Circular Strategy at Philips: Turning Trade-Ins Into Revenue
How can a 100+ year old linear company transform its processes to make circularity commercially irresistible?
In this episode, Patrick Lerou, Global Lead for Circularity, and co-host Florian Witt, Director of Technology at INDEED Innovation, discuss how Philips built a circular system for high-value medical equipment that turns trade-ins into revenue, parts harvesting into supply chain resilience, and refurbishment into a competitive advantage.
What you’ll hear in this episode:
- How Philips uses a three-tier triage system to maximize value from returned equipment through resale, parts harvesting, or certified recycling.
- Why “seeing is believing” works as a sales strategy, with factory tours convincing procurement directors and even governments of refurbishment quality.
- How the Suez Canal crisis revealed circularity’s hidden benefit: supply chain resilience through self-sourced components.
This episode covers the operational mechanics and commercial logic behind enterprise-scale circularity, including how to navigate fragmented global regulations and connect data points.
This is the fourth episode in the series Irresistible Circular Business, sponsored by INDEED Innovation, the global design and innovation firm pioneering the Circular Economy. The series showcases business practices that deliver irresistible commercial and circular results, with examples from different industries across different R-strategies.
Video Impression
People
Patrick Lerou, Global Lead in Circularity & Chief of Staff Circular Lifetime Solutions at Philips
https://www.linkedin.com/in/patricklerou/
Florian Witt, Director of Technology at INDEED Innovation
https://www.linkedin.com/in/florian-m-witt/
Patrick Hypscher, Circular Business Strategist, PaaS Expert
https://www.linkedin.com/in/hypscher/
Chapters
00:00 Introduction
04:25 How Philips Went Circular
08:00 Motivation for Circularity
12:15 Causes of Resistance and Winning Customers
19:35 Regulation Roadblocks Worldwide
22:49 Importance of Collaboration in Health Care
24:16 Circular KPIs That Prove Value
28:00 Data Insights and Supply Resilience
34:16 Designing Circular Business
40:46 Outro
About
Philips is a Dutch health-technology company founded in 1891 and headquartered in Amsterdam, with tens of thousands of employees operating in more than 100 countries and annual sales of roughly €15–20 billion in recent years. After decades as a diversified electronics group, it is now focused on health tech, offering medical imaging and diagnosis systems, image-guided therapy solutions, patient monitoring and connected care, as well as selected consumer health and personal care products.
In its circular-economy work, Philips runs “Circular Edition” and other circular equipment portfolios that supply refurbished and pre-owned medical systems restored to “as-new” quality, along with refurbished consumer products where appropriate. The company also offers take-back for all professional medical equipment it sells directly, prioritizing refurbishment and parts harvesting, and using certified recyclers at true end-of-life to extend product lifetimes, reduce virgin material use, and avoid landfill.
Further Links
ReCommerce Playbook https://www.indeed-innovation.com/the-recommerce-playbook-from-returns-to-revenue/
More on Philips Factory: https://www.philips.de/a-w/about/news/archive/standard/news/2025/202503-philips-werk-hamburg-gewinnt-nachhaltigkeitsauszeichnung.html
Transcript
[00:00:00] Introduction
Patrick Lerou: What does a data point tell you? Basically, nothing. And that’s what I like about data: Can we connect the right data points to get insights, in order to drive actions? It is from collecting the data to connecting the data, and that is when circularity makes a circle for me.
Jingle: My name is Patrick Hypscher. And this is Circularity.fm, the podcast about understanding, building and managing circular business models.
Patrick Hypscher: Hello again and welcome to Irresistible Circular Business, the series that showcases the business practices that deliver irresistible commercial and circular results. We look at examples from different industries across different R strategies. Sponsoring partner of this series is Indeed Innovation, the global design and innovation firm pioneering the circular economy. In each episode, a member of the Indeed Innovation team joins me as a co-host. The last episode with Whirlpool was about the benefits of the B2C refurbishment program. Today we don’t look at one specific circular strategy, but an integration and combination of multiple circular practices in the B2B sector. If you want to get the actionable one pager about this conversation, sign up for the Circularity.fm newsletter. You can find it at www.circularity.fm.
