Circular economy

Rethinking
the future
Our transition towards a circular economy
 In 2005, Ellen MacArthur
became the fastest solo sailor
to circumnavigate the globe

Sailing around the world against the clock in 2005, I had with me
the absolute minimum of resources in order to be as light, hence as
fast as possible. At sea, what you have is all you have, stopping en
route to restock is not an option and careful resource management
can be a matter of life or death. Running out of energy to power the
autopilot means you can be upside down in seconds.

My boat was my world, I was constantly aware of its supply limits

and when I stepped back ashore, I began to see that our world was
not any different. I had become acutely aware of the true meaning
of the word finite, and when I applied it to resources in the global
economy, I realised there were some big challenges ahead.

Ellen MacArthur

1
From round the world
to a circular world

After her world record journey and personal

epiphany, Ellen MacArthur travelled the
world learning from experts across a variety
of countries, economies and industries to
better understand the global approach to
the way the economy consumes resources.
She launched the Ellen MacArthur
Foundation in 2010 and in January 2012
launched Towards the circular economy,
the first ever economic report examining
the potential of moving from a linear to
circular model, at the World Economic
Forum in Davos.

2
The global trends that make
a circular economy a business
necessity for now and the future

challenges
Resource availability and pricing
We are at the end of the era of cheap oil
and materials. A lack of fossil fuels and
finite natural resources across the spectrum,
coupled with an increased consumer
demand results in challenges to manage
our commodities. Simply using less is no
longer enough. And with this, increased
resource price volatility dampens economic
growth, discouraging businesses from
taking resource-related risks.

Increase of middle class consumers

The world has experienced two great
expansions of the middle class since 1800
and we are living through the third. In Asia
alone, 525 million people can already count
themselves as middle class; more than the
total population of the European Union*.
Over the next two decades, it is estimated
that the middle class will expand by another
three billion people, coming almost
exclusively from the emerging world, d riving
demand and ultimately waste.

* Source: Ernst & Young, 2014, Driving growth - Middle

class growth in emerging markets

3
 Big data
The emergence of big data has shifted the
manner and scale in which problems can be
solved, providing deeper market knowledge
and increasing consumer-focused solutions.
It also offers the intelligence of knowing
where things are within the economy, what
they are made from and what status they
are in, making refining, and optimising
possible and enabling additive rather than
subtractive manufacturing.

Changing legislation and governance

opportunities
More and more companies are responding
to sharpened, new legislation and
governance models by introducing new
innovative designs for their products.
These are increasingly inspired and
triggered by topics which were previously
seen as challenges: such as toxicity levels in
different materials or landfill.

Changing models of consumer consumption

We have seen the emergence of a different
type of consumer, who is interested in
different ownership and business models
for example Airbnb, Zipcar, Spotify. These
consumers are more driven by access and
performance rather than ownership. Services
and not goods are helping to redefine the
relationship between objects and consumers.

Moving from transaction to relationship

The multi-channel world has also led to new
levels of engagement and connectivity with
consumers looking for relationships with
brands that go beyond the transactional.

Online interaction via Facebook, Twitter,

YouTube and brand websites is a growing
global phenomenon that will be the new
path to relationship for both empowered
customers and companies.

Companies such as Dell and Starbucks help

turn consumer ideas into reality through
on-line platforms to generate ideas. Airline
company KLM maintains a constant Twitter
dialogue with its consumers, providing 24/7
service in ten languages.

4
Our vision is to make the world
healthier and more sustainable
through meaningful innovation

As part of this commitment, we have been The immediate business case for fast-tracking
applying some of the principles of circular the move to a circular economy and closing
economy thinking. Philips has operated the materials loop became vitally clear after
refurbishment and recycling programs for Philips and the Ellen MacArthur Foundation
over 25 years. shared their common vision for a resource
efficient and, ultimately, a regenerative
circular economy.

