Product service system models
The basis of this type of model is that the customer (consumer or business) is more concerned with obtaining the benefit from a product than actually owning it. A product service system (or servitisation) therefore starts from the point that companies must offer the function of the product to customers, not the product itself. This concept adds to the circular economy model by encouraging customers to only buy the services of a product as and when they need them, and not to actually own the product which might involve not using it for long periods. In this way, the economy needs to use less as products are being more fully utilised more of the time – so fewer products will need to be produced. This results in less energy use and less raw material resource use.
Business examples include the contract Philips has with Schiphol airport to provide all of its lighting requirements over a long-term period. Any replacement LED lights or any improved versions of lights will be provided at Philips’ expense as the supplier (not the
airport) will own the lights. Similarly, Rolls Royce aero engines are now frequently supplied on a ‘product service’ basis and not sold outright. The company claims that in the longer term these service contracts are much more profitable whilst giving airline customers the benefits of long-term servicing and maintenance without the initial cost of buying the jet engines.
Figure 28.3 illustrates the reduction in conflict between supplier and customer with product service agreements. The traditional ‘purchase’ model shows that the supplier wants to maximise resource use to produce and sell as many cleaning machines as possible, whereas the customer wants to reduce purchases to lower costs. In the product service model the supplier offers the product as a service but will only have to produce what the customers can use – so reducing resource usage and removing conflict between them.
Figure 28.3: The gains from a product service system for a cleaning machine contract compared to purchasing cleaning machines
It is also claimed that the product service system improves sustainability over the lifespan of assets as the contracts include arrangements for the maintenance of these product services, recycling and, when necessary, product replacement.
Benefits of product service system models:
• A more sustainable economy with fewer products manufactured as fewer will be left idle for long periods.
• Increased employment in the service sector, e.g., workers to maintain products.
• Less conflict between the interests of the supplier and consumers.
• The risk of poor performance of the product is passed from the consumer to the supplier of the product or service.
• Long-term relationships are built between the supplier and the consumer based on long-term service contracts.
Limitations of product service system models:
• Customer resistance to not owning and controlling the asset.
• May be locked in to long-term service contracts which could be a disadvantage if the product and/or business prove to be unreliable.