Patrick Hypscher: With a master’s degree in international business, our guest today has spent over two decades driving strategic growth and customer experience at Philips. For five years, he has served as the global lead in circularity and recently as chief of staff for Circular Lifetime Solutions. And thanks to his parents, he has a wonderful name. Welcome Patrick.
Patrick Lerou: Thank you Patrick.
Patrick Hypscher: And my co-host for today is a creative multi talent who has spent over a decade bridging the gap between mechanical engineering and sustainable industrial design. For the past 12 years, he has been the driving force at Indeed Innovation, where he now serves as Director of Technology. Welcome, Florian.
Florian Witt: Hello. Good to be here.
Patrick Hypscher: Patrick, Florian. When was the last time you visited a hospital or a doctor and did you care about the condition of the medical appliances, Patrick?
Patrick Lerou: Let me think. The last time was about three, four years ago when I decided three kids is more than enough. So yes, given that small surgery, I did care about how things looked like there, whether there was enough hygiene. So yes, absolutely.
Patrick Hypscher: Okay. Valid reason. Florian, how was it for you?
Florian Witt: I have experienced firsthand how bad state of medical equipment can have, well, not bad consequences, but can really show up. A while ago I had my eyes checked because I am getting older of course. And I thought I might need glasses. And so I went to a doctor, had my eyes checked and the doctor said, yes, you absolutely do need glasses. You would not get a driver’s license with those eyes right now. So I said, well, okay. Went to an ophthalmologist on that weekend, and they had all the fanciest new equipment that was really well maintained and they checked my eyes again and they said, no, you do not need glasses. Your eyes are perfectly fine. So it was just poorly maintained equipment at that doctor’s office that made my eyes look bad in the end.
Patrick Hypscher: Okay, so it’s probably due to the maintenance and the configuration.
Florian Witt: It probably wasn’t well maintained at all. It was old, which is not a problem usually. I mean, these devices are not black magic. They probably haven’t changed fundamentally in decades. But, yeah, or user error. I don’t know.
[00:04:25] How Philips Went Circular
Patrick Hypscher: Maybe he needs glasses. But yeah. You said the product didn’t change that much. Change is a big topic. And I mean, when most people, especially people who are familiar with the circularity landscape, think of Philips they think of it as a role model when it comes to circular change and circular transformation. Patrick, as a start, how did that happen? How did Philips become a more circular company?
Patrick Lerou: So my opinion, I think there are two critical elements that basically kicked off the sustainability slash circularity program. And for the sake of discussion, let me isolate the circularity. I think the two main breakthroughs were, first of all it was driven top down already since 2015. We have a five year program, so we had the 2015 to 2020, 2020 to 2025, and now the 2025 to the 2030. So first of all, top down, driven from our ExCo and the other one is nice if you have a program. But also the program has been translated into very measurable KPIs. So to my opinion, those two elements have been critical to be at the forefront of circularity.
Patrick Hypscher: Yeah, absolutely makes sense. So, such a change has to be derived from the top. And you joined that transformation five to six years ago. What’s your part in that, what are your responsibilities right now?