5
It is important to disrupt your business
before someone else does. At Philips, we
have started the process of fundamentally
redesigning our business and our end-to-
end value chains.
Instead of selling products, we aim to retain ownership, selling use
as a service so we can optimize the use of resources. Once we can
sell the benefits instead of the products themselves, we can design
for multiple re-use and eventual recycling.

Circular economy is a trigger for innovation that requires a new

generation of materials as well as development and production
processes.

We also need to define new business models, refine concepts of

legal ownership and use, adaptive logistics and financing strategies.

And we need a leadership culture that embraces and rewards a

circular economy.

Frans van Houten, CEO, Royal Philips

6
Towards economic and
ecological value creation

The principles of circular economy are

similar to methodologies such as Cradle to
Cradle, bio mimicry or the Natural Step, all
of which aim to use natural resources much
smarter and more effectively.

The big difference in the circular economy

approach is that its starting point is economic
value creation with the improvement of the
ecological aspects as a positive derivative.

Circular models EUR Billion 400 - 485

have cost saving
potential of EUR
250-500 Billion
annually for
European
economy

Source:
Ellen MacArthur
Foundation, 2013,
Towards the Circular
Economy
262- 292 Office machinery and
computers

Medical precision and

optical equipment

Radio, TV, and

communication

Furniture

Other transport

Electrical machinery
and apparatus

Machinery and
equipment

Motor vehicles

transition advanced
scenario 2018 scenario 2025
7
 For a sustainable world, the transition from a linear to a circular
economy is essential. A circular economy aims to decouple
economic growth from the use of natural resources by using these
resources more effectively.

As a leader in innovation, we have long believed in an approach

which integrates systems thinking and looks beyond the linear
take, make, dispose model to a circular model of regenerative
product design, new business models, reverse logistics and enabling
communication technologies.

By definition, a circular economy is a driver for innovation in

the areas of material, component and product reuse, as well as
new business models such as solutions and services. In a circular
economy, the more effective use of materials enables to create
more value, both by cost savings and by developing new markets
or growing existing ones.

Frans van Houten, CEO, Royal Philips

The linear economy

take make dispose

make

The circular economy

n

use
ur
et

8
The closed loops of
a circular economy
for Philips

Inspired by the interactive system diagram*,

applying circular economy principles
throughout Philips means reconsidering
every element of our design, manufacture
and supply process, while aiming for
maximum use of renewable energy.

For our business, we see the move from

linear to circular in four returning loops:

service refurbish parts harvesting recycle

Selling a service not a product, Replacing or repairing major Recovering components from Recovering valuable materials
maintenance and repair components in existing products. existing products to create new from waste to be reused in new
agreements, service support, or repurposed products. products.
technology upgrades to extend
the life and make re-use possible.

The four enablers

for a circular economy

business models design collaboration reverse logistics

Attractive value propositions Designs that enable multiple Cross value chain and cross All operations related to the
that will enable an optimal lifecycles with minimal loss sector collaboration is essential. recovery and reuse of products
capture of the economic of value, quality and energy Networks and knowledge and materials. Essentially the
opportunities of a circular impact and that can also sharing schemes that facilitate strategies, processes and
economy for example through be mined for materials and the large scale establishment infrastructure to enable the
further emphasis on access over components that can be reused. of circular economy as well as cost-effective collection,
ownership. policy mechanisms that enable treatment and redeployment
their creation need to be into the market of products,
implemented. components and materials at
high quality and high volume.

9
 extracting
raw materials

parts supply

recycle

manufacturing parts harvesting

refurbish

distribution service

user

incineration
& landfill

*Ellen MacArthur Foundation, circular economy team.

10
Changing the way we do
business to drive circular
thinking in Philips

Drive internal engagement

Inform, engage with and enable Philips
employees to implement circular economy
principles in the organization.

Thought leadership and collaborations

Inspire the world by sharing our vision of
the journey towards a circular economy by
connecting with other pioneering industry
partners, governments, NGOs and key
opinion leaders on this subject.

