managed fleet optimal devices low carbon footprint Buyand Own High Cost / Low Service buy and own standard devices high carbon footprint Cost Optimal Devices (Remote Client) Standard PC and laptop/notebook Figure 1. Change path towards S-PSS [5] In HP s case, a step by step pathway or roadmap towards S-PSS is promoted, from both product and service perspectives, as shown in Figure 2. Each of these individual steps can generate benefits in improved service or reduced support cost. The approach is consistent with ISO 9004: 2000, the international standard for quality management systems. Clients do not necessarily need to make a big jump to a complete service solution, but can take steps progressively and incrementally towards this. Whilst each of these steps should lead to service benefits, the total benefits of a combined S-PSS solution are greater once all the component areas are aligned into a single solution

6 Capex to Opex ew aste issues Hardware Independent Leasing Asset Recovery S-PSS Service Level Agreement Single Contract SOE* Management Tools Tools Independent Standard Product Catalog PRODUCTS Standard Services Managed Deployment Desktop Support SERVICES *SOE Standard Operating Environment, which contains the operating system and all desktop software applications e.g. MS Office Figure 2. HP roadmap to Sustainable Product Service Solution (S-PSS) [5] The aforementioned concept of Byteback, which is akin to Product Stewardship and has now been embraced by a number of IT companies, involves asset recovery and recycling, where businesses and consumers may deposit used computers at drop off points around Melbourne. In essence, it involves a sell and take-back strategy. S-PSS, though, represents a further step up the improvement ladder. Leading edge thinker Stahel [21] described an economy based on a spiral-loop system that minimizes matter, energy-flow and environmental deterioration without restricting economic growth or social and technical progress. The effectiveness of this spiral-loop system is greatly enhanced by keeping the loops as small as possible and, in this regard, reuse, repair and reconditioning are preferred to recycling, in that order of priority: do not recycle a product that can be reconditioned economically [8, 21]. Thus, Table 1 compares S-PSS with conventional Product Stewardship that involves take back and recycling. S-PSS Table 1. Comparison of S-PSS with product stewardship (source: [5]) Product Stewardship/recycling/takeback Ownership of product retained by service provider Holistic management of suite of services by solution provider for customer leading to improved service for customer Ease of technological updating by provider for customer Provider manages fleet of products for customer, leading to increased utilization, reduction in fleet and efficiencies Reporting by provider on performance of fleet in meeting service outcomes Payment can be related to performance Partnership between provider and customer opens up opportunities for other profit centres/increased business Almost certain that product will be taken back and greater chance of reuse/recycling. Ownership transferred to customer. Not normally as responsibility passes to customer with sale/purchase Updating requires purchase of new equipment and disposal Not normally Not normally. Performance is related to levels of collection, recycling and resource recovery, at industry level Not normally Not normally Dependent upon consumers depositing used equipment at collection points (even if - 6 -

7 Provider has incentive to design product and components in robust, modular, standardized form for ease of disassembly and enabling longevity Customer pays stream of payments, not large capital cost up front Employment generation including remanufacturing, services Less resource use (materials, energy, water) and emissions, waste due to products being kept in closed loop - reduced/reused resources. equipment is free) Some incentive due to take-back and recycling No Some employment generation in collection, sorting, disassembly, recycling etc Recycling uses more energy than reuse. Although there has been much research designed to critically review the sustainability implications of PSS, to identify the characteristics of S-PSS, and incentives and barriers to its implementation, a framework that might enable the development of implementable guidelines, to assist organizations in establishing an SPSS program has not as yet been developed. The next section of the paper presents such a framework summarised from some of existing research work (e.g. [1, 2, 8~11, 19~28]) and best practices review. The framework intends to form the basis for identification of the key issues and steps for S-PSS development, including the key management principles required for their effective implementation. It involves specific perspectives on product, services and management features, Product Perspectives A key feature of S-PSS is the mitigation of environmental impact of product through reduce, reuse, and recycle, which can be best achieved by a smart design of product function, structure, and materials, including both the equipment at the user interface (computer, monitor) and the back-end equipment eg data-centres. General guidelines for product design, with a particular emphasis on IT products, to facilitate S-PSS are: The product is of a relatively high market value, or relatively high selling prices in comparison with other similar products, which can make it worth for the company to take up stewardship over the life-cycle of the product. The product is durable and of a long physical life which warrants the possibility for multiple use. The product and its components will be designed for durability and reliability to minimise the need for repair and enable use life extension. Such principles are applied by Fuji Xerox in its inverse manufacturing system, where the lifespan of various components is considered and categorized, so that the quality of recycled/reused parts is equivalent to new ones. The product will be designed with minimal footprint i.e. less virgin and hazardous materials and power management settings for energy saving and lower environmental impacts. The product s structure will be modular making it easy for disassembly and maintenance to facilitate reuse, remanufacture, and material/component recovery. Such structural design will also be able to facilitate ease of technological updating/upgrading for function improvements. These design principles were clearly described by Stahel [21] who stated that use-life extension will be enhanced and made cheaper by standardization and componetized product design. Similarly, Ayers [8] promoted the principle: to minimize - 7 -