Patrick Lerou: My, well, as you already briefly mentioned it in the introduction, in larger companies there is not a person with one single hat. So wearing multiple hats. But for today, let’s focus on my role here as Global Lead for Reclaim and Trade-in. And with that drive, that being, the driving force with the teams, obviously behind the couple of those circularity KPIs in order to do refurb, in order to remarket, in order to reuse parts. My aim is to basically take back as many systems as possible from our existing install base. So as soon as there is a, well take an MRI. An MRI being replaced, we take it back and then we have three different triages as we call it. Either we will be reusing the full system and resell again. If the system is either too old, doesn’t have the proper software, again, we don’t want to put it into the markets, but we might be able to harvest parts for systems that are still in the market. And the last one is if we can’t even harvest the parts anymore, then we make sure that we locally scrap the system and that’s when we collaborate with what we call certified recyclers so that we are made sure that the system is basically brought back to materials. Well then you can imagine if you measure circularity you are driving circular revenue, you’re driving close the loop. You’re driving the reuse of materials, and that’s what we do on three different levels. The circularity policy set up by our group sustainability.
[00:08:00] Motivation for Circularity
Florian Witt: When you say it like that right now, it sounds like a no brainer. It sounds like that was how it should always have been, but I’m sure it wasn’t always smooth sailing to get there. So can you elaborate a little more on what motivation made Philips start going into circular business models and also what resistance did you guys meet on the way?
Patrick Lerou: Nice question. Let’s start with the positive, the resistance. Yes, it also has a positive side obviously. Why I think it can be pretty simple and short here. What if we would not. I mean, if you look at, and unfortunately that percentage even decreased over the years, and I don’t know the numbers by heart, but I think by 2023 or 24 globally, we only reused 9% of the materials. 9%. It basically states that’s the glass half full. But it also shows that we throw away 91% and give me a proper definition of throwing away: It’s not throwing away, it’s basically moving it from left to right and even further to the right. Now we put it out of our sight and now we call it throw away. And that’s something that we clearly realized. That we really need to start reusing what we already have. And I think that percentage of 9% of reuse of material even dropped to 7% and it’s not Philips yet, it’s a global number. And it’s not because we reuse less. No, because from a circular perspective, we have not been able to keep up with the level of consumerism. Whether it’s customers or B2B. So we are consuming more. And while you all know the figures, I think, depending on where we are at the globe, but today it’s the 25th of February, I believe we already have reused the earth almost from a resource perspective. So looking forwards, generation after generation. And it’s also one of the statements from Philips and then we’re moving slightly into the S of ESG. It impacts 3 billion lives a year. Well, by reclaiming the equipment, by being really circular, I feel we can touch up to 7 billion lives a day. So people at the heart of the organization is a big driver for circularity.
Florian Witt: And maybe adding to that number of 9% that you just reported, where you said that’s the amount of material that actually gets reused. The value loss is much, much higher than the 91%. Right? Because if you only reuse the material, you’re losing basically probably 99% of the value that was in the original product. Right?
Patrick Lerou: Even worse. Yeah. This was the percentage only referred to literally the material being reused. Not even the value, but fully agree there. Indeed. Yeah.
Florian Witt: So that picture is actually even worse. So, you’d say the motivation, if I may paraphrase, came from that insight into the value hill of the linear economy, constantly having to extract resources, pushing that up a hill and then selling it, and immediately upon selling something, it’s worth like 10% less. And then it just kind of rolls down that value hill towards becoming waste and becoming a liability and not an asset anymore. So this is basically what you found out for yourselves at Philips at some point, and you said that has to change, or is that correct?
Patrick Lerou: Yes. Absolutely. Yeah. And to that point it’s one of the elements obviously, I mean, as mentioned within Philips we have the people in our heart for everything that we do. Access to care, touching the people’s lives. I mean, how can you do that without circularity? Circularity in that sense is a hygiene element. So we have to work more circular.
[00:12:15] Causes of Resistance and Winning Customers
Florian Witt: Okay, so if you had very low internal resistance because it was basically a top down initiative there. What about external resistance? Did you have resistance from your customers, your users that say, no, I don’t want to send this back. This is a gigantic hassle for me.
Patrick Lerou: Let me come back to that assumption that we did not have any internal resistance.
Florian Witt: Oh, okay. You weren’t done there. All right. So please elaborate.
