What is an access-based business model and how can it tackle waste and protect resources?

World Economy

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May 5th, 2022

An access-based business model encourages responsible consumption through sharing and hiring. But could this be applied to manufacturing?

 

By

Associate Professor, Dyson School of Design Engineering, Imperial College London


 

  • An “access-based” business model entails selling the function or performance of products to consumers through sharing, leasing and hiring schemes.
  • This sustainable business model could be extended to sell the function or performance of components and materials to manufacturers and that of minerals to material suppliers.
  • Rethinking ownership of components, materials and minerals is both an opportunity to create commercial value and achieve sustainable impact.

 

Car clubs, bike shares, vacation rentals. As consumers, we’re becoming increasingly familiar with sharing or borrowing goods that have traditionally been owned, examples of what’s known as an “access-based” business model.

 

Consuming “access to products” instead of the products themselves can play an important role in addressing environmental challenges. However, to meet future environmental challenges, we need to extend the application of access-based business models beyond finished goods, and rethink ownership of goods across the whole value chain.

 

What is an access-based business model?

 

An access-based business model is based on customers accessing the function or performance of goods, rather than owning them. Businesses that offer consumers access to products are increasingly emerging. In addition to cars, bicycles and homes, the model is available for clothing, power tools, headphones, detergent bottles and power banks. Offering access to products is also common between businesses, traditionally for large expenditures such as company cars or heavy machinery, and more recently also for products such as office furniture and lighting.

 

How is access to finished goods changing consumption?

 

Access-based business models can tackle resource depletion, waste generation and other crises. Purchasing access, instead of products, makes consumption behaviour more sustainable by default, as it reduces the under-utilisation and rapid replacement of privately owned goods. In contrast to conventional linear consumption, the incentives to reduce consumption and return goods for reuse and recycling are built in. Car sharers, for example, were found to own 30% less cars than prior to car sharing.

 

Access to finished goods can, therefore, minimise the environmental and economic costs of manufacturing and consumption. Although the potential of access-based business models to address environmental challenges is recognised both economically and academically, the models have been slow to take off and their application – predominantly to finished goods – represents only a small fraction of the opportunity for impact. For example, as of 2014 the fleet of shared vehicles accounted for less than 0.1% of the almost 1 billion global in-use car fleet.

 

What is an access-based business model and how can it tackle waste and protect resources?

 

How could access to semi-finished goods reshape manufacturing?

 

To solve global sustainability challenges, access-based business models will soon need to be applied not only to finished goods, but also to components and materials. What this means is that future material suppliers will no longer sell semi-finished goods like stainless steel sheets or PET granules – instead, they will lease them out to product manufacturers, effectively selling components and materials as a service and offering their performance.

 

A supplier will, for example, lease stainless steel sheets to a car manufacturer to form the tubes for a chassis. Rather than owning the sheets, the car manufacturer will be charged to access the volume of material transformed into car chassis for an agreed period of time. At the end of this period, the car will be disassembled to allow the material supplier to retrieve the components and recycle the materials.

 

Such an approach creates a new ownership structure in which material suppliers own the components and materials, and the manufacturer only owns the value they have added by transforming them into the final product. In this model, components and materials cannot be physically consumed by the product manufacturer or the end-user of the product.

 

What are the incentives to access semi-finished goods?

 

Just as car clubs build in incentives for sustainable consumer behaviour, this approach creates several important positive incentives for material suppliers and finished goods manufacturers. Because they retain ownership of their semi-finished goods, material suppliers will be incentivised to offer materials that are more efficient and durable and easier to recover at the end of product life, facilitating the shift towards closed-loop supply chains.

 

Committing to returning these materials will motivate product manufacturers to (re)design goods for access-based business models, rather than offering traditional goods for access. This will lead, for example, to the emergence of cars explicitly designed as goods that are leased instead of privately owned and using materials and components that stay in the value chain and are returned to suppliers instead of being scrapped.

 

To minimise recovery costs, material suppliers will incentivise product manufacturers to design for prolonged use of goods. They will also prompt manufacturers to design products that contain the least number of materials and are easy to disassemble, which will also make them easier to repair and enhance the purity of recycled materials.

 

Most importantly, with time-bound access to materials, product manufacturers will have to anticipate the moment when products become obsolete, design plans to intercept them and loop products back into production processes to reuse constituent components and materials. In this way product manufacturers will balance the operational cost of the components and materials they lease, against the revenue that they make from the products they sell or service. This structure will incentivise them to optimise material use, changing the game in resource management and leading to higher functional value provided by natural capital over a certain length of time.

 

How could access to raw goods reshape material supply?

 

Going one step further, this model can be applied not only to semi-finished goods, but also to minerals. Ownership of material resources does not have to remain with semi-finished goods suppliers. What if organizations upstream of material suppliers start to trade raw goods (i.e. unprocessed or minimally processed materials) without ownership exchange?

 

In the future, mining companies could lease raw goods to material suppliers using access-based business models, effectively offering minerals as a service. Moving a step further, nation states could stop giving rights for exploration or mining on certain lands to mining companies – instead they could provide them with “licence to mine” permits that allow companies to mine but not to own the mined raw goods. For example, a nation state could lease iron ore to a mining company, who would then provide it to a steel and iron supplier. Ownership of mined minerals would remain with the country of origin and the “licence to mine” permits would come with the expectation that mined resources are eventually returned to the nation states in the original or processed form.

 

What are the challenges ahead for this sustainable business model?

 

In an access economy, the complexity of modern finished goods will make it hard to recover the components, materials and minerals embodied in products and route them (back) to specific material suppliers. Hence, both current production and consumption systems and goods will have to be redesigned to service the model. In particular, goods will have to be optimised for reuse and recycling, and digital information embedded in them to ensure traceability.

 

Infrastructure will have to emerge to intercept, separate, sort and recover materials. Further, all organizations in the value chain will have to adopt strategies for shared value creation and invest in ongoing collaborative relationships with partners over linear transaction-oriented relationships. Finally, addressing these challenges will not be possible without policy development and changes in culture and mindset from governments, businesses and consumers.

 

Chemical leasing is an example of component as a service business model offering the function or performance of chemicals in the manufacturing process. However, it lacks the dimension of returning chemicals at the end of use, which is key for a true circular solution.

 

Where do we start?

 

Extending access-based business models throughout the value chain implies a systemic change to our production and consumption systems. This calls for a holistic review of the resource flows for finished, semi-finished and raw goods. The parties who have a stake in resource flows must come together to rethink ownership of goods – in the three states – to identify the opportunities to create commercial value and achieve sustainable impact. Simultaneous implementation of multiple access-based models might be appropriate in some value chains. Moving to new business models with new incentives can ensure that value chains are truly sustainable and help businesses play their part in protecting the earth and its resources.

 

This article was originally published by World Economic Forum, on April 08, 2022, and has been republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License. You can read the original article here. The views expressed in this article are those of the author alone and not of the WorldRef.


 

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