In this talk Peter Bilello explains the circular economy as a design and business philosophy that treats products as assets with multiple lives rather than disposable items. He argues that true circularity goes beyond recycling to include reuse, remanufacturing, and repurposing, and that product design must anticipate second, third, and further lifecycles. Bilello illustrates the concept with a casino‑machine leasing model where machines are refurbished, upgraded, and redeployed, appearing as new to the field while containing many reused components. He identifies two primary drivers: volatile material costs (e.g., rare‑earth price spikes) that make ownership risky and the ecological imperative to reduce waste. Both motivate companies to shift from selling a product to selling a capability or service, often via leasing, pay‑by‑use, or subscription models. He outlines the cascading impact of this shift: business philosophy changes, redesign of products for durability and modularity, new warranty and performance criteria, altered PLM/IT systems to track product data through its entire life, and the need for remanufacturing‑capable production lines. Bilello cites examples such as automotive warranties extending to 100,000 mi, aircraft engines sold as “power‑by‑the‑hour,” and software moving from perpetual licenses to subscriptions, noting resistance from financial analysts accustomed to traditional revenue recognition. He also discusses design optimization to avoid over‑design and waste, and the capital implications of leasing models that spread risk and enable market entry. Overall, the talk maps a holistic transition pathway—from redefining the product offering, through engineering and manufacturing changes, to new financial and capital structures—required for companies to thrive in a circular economy.
Chapters
Circular economy is about developing products that have multiple lives. So when you look at the circular economy, it's what happens to the material the next life, and it's more than just recycling. Recycling is one form of a circular nature of the product or materials that are in a product, but it's actually a very small part of it. It's looking more at concepts of reuse, remanufacturing, repurposing, so that when I design the product, I also design what its second life is, or third life, or fourth life is. And a quick example, a company in— let's say leases a product. And I'm thinking of a company in the casino industry where they have casino machines that they've designed the product for multiple uses so that, let's say, multiple— the machine can be used for not just the game that's on it now, but a game that will be installed on it later. So I'm thinking of a certain company we've worked with that they do that leasing model. They bring the machine back in and they also understand, okay, what do I refurbish? What do I replace? What do I recycle? And then what do I load in it next and actually bring that product back out to the field? So for all extensive purposes, it looks like a new product, but actually it's not. I mean, most of the components in it have been designed for multiple uses and then also go through cycling between refurbishment or repair or just cleaning for them. It could be as simple as cleaning it and just reinstalling it. So it's a circular view of what the product is and managing it, not just for one cycle, which is the traditional way we've looked at cradle to grave, but as many people call the circular economy, cradle to cradle. So this continuous evolution of the product over time. There's a couple of factors for it. One is certain costs of certain materials have gone up quite a bit, and we see fluctuations a lot, like in rare earths. at one point, rare earths are in a lot of high-tech, a lot of smart devices. And when there's spikes in that, it can cost a company quite a significant amount of money for that added— maybe gold or something like that that's in the smart device. But if it shoots up very rapidly, which has happened in the past, they say, OK, well, can I pass all that cost on to my customer, or can I eat that cost? Well, generally, if it goes too high, it erodes all their margin. So they said, OK, well, maybe I should lease the product instead. So that insulates me from a rapid change in like a rare earth, for example. That's one aspect. The other aspect is more of the ecology itself. It's like, why are we wasting so much? Why do we take, make, and dispose? There's better cycles that we can do or better ways of reusing that material that— but we have to engineer that in. It's not just about recycling. And so there's a whole movement around that that takes recycling or let's say sustainability to a whole other level. And there's a lot of companies that realize that actually it's not just better for the environment, it's actually a better— can be a better business model for them and how they look at their products. And kind of changing their view from selling a product that gets, you know, put in the landfill versus selling a capability or performance or, you know, basically a leasing model where people are buying the capabilities of the product, not the product itself. Transitioning to the circular economy, probably the biggest thing is changing the way people perceive what the product is. So they have to think about the product for the through life, not just end of life but through life. And then that impacts on how you design the product. So if I design a product for through, you know, for multiple lives, I no longer look at it as, oh well, I want to sell it to a customer and I really don't care about what happens to it. That's one issue. Another issue may be, well, my warranty lasts for 5 years, so it has to be able to go through so many cycles before it breaks so I don't have to pay the warranty off. That all has to change because if it's multiple lives, I have to engineer for multiple lives. So much more robust solutions are required as a result of that. And a simple example in the automotive space, a lot of the automotive companies have gone to 100,000-mile