Patrick Lerou: Things are top down, driven and initiated. Things don’t change overnight. When this circularity program, or the sustainability program say, started roughly 15, 20 years ago on the first ideas, it does mean that we have been a linear company for 110 years. So that also means that lots of processes are also set up in a linear way, so the internal resistance often comes from the processes. And let me give you an example here. When a customer buys medical equipment, it’s very easy. It’s a customer. If we buy parts from a company, it’s easy, it’s a supplier. But what happens to a system? If we start buying back equipment from a customer, then the system says, hey, but this is not a customer. It’s now a supplier. No, it’s not a supplier, it’s a customer. No, it’s a supplier. So we had a pretty straightforward process in order to serve our customers, but now we are taking back systems. So, and then you run, I ran into process challenges because we are buying back from a party that is not a supplier. So those things have to be tackled and I got the question, well, we need to do due diligence. I said, well, it’s a customer. They’re spending millions. They have a wide portfolio of Philips IB. Do not treat them as a supplier. And that’s when the whole trade-in is also much more settled as a service. We provide you the new one and we take the old one back. So then we had to change processes in order to ensure that customers remain seen as a customer. So that is and up until now, I mean, if you start innovating in the world of circularity every time you might run into a process. If you want to set something up. It goes from A to Z, but not back from Z to A. So that is still what we are fighting every single day, battling, fighting in a positive way. So I just wanted to come back on your no internal resistance.
Florian Witt: Very good. So systematic resistance, if you want, battling your own ERP systems. I can totally see that. Having encountered so many problems with those kinds of systems in the past from other clients of ours. And what about the external resistance? Did you get your customers on board for sending stuff back or even telling you what state it’s in?
Patrick Lerou: No, the take back is not so much a challenge in general. Luckily there are positive trends and we see that more and more happening. So all customers, hospitals, you see more green teams, circularity teams. In the Netherlands we also have that green hospital set up. It is more the resistance on the other end if we want to resell a system because we still think secondhand isn’t as good as new. And I tend to agree, if you walk into an average car sales dealer, you know, you might think what is under the hood? Within Philips, we made a very clear promise on our circular edition portfolio, which is basically as good as new. So it’s not that we bought back a system, took a towel and just made it shine again. No, it goes through a very thorough refurb process, testing, same guarantee, same training. And that is still what we sometimes need to overcome, that skepticism on not being new. And I think there we still have some external resistance to overcome.
Florian Witt: So people are seeing the lower price point or supply chain purchasing departments are seeing the lower price point, but they do not believe your promise of as good as new at face value.
Patrick Lerou: It needs more conviction. The good thing is as soon as customers step into our refurb factory and they see with their own eyes how medical equipment is basically uncovered literally. And we walk them through the process. Wow, this is really amazing to see. It’s not just make it shine. No. It’s really a thorough process and it’s always nice that the first one that raises the hand is often the procurement director of the hospital because then he sees the dollar signs at like 70% of new prices. Hey, I can save some money and still have a good piece of medical equipment.
Florian Witt: But there is a great insight in there what you just said, that you’re basically using your refurbishment process internally as a tool to convince potential customers that your refurbished devices are actually as good as new, so that this is a kind of tool that you developed because many companies would be very secretive about that. Probably what they’re doing in there, they won’t let anyone in, let alone take pictures or something.
Patrick Lerou: We share the story.
Florian Witt: Okay, but you are actively taking potential customers and bringing them onto your factory floor where you do refurbishment and you’re showing them how thorough and how high quality everything is once it has gone through that process.
Patrick Lerou: Seeing is believing.
Florian Witt: That’s great. That’s a really nice insight. I would love to ask you again about the reverse logistics because what we usually hear is that it’s more of a burden or more of a challenge that needs to be solved. Instead of just discarding a product, discarding a device, now you have to get your customers, your users to package it up and send it back to you and so on. But you are saying now that by offering an exchange and taking care of the reverse logistics, you are actually taking this having to dispose of something challenge out of your customer’s hands. So instead of becoming a burden, instead of being a challenge, it now becomes an extra unique selling point. You say you don’t just get a new upgraded device from us. We’re also taking care of your device that you have right now so you don’t have challenges. So that’s something that you win tenders with, you say.
