network requires finding a balance between the fixed costs of each facility and the
variable costs of transport to and from each facility.
Other important considerations, which are particularly relevant to end-of-life
processes (re-use, remanufacture, recycle, waste-to-energy, and landfilling), are the
quantities, values, and geographic dispersion of the used products or waste streams.
The more value retained in the used product, the greater the distance over which it
can be transported, and the smaller and more geographically dispersed the products
can be. For example, used precious metals retain their value, and therefore the cost of
transport is relatively lower than, for example, manure, which has very little value. In
other words, the value of the used product should cover the transport costs, and if this
margin is very small, then a more decentralized network might be necessary.
Chen et al. (2012) evaluated 88 recycling projects in 23 towns in Japan to draw
conclusions about the optimal scale of production for different value streams. They
concluded that materials, such as oil, metals, plastics, paper, and Waste Electrical
and Electronic Equipment (WEEE), could be handled across a dispersed regional
network of recycling and reprocessing facilities, since the market value of the
materials cover the transport costs. Organic waste, mixed municipal solid waste
(MSW), and demolition waste are however of relatively little value per unit of mass,
and therefore only a more local decentralized network of recycling and processing
can allow for the transport costs to be covered.
Finally, product quality concerns might also impact the level of centralization; in
the case of biological materials, there might be limited time in which the disposed
products have to be processed, or its value might be lower (and, for instance, only be
suitable for a waste-to-energy treatment).
The opportunity for logistics sector lies in designing networks that strike a
balance on the continuum between centralized production with economies of scale
on the one hand and decentralized production and transport cost minimization on the
other hand.
4.2 Product-Oriented Versus Service-Oriented Sales
The circular economy literature discusses a change in traditional business operating
models, from the business-to-customer transfer of product ownership to firms
keeping ownership of products and instead providing the service that the product
would otherwise deliver. The transition typically involves a switch from delivering
value in the form of a finished product to delivering value in the form of
performance-based services (Reim et al. 2015). As opposed to the customer buying
a product and owning it until its end-of-life, the firm retains ownership of the asset
and receives revenue for the value delivered by the asset to the customer. The firm, is
therefore, incentivized to operate and maintain the asset as efficiently as possible.
The transition goes beyond Extended Producer Responsibility (EPR) schemes, in
which the producer is merely responsible for product’s end-of-life but instead
businesses define their business model according to the extended life of assets
1 Logistics in the Circular Economy: Challenges and Opportunities
9
variable costs of transport to and from each facility.
Other important considerations, which are particularly relevant to end-of-life
processes (re-use, remanufacture, recycle, waste-to-energy, and landfilling), are the
quantities, values, and geographic dispersion of the used products or waste streams.
The more value retained in the used product, the greater the distance over which it
can be transported, and the smaller and more geographically dispersed the products
can be. For example, used precious metals retain their value, and therefore the cost of
transport is relatively lower than, for example, manure, which has very little value. In
other words, the value of the used product should cover the transport costs, and if this
margin is very small, then a more decentralized network might be necessary.
Chen et al. (2012) evaluated 88 recycling projects in 23 towns in Japan to draw
conclusions about the optimal scale of production for different value streams. They
concluded that materials, such as oil, metals, plastics, paper, and Waste Electrical
and Electronic Equipment (WEEE), could be handled across a dispersed regional
network of recycling and reprocessing facilities, since the market value of the
materials cover the transport costs. Organic waste, mixed municipal solid waste
(MSW), and demolition waste are however of relatively little value per unit of mass,
and therefore only a more local decentralized network of recycling and processing
can allow for the transport costs to be covered.
Finally, product quality concerns might also impact the level of centralization; in
the case of biological materials, there might be limited time in which the disposed
products have to be processed, or its value might be lower (and, for instance, only be
suitable for a waste-to-energy treatment).
The opportunity for logistics sector lies in designing networks that strike a
balance on the continuum between centralized production with economies of scale
on the one hand and decentralized production and transport cost minimization on the
other hand.
4.2 Product-Oriented Versus Service-Oriented Sales
The circular economy literature discusses a change in traditional business operating
models, from the business-to-customer transfer of product ownership to firms
keeping ownership of products and instead providing the service that the product
would otherwise deliver. The transition typically involves a switch from delivering
value in the form of a finished product to delivering value in the form of
performance-based services (Reim et al. 2015). As opposed to the customer buying
a product and owning it until its end-of-life, the firm retains ownership of the asset
and receives revenue for the value delivered by the asset to the customer. The firm, is
therefore, incentivized to operate and maintain the asset as efficiently as possible.
The transition goes beyond Extended Producer Responsibility (EPR) schemes, in
which the producer is merely responsible for product’s end-of-life but instead
businesses define their business model according to the extended life of assets
1 Logistics in the Circular Economy: Challenges and Opportunities
9