8 part numbers and the number of different (and incompatible) alloys and plastics that are used. Service Perspectives PSS aims at selling the services and functions of a product, rather than selling the product itself, to the customers. Typical business scenarios for include sell-and-service, product lease, product renting and sharing, product pooling, and pay per unit service. From the service perspective, the development of S-PSS relies on proper business strategies and configuration of the operations system to maximise financial and environmental benefits for both the provider and the customer. The ownership of product will be retained by service provider. As the product is legally owned by the provider, the provider can (or have to) better exercise Extended Producer Responsibility and devise an appropriate 3Rs (Reduce, Reuse, and Recycle) logistics plan for the product. In comparison with sell and take-back (through drop in or trade in), the provider can have better planning and control on the volume and quality of returned systems for economy of scale of reverse logistics and reprocessing. There must be some basic service options (e.g. leasing or renting, desktop support, performance monitoring, and maintenance contract) and their combinations as building blocks for S-PSS in place. These service options focus not only on delivering the standard functions of a product, but also on customised solutions for user support with regard to installation, upgrading, repair and replacement, and postage collection. They target on building a long-term customer relationship and brand loyalty through a comprehensive customer service. The service provider can manage a fleet of products for the customer, leading to increased utilization and improvement of efficiency. The service provider can possess and manage the knowledge about how its product performs over its life cycle. The service will provide ease of technological updating by provider for customer. A proper take-back system will be in place to take back product for reuse, remanufacturing, or recycling. To facilitate the operations, establishing regional service centres is often needed to provide logistic support for the retrieval, replacement, sorting, and disassembly of decommissioned, used products, involving reverse logistic activities. The service should contribute to increase of environmental values of ownership. Provision of equipment by service provider should be with reduced packaging for less waste. Product and service should also be certified as Greenhouse Friendly and conform to ISO 14001: Environmental Management Systems. The service will lower the total cost of ownership (cost of procuring, deploying, managing, maintaining and decommissioning an IT system). To keep the product operating at peak condition leads to lowering the deprecation rate of its product, which can bring financial benefits as an increased residual value, an increased recovery value or resell value of the product, and tax savings (from a depreciation expense lower (because of extended product life) than a tax-based depreciation expense). A higher residual value means a lower cost of lease for business and thus lower total cost of ownership. Management perspectives A successful implementation of, or adaptation to, S-PSS also requires organisational and inter-organisational changes in both provider and client organisations. Many of these changes are those established in the literature as necessary to implement sustainability in the organisational context: - 8 -