Patrick Lerou: Absolutely. Yeah. If you talk about the B2C language, then you talk about this one stop shop, you know, it’s we’ll take care of it.
[00:19:35] Regulation Roadblocks Worldwide
Florian Witt: Adding onto that topic of external resistance to going towards circular business models. What about regulation? Was it a huge challenge? Or was it even a chance in some ways.
Patrick Lerou: There are opportunities to put it in a positive way. The main challenge is not the legislation or the regulation by itself, but the wide spread and diversity of regulations and legislations. I would overstate it, I would say every single country has their own regulations. Here within Europe, we are pretty much the same but also there, the EU MDR came in or is coming in. I don’t know the dates by heart here, but it only means that we are allowed to put back systems in Europe that originate from Europe. You could question why. I mean, if I take back a system from the US, why can’t I resell it here, for example? So you see continents, you see countries getting into stricter regulations. India, for example, does not allow the import of refurb systems after the age of somewhere between seven and 10. And there is a good intention behind it, they do not want India to be the dump place of medical equipment. So although the intention is good, it is pretty difficult to convince the government stating, hey guys, we are not dumping. Given there is 1 billion people and we have an objective called access to care, we have refurbed systems at a better budget that can serve multiple communities within your country. But now for every single system that we do import, we have now to raise what we call a certificate of no objection or something. So it requires lots of bureaucracy. China, same story, we are allowed to take back, but not resell. Brazil, again, is different there. They modify equipment in such a way that they can take it as a locally produced equipment, but then it becomes unusable for refurb. And I can go on and on, those types of regulations. And not only on systems, but also parts. Sometimes we have, we take, we harvest parts. We refurb the parts as good as new, but some countries only allow new parts. So if we go back to the 9% of reuse material, that type of legislation is not supporting that 9%. We have a part, it functions, it has the complete OEM specifications, the quality, everything, and the country says no, only new. So it’s especially also that diversity of legislation that makes it even more complex.
Florian Witt: Wow.
[00:22:49] Importance of Collaboration in Health Care
Patrick Lerou: So still a lot to win and to add a small anecdote there as well. Sometimes, which is good, we sometimes do get government visits also to Philips, and especially for governments which have more stricter guidelines on the reuse of systems and parts, they are invited to come over to the refurb factory. Again it’s seeing is believing and then we can at least open up the discussions with those countries.
Florian Witt: Very nice. So you’re leveraging the global power that Philips has as a big company, as a big player in the market to kind of break ground that could then also be used by other companies probably, right. So if you manage to change those regulations from the linear age into a more circular age, that can be used by others as well. Right. These are not special exceptions for Philips that you are after. Correct.
Patrick Lerou: Yeah, agree and not only used by others.
Patrick Lerou: I do believe despite the fact that we talk about competitors, I think in certain markets, and that’s what we do, we need to team up. We need to team up as being a healthcare company. And the one objective of a healthcare company is to serve the people to boost and improve their health independent from the brand. Countries can be supported by different regulations that, again, help their own population for a better health.
[00:24:17] Circular KPIs That Prove Value
Florian Witt: Very nice words. Earlier you said you have to show the numbers. You have to make a profit. You’re not doing circularity at Philips just from the good of your own hearts. There has to be profit in this. And you said that pretty early on, you already established circular KPIs at Philips. That sounds like a very important part of that transformation. What are those KPIs and how do you use them to show what kind of value circularity is generating at Philips?