Generate proof points & metrics

Develop hero projects within Philips and start
implementing new business models to show
the value that circular thinking can bring.

Embed in Philips processes

Ensure that the circular economy framework
becomes an integral component within the
relevant Philips business processes.

11
Connecting with the outside world
to make a circular economy a
global reality

Our partnerships include:

2013
Sponsor of The Guardians circular econo-
my hub, a leading newspaper and online
platform for sustainable business leaders

2012
Member of the World Economic Forum,
the international institution committed to
improving the state of the world through
public-private cooperation

2014
Member of The Circular Economy 100,
the alliance of 100 global corporations,
emerging innovators and regions commit-
ted to working together to build circular
economy capability

2013
Global Partner of The Ellen MacArthur
Foundation, a leading organization on
the concept of circular economy

2013
Member of the Circle Economy Netherlands,
a non-profit open platform designed to
accelerate the transition to a circular economy

12
Circular economy strategy
and activities, healthcare Refurbished medical equipment offered with a full Philips warranty

With healthcare budgets under more Philips refurbished products have been refurbished systems with full Philips
pressure than ever and not all applications growing significantly over the last 20 years warranty.
requiring new equipment, care facilities are depending on imaging modality and region.
looking to extend their resources within a This program and business has been a
restricted budget without compromising Through its Refurbished Systems business success for both customers and Philips.
on quality. unit, Philips offers a choice of pre-owned A global trend and future, tuned to the
systems that have been thoroughly evolution of more circular business models
Refurbished medical products are refurbished, upgraded and quality tested. and closed loop supply chains is bound to
existing examples of circular economy For example, the Philips Diamond Select see many more developments in this area.
products already delivering clear social program makes first-rate equipment
and economic value. In fact, volumes for available at lower cost, offering high quality

the
extracting
service business models
raw materials
Service business models will shift ownership to access. Introduce service and solution

circular
Maintenance and repair of the equipment are included in propositions
the agreement as well as the latest technology upgrades Explore performance based
and software releases. business models
parts supply

recycle
economy
refurbish
In the refurbishment process components that are faulty
or close to failure will be replaced or repaired. Additionally
design
manufacturing parts harvesting cosmetic changes will executed such as cleaning and Design for re-use and
painting. residual value
Develop a modular platform
refurbish approach
parts harvesting
distribution service Medical equipment will be disentangled into parts that will
be re-used as spare parts for service or refurbish purposes.

collaboration
recycle Expand capacity and skill building
End-of-life components will be broken down to basic Leverage existing infrastructure
user materials that can be re-used into a new component.

incineration reverse logistics

& landfill
Develop smart logistics
Initiate and advise to adapt
legislation

13
Circular economy strategy
and activities, lighting Light as a Service for the National Union of Students office in London

Philips has pioneered lighting performance Exploring possibilities from a second hand
contracts that create a unique value market enables Philips to capture new
proposition in the market and employ value from used parts and luminaires and
circular economy principles. co-creation with like-minded companies
creates a platform for innovation. And, at the
By shifting from one time sale to Light end of the service period, lighting products
as a Service Philips maintains ownership can be returned to the production process
of materials. Similarly, managed services again and get a new life in the refurbish, parts
extend the lifetime and performance of harvesting or recycle loop.
products. This allows the customer to take
full advantage of the newest LED lighting
solutions, increase energy efficiency and
reduce operational costs.

the
extracting
service business models
raw materials
Value will be created by offering Light as a Service including Scale up service business

circular
lifecycle extension opportunities, upgrades and repairs. Develop sales tools for circular
value propositions

economy
refurbish
parts supply
The possibilities for a refurbished product business will be
analyzed.
recycle design
Expand the portfolio of circular
parts harvesting products
manufacturing parts harvesting
A pre-owned market for used parts and luminaires reuse Implement a circular economy
will be explored and developed. scorecard
refurbish

distribution service recycle

The cooperation with the established local Collection and
Recycling Service Organizations (CRSO) will be continued
collaboration
and enhanced. Co-create and cooperate with
like-minded companies
Enhance customer relationships
user with customized solutions

incineration
& landfill
reverse logistics
Extend possibilities for take back
and recycling
Enhance collaboration with
recyclers and distributors

