The French Environmental Agency published an interesting study on “Functional Economy” (also called “Service Economy”) which means replacing “purchasing products” by “renting products”. According to this study, a “Functional Economy” would lead to reduction in raw materials and energy consumption and therefore major environmental benefits.
The rationale behind this theory (first published by walter R. Stahel in 1989) is that as a company moves from maximizing sales of material products to the delivery of customer satisfaction, its employees will have strong incentives to minimize materials and energy used in the systems that deliver the service to the customer.
Indeed a manufacturer who sells a product has incentives to sell more, and shorten the lifespan of the product. On the other hand a manufacturer who is paid on usage basis is incentivized to extend lifespan and decrease maintenance costs.
The most famous example is printing services, where companies such as Xerox are offering “pay per copy” fully managed printing services, where they are responsible for providing equipment, maintenance, supplies and responsible for equipment end of life. Less well known, but even more interesting, is the concept of “Chemical Leasing“, initiated by companies such as Dow Chemical. Interesting case studies have proven that for example Chemical Leasing in metal cleaning in the automotive industry was leading to a 72% reduction in solvent consumption.
The main drivers identified by ADEME are:
– a more professional maintenance able to improve the service level
– changes in functionnal specification of the products
– a more rational usage of the product, as end users become aware of the total cost of ownership
This theory could provide an interesting model for “Sustainable Procurement” managers who could innovate by pushing some of their suppliers to lease products rather than selling them.