Patrick Lerou: To prevent this podcast from taking three hours, let me take two or three examples of those. One is what we call the close the loop metric. And it basically says we need to prove that we have, because all those KPIs also for circularity are being audited. So it’s not that we just can claim that we took back X number of systems. No, we need to prove that we took it back. So that’s KPI one, it’s what we called close the loop. So we offer a trade-in and we take back the system. And one of the data points already connected to that is what I’ve seen in the data is if you have a replacement deal that includes a trade-in, we see some higher customer retention in that data. There is this one stop shop. The second one is what we call circular revenue. So, and circular revenue is much wider than what we just do. There is a clear description in our annual report to come on the definition of circular revenue. There are several groups of products that fit what we call circular revenue, and we support that either with a trade-in or when we resell the system so we can basically show the sales and service that we derive from selling a system for the second time. And the last one is the basically the purchase prevention of parts. If we are able to harvest parts from existing systems, you don’t need to buy those parts from a supplier. So all elements do contribute, and at the same time, it comes with a challenge, the circular value. If you talk about a higher customer retention, if you look at purely from a P&L perspective, it might land in P&L book number one. Then if you resell the system, it might land in P&L book number two, and if you talk about parts and lower cost for it, it ends somewhere else again. The challenge and again, then we are facing a company which has a linear financial structure already for years, and it’s up to us to connect all those dots. Where do we show impact?
Florian Witt: That’s a great insight as well. And I mean, to give like a little mini summary in between here, you are saying circularity has not just enabled you to get new customers and win tenders, but also to retain customers better. That’s something I absolutely love to hear.
Patrick Lerou: Yeah. And also going back to the example I shared earlier, we see more and more tenders also asking what are you going to do with the equipment that you take back from us? So luckily indeed where Philips is in the forefront of the circularity league. In those terminologies, we see more and more customers also asking for it.
[00:28:01] Data Insights and Supply Resilience
Florian Witt: Now with Philips being in the circularity business for more than 10 years now, so before many people have even heard about the concept of circular economy, that has enabled you at a very special position to gather a treasure trove of data. That’s something you told us earlier that you have just so much data from interacting with customers on a much deeper, on a much more fundamental level through circular business models. So what kind of data is that that you gathered, and were there any surprises in there once you had enough data and you started analyzing it?
Patrick Lerou: The level of data we have is immense. So we basically have this, what I like to call it, it’s not a typical Philips term, but the asset level truth. So for every single asset, we basically know where it is, how it’s used, if we do service it about the service data, what is the age, what is the operational starting date for every single asset. We have tons of data. And it’s not so much a surprise, but it’s one of the insights that I keep sharing. What does a data point tell you? Basically, nothing, the data point as such. And that’s what I like about data. Can we connect the right data points to get insights, in order to drive actions? So it is from collecting the data to connecting the data, and that is when circularity makes a circle for me. Yes, we resell. What is the impact on the customer, on the service, on everything, on the parts, if we take it back, resell. So it’s really connecting all those data points. That is what I like about the data. And are there any big surprises? I don’t know. No. No real big surprises. Maybe sometimes on the gaps or the significance percentage. Rather than on the significance itself, I would say between the data points. But again, data is nice. Playing with the data is fun, but getting insights and making data driven actions, that’s the cherry on the pie for me.
Florian Witt: You have touched on another subject in there already. That was really interesting, I thought. The subject of resilience, you said we are getting at least sub-components, usually full devices back from our customers and we can take these sub-components out or we can refurbish the whole device and we do not need to buy that sub-component or the parts or the materials for that again from our usual suppliers. So how has that impacted you in the past? Maybe you can give an example there too. Some story that comes to mind where you were maybe able to serve a customer that you otherwise would not have been able to serve because of supply chain issues and things like that.
