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g ProductService Systems inCircularProcurement*Training Module:Introduction, case studies and lessons learnedMay 2016Joan Prummel, Netherlands Enterprise AgencyCuno van Geet, Rijkswaterstaat NederlandMervyn Jones, Sustainable Global duleshowshowtoinsertproduct- NEPTechnicalreport‘Usingproduct- ment’,May2015).

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ResourceEfficiencySustainablePublicProcurement§ Summary§ Learning objectives abluecup www.fotosearch.com§ Product servicesystemsIntroduction

aryThis training module for circular procurement provides insights and practical guidance to procurement officials, policy makers and suppliers on how adoptingcircular procurement principles will help deliver improved sustainable public procurement which, in turn, will deliver associated and evidenced environmental,social and financial benefits at organisational and national scale.Procurement plays a key role in the development of the circular economy. Procurers can stimulate the market to arrive at a circular supply by specifically askingfor circular solutions. Circular procurement seeks ways and steps to close cycles in product categories. Important during the process is cooperation with, andlearning from market parties when possible. In addition to the direct benefits of circular procurement for practitioners, every circular tender can be an examplewhich other parties can build on, use to enrich their knowledge and as such benefit from. At this stage, the learning process is very important.The circular economy is still in the developing stage. Collaboration therefore helps practitioners to find out why it works, where it works and how to get the bestoutcome. We don’t know exactly where this will lead us, but we can take the first steps towards more resource efficiency through circular procurement.The training module is produced as part of the SPP Programme of the 10-Year Framework of Programmes on Sustainable Consumption and Production Patterns(10YFP).Main goals ProcurersPolicy makersSuppliers- to provide practical guidance on how to use circular procurement principles to achieve better outcomes- to provide effective guidance on how to stimulate circular procurement in order to achieve policy goals- to provide clear guidance on how circular procurement can improve product supply and service levels

ning objectives and continuationFrom introduction to experiencein three steps1) Online training moduleIntroduction, case studies and lessonslearned (this module)2) Online video courseFurther background information on theconcepts (available October 2015)3) Practical trainingPractice circular procurement(available 2016)Step 1: Introduction and recognitionThis is what you are looking at right now. On completion of this online trainingmodule, users will be able to recognise circular opportunities and appropriatebusiness models, relevant to their own organisation. They will be familiar withcircular procurement concepts and they know where to find support and moreknowledge and insights. They will have sufficient information to identify circulargoals and to set up their first circular procurement projects. This first module ismeant as introduction on circular economy and circular procurement.Step 2: More backgroundsThe second step is a video course from the Technical University of Delft, TheNetherlands. The lecture will give (theoretical) background on circular principlesand more practical insights for circular procurement. This will be available viaUNEP in late 2015.Step 3: Practice circular procurementThe third step is achieved through practical training to enable reflection on initialexperiences and study the possibilities for wider replication with peers, underthe professional guidance of an experienced trainer. Currently this training isonly available in Dutch but in the near future it will be available throughestablished procurement training institutes in your own country.On completion of all three steps, users will be able to set circular sustainableprocurement goals and set up product procurement in a circular way usingprofessional procurement techniques to achieve their circular goals.

ResourceEfficiencyProduct-service systemsThe SPP programme of the 10 Year Framework of Programmes on SustainableConsumption and Production patterns (10YFP) produced a technical report onproduct-service systems and their insertion in sustainable public procurement:Using Product-Service Systems to Enhance Public Procurement. The reportconsolidates the information currently available on product-service systems (PSS) andto offer clarity on the drivers, advantages and challenges associated with theirprovision by the private sector and their use by the public sector.The focus of the report is on product-service systems (PSS) and not on circularprocurement. But since the most important effect of product-service systems onsustainability is on waste reduction and materials savings, the findings andconclusions contribute significantly to circular procurement.Product-service systems are an important thread through the 19 business models ofIMSA and are one of the three procurement models described later in this module.SustainablePublicProcurement

ResourceEfficiencyProduct-service systems – benefits & conclusionsThe use of product-service systems by public bodies can result in sustainability benefits. Productservice systems are an innovative business approach that shifts the traditional business focusfrom selling physical products only (e.g. a washing machine) to selling a mix of products andservices (e.g. cleaning services) that are jointly capable of meeting specific client demand (cleanclothes). The key idea behind PSS is that consumers do not demand products per se, but areseeking the utility provided by products and services. One benefit of PSSs lies in their potential todecouple consumption from economic growth, as they offer the possibility of meeting needs withlower material and energy requirements. The report examines the nexus between product-servicesystems and sustainable public procurement, drawing together international experience.The most important conclusion of the report is that public procurement can nurture and harnessthe potential of PSS to drive environmental sustainability and trigger market transformationstowards more sustainable business models. However, PSS can only truly contribute tosustainable development when they are consciously designed over the whole life-cycle. Thisrequires different ways of thinking and working throughout the procurement process and supplychains, acquiring experience on how to encompass all important aspects of the life-cycle andputting the adequate organizational and business models in place.SustainablePublicProcurement