or 160,000-kilometer warranties. They've changed now what they've designed into the product. They made the product last that long. So you're not replacing your exhaust system, your muffler, like you used to. You're not replacing your spark plugs like you used to. You're not replacing the window regulators as often as you used to because they're engineering the product for longer life. And then if you go to the next step and design them for through life or for repurposing and remanufacturing, that's that whole other level of engineering that has to change in companies as they look at their product. So transitioning a company that's used to making, shipping, and never worrying about it, and to now worry about it and maybe take that product back in and repurpose it, remanufacture it, it requires a number of business changes. It could require just the computer system changes of thinking what PLM is and how I manage the product information through life instead of just for development. Change in the way I think of manufacturing. It's not just first-time manufacturing, but I also have to think about remanufacturing the product when it comes in the second time. So I may have to change my manufacturing system. And then the business model, the business system itself of moving from more of a, you know, sell once and forget to a leasing model, for example, that the way I receive money. And this has been true in the engine business for a long time, aircraft engine business, where they sell power by the hour. and it required a change in their operating systems, their business systems, IT systems, and others to support that move from selling a product to selling a service, basically. It kind of starts with what's the change to the business philosophy? Basically, what are they selling? If they're going to change the way they think of their product and move to a service, let's say, a leasing model, or you pay me by the use of this product. That's the starting point. You have to be able to do that. And then go back from there and say, OK, well then how do I design that product for maximizing the value, profitability basically? And depending on what that model is can change the way you design quite significantly. So it starts with the business model, goes then to the design of the product itself, design of the services that will be provided with it, design for the manufacturing capabilities that are required, remanufacturing capabilities and others. So it kind of flows down from first deciding what is your product going to be in the future and then driving down to how you design for that new product and support it. Design out waste has a lot to do with— well, it can be a couple aspects. One I'm thinking about is over-designing something. Some companies historically have over-designed a product. But it's really wasteful. Too much material is used. It's too heavy. It requires more energy to make it and support it. So part of it is optimization. And more and more companies are realizing that optimization of the design can play a role to remove waste. And it's not— I don't necessarily have to make something 5 times as strong as it needs to be. But it should be stronger than it needs to be so it has some, let's say, margin of error or safety factor in it. But what should that be? Should it be 10 times, or can I optimize it so it's— I'm comfortable that it's 3 times as good as it needs to be, or whatever that safety factor has to be. So that's one aspect of kind of optimization in order to do that. So rebuilding capital has to do with the business model itself. And some companies can't get into certain markets because they don't have the capital to do that. But again, if they're changing the way that what they look— the product is, I —gave the example of the casino— what do they call this— basically the machines that you play on the floor. They could not invest in all the kinds of machines, and the casinos couldn't invest in the machines. So they started a lease model. So it shared the risk and shared the reward, for that matter. So in this case, they get paid by every dollar, every euro that's put into the machine, and that's how they make their money back. So it spreads out their their payment but also allowed them to basically get the funding that they needed up front from the casino makers. So it was kind of a partnership but changed the way and built a whole new business that didn't exist before. So that's just one example of kind of changing the business model and capitalizing the business in a different manner than before. Some companies it will be a struggle because they're changing the way they look at business and how they get money. There's a similar example in the in the software industry where we're moving towards licenses that are done through subscription versus licenses that are just paid upfront. Wall Street and the people in London and New York and other places don't necessarily like that because they're used to calculating, oh, you just did a sell, you sold this many licenses, it's this much, and we know you got that money. If you sell a subscription, that subscription, okay, I know how much money I just got for the first year, But how long? I mean, someone could turn that subscription off at some point. Same thing as a lease model for a product. How long will that lease run through? So it's not only changing the business model of the companies that are executing it, it ultimately is going to have to change the way we look at capital— the capital world has to look at the value that that company is providing. And it's been a struggle for some— well, a lot of financial analysts to get their head around a change from a licensing model to a subscription model. I think there's some similarities there, as I mentioned, in the discrete world as well. But there are some examples like GE and others that have been selling power by the hour with their jet engines. And that seems to be start— be well understood. But there's still some conflict there in the financial world of measuring what that value is long term.