Patrick Lerou: The one example that immediately pops up and we still might remember. That one was when the Suez Canal was blocked. I mean, it disrupted the whole supply chain. And I think for many people that was an absolute eyeopener. Also to sometimes decentralize or start regionalizing spare parts or harvest your own parts. And by harvesting our own parts, if that would be a supply or delivery from us on one of those boats coming from a supplier, we might not have touched it for, I don’t know, weeks or months that the whole disruption took, but by harvesting your own parts, we are more in control. So to a certain extent it’s material risk reduction by offering refurb portfolio. So we have the system in house. It is a sort, you might argue are you also talking about portfolio resilience here. And last but not least those events make every company more future proof. On how to set up a supply chain network that is not depending on just the Suez Canal in that case.
Florian Witt: Which then also can be converted into value of circularity, right? Being able to future proof your business, serve your customers, even in times of crisis. It’s probably tough to quantize, but it is real value that Philips could tap into through this Suez Canal crisis where other companies that were purely on a linear business model could not.
Patrick Lerou: We, everybody, I think, had their insights from the Suez Canal there indeed.
Patrick Hypscher: And maybe to wrap that up, Patrick, you highlighted so many commercial benefits on the revenue side, on the cost side, on the risk side. Are you in any way able, I mean this is a series about irresistible business models. Yeah. Are you still able to pinpoint what is the one thing that makes circularity irresistible for Philips?
Patrick Lerou: The one thing I do believe. We can go back to the start of the conversation we just had. How relevant will you be as a company if you are not circular, if you take the future of the coming generation seriously, if you take the health of ourselves and the people around us, seriously. I do believe circularity is the only way forward.
[00:34:22] Designing Circular Business
Patrick Hypscher: Wonderful. That’s, now I’m super curious Florian how you wrap that up. Florian, what’s your takeaway? When does such a combination of different circular strategies, when does it work or start to work?
Florian Witt: Well, that is a very good question and something that I have been preaching in front of audiences in keynotes, in workshops over and over again. If you tell somebody, especially engineers, that something is designed for repair or designed for refurbishment or recycling, they all claim to know what that means. But I keep preaching that it means more in the context of circularity because, in the lowest sense, designing something for recyclability doesn’t just mean that it can technically be recycled. It has to be designed in a way so that somebody will actually want to recycle it. So there’s sometimes this curious clash with cost optimizations where if you want to design something for circularity you have to put more value in it so that there is more value to go around and that processes, maybe even at external companies that aim at preserving the value of a product, of an asset actually are financially viable. So you always need to add that extra step to recycling, repair, refurbishment, and all these circularity strategies when you are thinking about actual true circularity that really works. So to enable granular repairs, to enable fast and low cost and easy to do and quick to do refurbishments and not just theoretical repairability. Sometimes you see this so often, let’s say in cars, they’re a really bad example. You have a slight dent in your front bumper, and then yes, it is repairable, but it costs 3000, 4,000 euros nowadays to replace your front bumper because everything has to be ripped out and recalibrated and reassembled and there’s tons of electronics in there. This is a really bad example where something is theoretically designed for circularity, but it’s actually not circular because the financials just don’t add up. And this is what seems to work at Philips and at other companies that are successfully doing circular business models, they are adding that little bit extra, that financial viability of the circular strategies.
Patrick Hypscher: That, again, sounds super amazing and also kind of easy. Yeah. Makes sense. And I would argue that most people out there, most professionals also who are trained and used to linear economy, they don’t do that on purpose. Yeah. What’s the barrier we need to overcome to get to what you said, to do it not only from a technical point of view, but also from a value point of view.