ResourceEfficiencySustainablePublicProcurement§ IntroductionCircular Economy§ Circular Design§ Circular BusinessModelsCircular Economy

ResourceEfficiencyCircular economySustainablePublicProcurementClick on the image below for a short animated video on the circulareconomyThe circular economy is an alternative economic system to the traditionallinear (procure, use dispose) system, that is based on supply chaincollaboration. It counteracts resource wastage by focussing on wasteprevention, maximising reusability of products and materials and minimisingvalue destruction. This contrasts with the linear approach, where rawmaterials are turned into products that are generally destroyed at the end oftheir service life. This is value destruction and increases environmental(and often social) impacts.A study conducted by McKinsey1 shows that the circular economy offersmajor opportunities for Europe. The circular economy could generatebetween 300-350 billion in material savings alone in Europe, which couldalso lead to the creation of over 2 million new jobs2. The opportunitiesoffered by the circular economy are great.1.Towards the Circular Economy 1: Economic and business rationale for an accelerated transition(2012) Ellen MacArthur business/reports/ce20122. http://eur-lex.europa.eu/legal-content/EN/TXT/?qid 1415352499863&uri CELEX:52014DC0398R%2801%29Re-thinking Progress: The Circular EconomySource: Ellen MacArthur Foundation

rementClick on the images below to enlargeThere are other reasons, besides economic, for stimulating the circular economy:1. It is important to combat the waste of raw materials. The amount of available andaffordable raw materials is limited. Demand for finite resources is increasing asthe world’s population is forecast to grow to over 9 billion by 2050, with over 5billion ‘middle class’ consumers by 2030.2. Every country is partly dependant of the import of raw materials or semi-finishedproducts required in both manufacturing and consumption. Dependency willdecrease by reusing materials – including raw materials – from discardedproducts3. In Europe only very few of the relevant raw materials are naturallypresent, European countries have to import practically all raw materials.Availability - consumption rate of minerals and how much timebefore the supplies run out3. It can generate revenue in an organisation’s own business operations.Purchasing products that have value after the use phase as products,components or raw materials can offset capital expenditure and reduce pressureon limited budgets. As the circular economy is growing and becoming morestable, capitalisation on this value will become easier and more rewarding.4. With increasing global supply chains and increasing pressure on finite resources,more circular procurement offers greater resilience within the global market placeby encouraging more sustainable production and consumption patterns and bybetter understanding and utilising product and material resource flows.3. http://europa.eu/rapid/press-release IP-14-763 en.htmDependency - worldwide production of critical raw mineral materials

ResourceEfficiencyInfographic by Armin Reller of the University of Augsburg and Tom Graedel of Yale University, 2009SustainablePublicProcurement

ResourceEfficiencyPress release European Commission: 'Report lists 14 critical mineral raw materials', 2010SustainablePublicProcurement

ResourceEfficiencyThe circular economy butterfly diagramA circular economy is an economy with a biotic circleconsisting of cascades of biomass (biotic resources)and closed abiotic circles of (technical) resources. Thelatter means that abiotic resources are constantlyreused in products and do not end up as fuel forenergy or as waste in landfill or nature.The Ellen MacArthur Foundation developed the‘butterfly-diagram’ on the right to illustrate this, with thebiotic circles on the left and the abiotic on the right. Inthis training module, the opportunities for circularprocurement are merely based on the technicalmaterials (the right-hand side of the diagram). The leftsection, biological materials, is equally interestingthough. The bio-based economy may offer manyspecific opportunities for new biological materials,including biodegradable materials.(contd.)Source: EMF 2013 Towards the circular economy Report 1SustainablePublicProcurement

ResourceEfficiencyThe circular economy butterfly diagramThe main reason for focusing on the technicalmaterials in this module is that the role ofprocurement is more explicit with technicalmaterials. As a procurer you can choose (acombination of) different possibilities to stretch thelifespan of a product and/or it’s materials. Usingbiological materials the cascades are moreobvious.A second reason is that there are still a lot ofuncertainties concerning the bio-based economy.For instance, bio-based materials may conflict withother policy goals (e.g. the food vs. fuel debate)and are often in an experimental phase. Theprocurers’ position is difficult and subject ofdiscussion. Therefore it’s impossible to summarisegeneral insights, lessons learned and tips andtricks in a training module like this.Source: EMF 2013 Towards the circular economy Report 1SustainablePublicProcurement(contd.)