9 There should be a champion in the client organisation who understands PSS and will lead its introduction (successful examples, such as the HP s service solution at UCOL described earlier have involved committed chief executive). For the ICT customer, adopting S-PSS will request changes of thinking and management leading to green procurement at the strategic level and changes of procurement specifications and user behaviour/patterns of usage at the operational level. Change management principles such as developing commitment through conveying the value of SPSS across the client organisation will facilitate its implementation. Workshops and other forms of communication should be deployed to motivate and enable employees to work with the changed systems. Employees e.g. procurement officers, marketing personnel should undertake training in new skills associated with PSS, e.g. customer relationship building, performance reporting, and life cycle analysis, which can facilitate communications between service representatives and procurement officers and synergies between customer needs and capability to provide, simulating innovative practices. Reward systems should be in place to encourage proactive engagement across the client organisation that improves customer acceptance of PSS and personal habits in using ICT products. A tracking system or approach should be in place to monitor and report the operation performance of the fleet in meeting service requirements, allowing the customer/ business client to undertake its core business. This was also a feature of HP s service solution at UCOL, where a reduction in fleet size of around per cent was achieved by improved utilization due to fleet performance management. A mechanism or tool should be in place to measure and monitor environmental and economic performance in different operation and business scenarios. Environmental (involving carbon emission, waste impacts, and resource efficiency) and economic (costs and revenues) performance in S-PSS can be assessed in forms of eco-efficiency. Information extracted from the assessments can help both suppliers and customers understand their current standing, the economic and environmental implications of their strategies, problems and opportunities for further improvement. DISCUSSION AND FUTURE RESEARCH The service approach has much wider applications than computer services. As mentioned, there are already some examples of servicizing in different forms for various products, such as chemical management services, call-a-bike, and car sharing. Nevertheless, while an increasing number of businesses and clients are realizing the benefits of S-PSS, the knowledge and application of the approach is in its infancy. The framework proposed in this paper is an attempt to facilitate the development and implementation of S-PSS, particularly for ICT companies and their customers. The development of this framework we argue can underpin the development and testing of guidelines based on the best practices in the ICT industry and beyond in other sectors. The focus is to capture and highlight the key characteristics and role of products and services in making a switch from buy-own methods of procurement to product service systems for both economic and environmental benefits. Moreover, the framework also suggests some critical changes of management principles that may assist the business transformation for S-PSS. The product, service, and management perspectives reflected in the framework address common issues/solutions related to implementing S-PSS, which can also be tested in terms of their application to other industry sectors

10 By no means is the proposed framework complete. More studies are needed to enrich and refine it on broader technical, operational, and strategic implications of S-PSS development. Meanwhile, to engage the attention of businesses and consumers and demonstrate economic, environmental, and social benefits, successful pilot applications and case studies are required, accompanied by research on organisational and consumer behaviour changes that involve the fields of humanities and management. Further testing and in-depth research is undoubtedly required. Also, it is understood that the practice of product-service systems is challenged by technical, cultural, knowledge, economic and legal barriers, which can be addressed by different actors. At this stage, companies, with the assistance of the proposed guidelines, can overcome some of those barriers, but issues such as property and privacy right protection, standardisation, and infrastructure development must be addressed at the government level. It is important that research and applications are related to government plans and policies, such as the Circular (or Recycling) Economy policy introduced by the government in China. Governments can actively facilitate the introduction of S-PSS through their procurement policies, practices and green purchasing initiatives. For example, the research in South Australia, with the support of the government, is aimed at developing an S-PSS business model and applications for public sector organizations. REFERENCES [1]. Van Halen, C., Vezzoli, C. and Wimmer, R. (2005). Methodology for Product Service Innovation: How to Develop Clean, Clever and Competitive Strategies for Companies, Netherlands: Koninklijke Van Gorcum. [2]. Mont, O.K. (2002). Clarifying the Concept of Product-service System, Journal of Cleaner Production, 10, [3]. Kang, M.-J. and Wimmer, R. (2008). Product Service Systems as Systemic Cures for Obese Consumption and Production, Journal of Cleaner Production, 16, pp [4]. Vogtländer, J., Bijma, A. and Brezet, H. (2002) Communicating the Eco-efficiency of Products and Services by Means of the Eco-costs/Value Model, Journal of Cleaner Production, 10, pp [5]. Ness, D (2008). Sustainable Product Service Systems: Potential to Deliver Business and Social Benefits with Less Resource Used, Web-based Green Products Life Cycle Management Systems, Information Science Reference, New York, pp [6]. Hirschl, B., Konrad, W. and Scholl, G. (2003). New Concepts in Product Use for Sustainable Consumption, Journal of Cleaner Production, 11, pp [7]. Sakao, T. and Shimomura, Y. (2007) Service Engineering: a Novel Engineering Discipline for Producers to Increase Value Combining Service and Product, Journal of Cleaner Production, 15, [8]. Ayers, R (1999), Products as Service Carriers: Should we Kill the Messenger or Send it Back?, Zero Emissions Forum, United Nations University, Tokyo. [9]. Willams, A. (2007). Product Service Systems in the Automotive Industry: Contribution to System Innovation? Journal of Cleaner Production, 15, [10]. Yang, X.-Y., Moor, P., Pu, J.-S., ad Wong, C.-B. (2008). A Practical Methodology for Realising Product Service Systems for Consumer Products, Computers & Industrial Engineering, doi: /j.coe

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