Florian Witt: Well, as an engineer, I can definitely tell you it all starts in the product design phase. Of course, we all know this. The Pareto model that 80% of the costs over the lifetime of a product are fixed during the design phase of it. That is something that basically everybody knows now, but it’s not lived and not applied enough at all. So you still see many examples where engineers or product designers are brutally optimizing for cost for assembly, and then maybe a little bit for the use phase, but they don’t think beyond that. They don’t think about end of life and they do not think about design for repair, design for refurbishment, design for reuse, design for recyclability, maybe a little bit. They’re trying eco design many times and we just cannot eco-design our way out of climate heating. Using less materials is still some materials. Using some fossil energy is still too much fossil energy to sustain us long term. So that is the biggest barrier, I think, to get that into people’s heads. It is making life in the product development stage more complex. You can’t just as an engineer, go wild on very amazing materials with lots of additives and nice joining technologies and all of that. No, you have to try to make a part from a single material, for example, or you have to make a part that costs more in production because that’s the only way that enables a refurbishment afterwards. But then when you do incorporate all these strategies and those extra processes happening after the first use phase of a product, so end of use, not end of life was also a term that we have kicked across the table here many times, then it starts adding up and then it starts creating revenue because we are avoiding this gigantic value loss part of the value hill here. We’re not throwing away valuable materials and components anymore. We are sustaining that value by investing a bit more upfront. And I think that’s the biggest barrier in terms of training people and also in terms of putting in costs upfront. And sometimes when you go into really, truly circular business models where you maybe rent out devices, then it can be a cashflow barrier. Financing it, you do not get an immediate return. You do not get an immediate profit when selling your product, you are only reaping it over months and sometimes years, which somehow needs to be financed. There needs to be the cash flow needs to work. But once you do, once you have cracked that nut, you are growing through circularity as a company, you are building a portfolio of assets that retain their value and you’re not doing the Sisyphean task of pushing new resources up the value hill again and again, just to see them drop down on the other side again and again. That is the true magic for me of circularity and irresistible circular business. Once we have those barriers in the heads, in the finance department overcome, there is some truly enormous potential and opportunities out there for everyone.
Patrick Lerou: Personal question. Listening to your story, I am curious about your levels of frustration on the right to repair legislation. I mean, it got postponed and postponed and eventually, I know the details, but not sure if it’s really what it’s supposed to be. So given the story that you just shared. How do you look at the length of decisions on that type of regulations where legislations can also support companies in following your story quickly?
Florian Witt: Oh very good point and I absolutely agree that it is really frustrating how long it is taking. It is going in the right direction. Every right to repair initiative to me works towards a common goal and makes life better for consumers and life better for society as a whole and the environment. But yes, you’re right, it is going absolutely too slow and we are really depending on a few outlier countries or sometimes even states that are breaking the ground. California in the US context, France is doing that in the European context. They are leading this charge. They are imposing regulations or rights that are going beyond what the EU is mandating so far. And it’s really helping everyone else around them because once companies have to uphold those regulations, if they want to sell in California, if they want to sell in France, because most companies do, let’s face it, then immediately it unlocks that for other countries as well. But you’re absolutely right. It is way too slow. Companies are finding way too many loopholes and there is a lot of frustration. But ultimately, I think those barriers will fall because they absolutely have to. People are demanding it, companies are demanding it. There’s a ton of value to be reaped in here, and politicians are finally understanding that, I think, and driving it forward.
[00:43:04] Outro
Patrick Hypscher: Wonderful Florian, Patrick. Thanks for sharing your experience.
Patrick Lerou: Thank you so much for the invite, happy to have talked about it.
Florian Witt: It was a pleasure being here and talking to you guys.
Patrick Hypscher: This was the fourth episode in this series, Irresistible Circular Business in sponsoring partnership with Indeed Innovation, the global design and innovation firm, pioneering the circular economy. If you want to get the actionable one pager about this conversation, sign up for the Circularity.fm Newsletter, which you can find at www.circularity.fm. Do you want to learn how leading brands are turning returns into revenue? Then download the ReCommerce Playbook by Indeed Innovation. We will link it in the show notes. In the next episode, we will hear from Breitling how they combine heritage and circularity. Let’s drive a profitable circular economy. And please don’t forget, the most abundant renewable resource is your imagination.
Jingle: My name is Patrick Hypscher and this is Circularity.fm, the podcast about understanding, building and managing circular business models.