ResourceEfficiencyCircular business modelsThroughout the world more and more companies have startedto develop and apply circular business models. These arebusiness models fitting in a circular economy, i.e. an industrialsystem that is restorative or regenerative by intention anddesign.In some views, the essence of a circular economy lies ineconomic transactions that focus on performance rather thanownership. The combined effect of these business models isthe previously mentioned circular economy with a biotic circleand closed abiotic circles.IMSA has integrated existing knowledge of circular economy toproduce a list containing 19 circular business models in sixcategories4.(contd.)4. IMSA - Circular Business Models - Part 1: An introduction to IMSA’s circular business modelscan, stainablePublicProcurement

ResourceEfficiencyCircular business models(contd.)This list by IMSA is probably not final because these models willdevelop as a result of growing experience and new possibilities.As a procurer, it’s important to understand these business modelsand the differences between them, because they representoptions for suppliers to produce and deliver their goods andservices in a circular way. This can only happen if the procurercreates the conditions for a supplier to present his bid in such away. In other words, the more functional a tender is formulated, themore options are available for suppliers to offer their goods andservices using a circular business model.Note that a circular business model in itself is not always aguarantee for circularity. Most business models are enablers forcircularity, they will only become circular when products andcomponents are used long term and at the end of their lives theused materials are not wasted, but returned to productionprocesses. Circular procurement helps to meet these conditionsby linking the procurement phase with use (in service) anddisposal once the need has been served.SustainablePublicProcurement

ResourceEfficiencyCircular DesignStimulating the circular economy requires a shift in thinking aboutpurchasing needs. A circular approach ensures that products do notjust end up as waste to landfill but that value is retained and impactminimised through lifetime optimisation. The circular approach toproduct procurement means taking account of design life and ensuringthey can be fully recycled at the end of this life. This means that whendesigning a product, requirements are set regarding the used materialsand the way in which the product was constructed. It should be easy torepair the components and these should also be reusable whereverpossible (this could also be for use in other products).These steps extend the products’ and components’ lives, so fewer newproducts with new materials will need to be produced. Linked to thetotal recycling, this will lead not only to closed cycles and less additionof original materials in products, but also to new economicopportunities. The steps to extend the life of products and componentsare the driving force behind the potential creation of around 580,000jobs across Europe through achieving the EU waste targets3.3. http://europa.eu/rapid/press-release IP-14-763 en.htmSource: Ellen MacArthur Foundation, UKSustainablePublicProcurement

ResourceEfficiencySustainablePublicProcurement§ IntroductionCircular Procurement§ Three major models§ How it's done frenta www.fotosearch.comCircular Procurement

ResourceEfficiencyCircular procurementCircular Procurement can be defined as the use of procurement toencourage more circular production and (re)use of products andservices. And thus contribute to a more circular economy byreducing environmental and social impacts and by improving valueand generating financial benefits in your organizations’ businessoperations.Using procurement as a tool to stimulate the circular economygenerates results. A circular demand creates opportunities for acircular supply. Circular procurement is not in itself difficult andrequires no additional competencies from procurement staffcompared with linear procurement. However, like implementing amore circular economy, circular procurement is still in its infancy.Circular procurement requires procurement staff to look at productsdifferently and to learn to ask different questions that will help themunderstand more fully the potential life cycle impacts, and potentialbenefits of available options. In order to stimulate the circulareconomy through procurement, procurement staff will need to moreclosely consider what happens to a product after its own use phaseand what alternatives are available.Source: Ho, Mae-Wan. Living, Green and Circular, 2012SustainablePublicProcurement

e procurement modelsProcurement plays an important role in stimulating the circular economy. The procurementprocess is the gateway for the use of goods by organisations. At this stage there are threemain procurement models that will drive the closed abiotic cycles in the right section of thebutterfly-diagram from Ellen MacArthur: 'buy - sell back', ‘buy - resell' and 'product-servicesystems'. These models contain all sorts of variants, but this distinction clearly illustrates themost important differences.In case of buy-sell back, the supplier buys back the product after the use phase for a specificprice, for instance a chair that is returned to the furniture supplier after use. This encouragesrefurbishment and remanufacturing. In case of buy-resell, a third party purchases the productfrom the user. This encourages lifetime optimisation and recycling. A good example iscollected plastics that are bought by a plastic converter. In case of a product-service system,the product remains the property of the supplier. Only the service the product provides is soldor leased, not the product itself. Good examples are leased products, such as photocopiers or'pay-per-lux': paying for light without possessing a lamp.Using one of these models in itself is no guarantee for a closed cycle. This applies to all thesethree options. It requires an additional condition, namely an agreement about what happensto the product after the use phase – the role of the procurement function. If no monitoringagreements have been made then at best procurement only implies the possibility of closing acycle.Click on the image to enlarge

ResourceEfficiencyThe circulareconomybutterfly diagramSource: EMF 2013 Towards the circular economy Report 1SustainablePublicProcurement

urement models - remarksSituationalNo one model is better as conditions are different for each product and for each supplier, and it also depends on the options available to themarket players and their supply chain partners. Different markets are at different stages of their development, so currently making the switchtowards a entire circular model is not always a viable option for all markets and products and materials can often stay part of the cycle in differentways. This highlights the importance of the procurement function in identifying the most appropriate cycle for different product and categories.The three models help to find ways in the procurement procedure to make agreements about reusing products after use by (the first) buyer. At thisstage it is not about finding the best circular model, but about realising closed cycles. In circular procurement, procurement staff look for ways tomanage the lifetime extension and reuse of the product, and to manage closing the cycle when the product has reached the end-of-life stage.Without deciding beforehand which of the three models is the best. Circularity is not yet a homogeneous standard that can be required for eachproduct. It is therefore necessary to benchmark, pilot, create working examples, and evaluate what works best at an organisational scale. It is alsoimportant to share this knowledge and experience and learn from others to maximise the benefits at a national and international scale.Waste managementIt’s essential that circular procurement relates in your organisation to wastemanagement. On the one hand because of the logical interference between the two:more circular products lead to less waste and/or to other destinations for your waste.On the other hand because of your organisations’ credibility. Working on circularprocurement makes more sense when you are also separating your waste and trying toreduce your waste volume.Click on the image to enlarge

ular procurement and waste contractsUserWasteWastemanagerResourcesPSSBuy- ‐sellbackBuy- ‐resell

ular procurement - How it's doneEnabling conditions for circular procurementFunctional view on needsIn many cases, the circular economy benefits from functionally described needs, based on the performance of the required product. Thismust be a carefully considered choice: functional specification is not ideal in all situations. In some cases, a technical description is calledfor, or perhaps a combination of functional and technical specifications. The banks of a river, for example, can be spanned in differentways (functional description). However, if the chosen crossing involves the use of timber, one condition may be that this timber is certifiedsustainably sourced timber (technical specification).Encouraging other revenue modelsBy basing your call for tenders on the functional side you can give space to other revenue/business models of the supplier. These modelsinclude Product-as-a-Service, leasing, a buy back agreement. It is all about a rethink of the concept of ‘ownership.’ After use, productsare not waste but instead represent a certain (residual) value either through re-use or recycling. This value should be reflected as anexplicit part of the revenue model and the price you are quoted.A simple summary is: Where does it come from? Who made it? What is it made of? What is it wrapped in? What will happen to it afterwards?

ResourceEfficiencyCircular procurement - How it's done(contd)Enabling conditions for circular procurementDesign conditionsIn circular procurement of products or services it is advisable to think about theconditions you want the product to meet. Also think about what you will ask the(potential) supplier about this. The following questions can be helpful here: Is the product/service/work suited for high-grade reuse? Is the designmodular/C2C? Does the product contain reused raw materials/parts? What percentage of the product is made from recycled material and howdoes this compare to industry average? What is the product's projected (economic and technical) service life? How does the design help optimise the product's life span? Is there a methodology that guarantees high-grade reuse and/or highgrade recycling? Can the supplier produce the product using fewer or more sustainablematerials? How does the supplier explore options and ambitions in further developingthe product and improving circularitySustainablePublicProcurementSource: WRAP, UK

ResourceEfficiencyCircular procurement - How it's done(contd)Enabling conditions for circular procurementProduction phase conditionsYou can also specify requirements for the supplier's production phase aspart of circular procurement/requesting tenders. Relevant questions in thiscontext include: Where were the materials sourced? Is there proof of that?How is waste handled during the production phase? How does the supplier handle material efficiency during theproduction phase? In other words, how do they prevent loss ofmaterial during production as much as possible?Resource recovery from waste streams and return streams Avoiding the use of toxic substances in the production processSustainablePublicProcurementSource: WRAP, UK

ResourceEfficiencyCircular procurement - How it's done(contd)Enabling conditions for circular procurementUse phase conditionsStimulate service life maximisation, for example: What is the projected technical service life of the product? What is the projected economic service life of the product? What does the supplier offer in terms of repair/maintenance? Are there upgrade options?SustainablePublicProcurementSource: WRAP, UK

ResourceEfficiencyCircular procurement - How it's done(contd)Enabling conditions for circular procurementPost-use phase conditionsEncourage the supplier to take responsibility for keeping the product ormaterials in the supply chain after the use phase. Actions taken to extend the product's service life after taking it back:upgrade, resell, repair, refurbish and remanufacture Actions taken to enable highest-grade reuse of products/parts/materialsafter the end of the technical service life: remanufacture, repurpose,recycle. For all these actions: What commitments can the supplier make forreuse of the product or materials in a subsequent cycle? How is this‘directed’ by the supplier or through the procurement exercise? Will theproduct end up as scrap heap after the 2nd user? This is a complicatedissue, both in terms of contents and legal implications. How does the supply chain organise reuse of the product, parts, andmaterials used. Through what steps in cascading down to recycling andwhy these steps? In which concept is the product offered and what arrangements arepossible in the supply chain?SustainablePublicProcurementSource: WRAP, UK

ResourceEfficiencyCircular procurement - How it's done(contd)Enabling conditions for circular procurementConditions for supply chain collaborationIn circular procurement, a purchase can includeagreements on high-grade reuse at the end of the usephase and corresponding accountability. This canproduce a different distribution of risks, profits, andvalue among all supply chain partners.The supplier may become the cycle coordinator whichwould involve the supplier bringing about collaborationand transparency across the supply chain. Thesupplier would then set the tone in optimising valueretention in the supply chain. Agreements to this effectwill be captured in customised contract provisions anda corresponding bespoke contract and contract term.SustainablePublicProcurementSource: WRAP, UK

ResourceEfficiencySustainablePublicProcurement§ 10YFP§ Car sharing§ Office furniture andcarpeting§ Temporary office Adobe Stock§ Advanced Patient CareCase Studies

ResourceEfficiencySustainablePublicProcurementCase StudiesRole of public procurementNational, regional and local governments can help toexpand business opportunitiesby developing PSS-related policies and making thempart of existing procurementpolicies, and by creating clear markets for companies’offerings.It is not sufficient to just produce a policy paper. Acommon complaint by businesses is that they developservices based on policies, but in practice the expectedchange lags behind. Policymakers and/or organizationsthat undertake public procurement have a duty to turntheir policy goals into practical guidelines forconsidering the procurement of PSS, and adjusting theprocurement process (including tenders) accordingly.This requires a coherent top-down approach supportedby both policy and practical activities.The UNEP report describes eight examples ofproduct-service systems. There are severalother sources available on the internet withinteresting cases of circular procurement (seelinks at end of module).The following slide provides a summary of 4 ofthese case studies to give you some inspirationfrom examples in practice.

ResourceEfficiencyCase StudiesImplementing a top down approachPolicymakers and/or organizations that undertake public procurement have a duty to turn theirpolicy goals into practical guidelines for considering the procurement of PSS, adjusting theprocurement process (including tenders) accordingly. This requires a coherent top-down approach,supported by both policy and practical activities such as:§ embedding commitments in corporate policy§ raising awareness of the use of PSS among all relevant stakeholders§ coordinating and sharing international research, knowledge and experience, including throughtraining and communities of practice§ using market engagement and dialogue before and during the procurement process§ developing contract templates and examples of specifications to ensure that environmentalcriteria are included in PSS§ developing structural tools (e.g. annual product category plans) for implementation on anorganisational level§ sharing pilots and lessons learned from PSS tenders already undertaken (not only successes:we also learn from our mistakes)§ publishing annual market assessments, providing an overview of the new services businessescan offer, and stimulating competition and innovation, which can also help procurers to lookbeyond familiar services and companies§ facilitating collaboration, in particular addressing the position of SMEs.SustainablePublicProcurement(contd)

ResourceEfficiencySustainablePublicProcurementCase studies – click image to highlight aseStudy3–

Procurement Using Product Service Systems in Circular Procurement* . (e.g. a washing machine) to selling a mix of products and services (e.g. cleaning services) that are jointly capable of meeting specific client demand (clean . Infographic by Armin Reller of the University of Augsburg and Tom Graedel