14
Circular economy strategy
and activities, consumer
lifestyle

SENSEO Up coffee machine is designed for recycled plastics

Circular economy thinking has already modular. This results in better ease of An additional source of value lies in
resulted in recycled materials becoming an repair, longer lifetimes and, ultimately, refurbishing or remarketing market returns.
integral part of product design. improved environmental footprints. By giving these products new purpose we
can potentially shift from a replace to a
By co-creating with recycled materials Exploring our opportunities in the repair strategy. Collaboration across the
organizations, we can use our expertise to transition from access over ownership, we value chain enables reverse logistics and
improve the quality of materials. Moreover can capture new markets and foster the possible trade-in campaigns. With this
Philips has also started to adjust design development of new business models with strategy we aim to retain the value of our
practices so products can be increasingly customers. products and decrease the amount of waste.

the
extracting
service business models
raw materials
Shifting from replace to repair will reduce value losses. Explore access over ownership

circular
Additional service offering will increase customer touch Capture new business in new
points. market segments

parts supply

recycle
economy
refurbish
Market returns will be repurposed by offering them in new
design
sales channels and new markets.
Design for recycled plastics
parts harvesting Design for repair
manufacturing
parts harvesting
By collecting and disassembling returned products, value
refurbish will be captured by using parts of these returned products
as spare parts.
distribution service collaboration
Co-develop recycled material
recycle with suppliers
By applying recycled plastics the environmental footprint Develop new business models
as well as material costs will be reduced. with consumers

user

reverse logistics
incineration
& landfill Repair of products over replace
Develop trade-in campaigns

15
Innovation in circular economy combines for me a business necessity
and value creation opportunity with the ambition to maintain our
living environment with balanced societal interactions for the kids of
our kids.

Wolfgang Budde, Philips Research

The main potential contribution of the European Commission to

the circular economy is to make sure that the framework conditions
like legislation, finance and market instruments, are in place so
that businesses have the confidence to invest in circular economy
systems.

William Neale, Member of the European Commission for Environment

The circular economy approach steers our creative thinking towards

solutions that support more sustainable lifestyles and ways of
production. By using the principles of Design for 4R (repair, reuse,
refurbish and recycle) our design community can create value
for people while protecting the environment. And this is a very
rewarding feeling.

Simona Rocchi, Philips Design

Circular economy is very important for Philips to differentiate

ourselves from our competitors. With new propositions such as Light
as a Service, we can create value for our customers with a unique
sustainability message.

Thomas Leenders, Philips Lighting

Action speaks louder than words. Once businesses take action and
harvest the successes of their circular economy pilot projects, their
peers will become challenged. This will help to spread the word.

Conny Bakker, Associate Professor, Delft University of Technology

16
One day soon, a
circular economy
will be business as
usual.
Bart Goetzee, Head of circular economy program, Royal Philips

The time is now

Employees and stakeholders - everyone

has a part to play.

The true benefits of a circular economy will

be made possible by each and every one of
us Philips employees and stakeholders -
embracing the opportunity it presents for a
new way of working and doing business.

By becoming circular economy

entrepreneurs, everyone who works with
or for Philips can contribute their individual
skills and develop new ones to make the
circular economy a reality.

Philips has started the move to a circular

economy.

Commit, collaborate and join the journey to

rethinking the future.

MIX
C012147

17
 Shield_White_2013

Version 1.1 25 October 2013

2014 Koninklijke Philips N.V. All rights reserved. Specifications are subject to change
without notice. Trademarks are the property of Koninklijke Philips N.V. (Royal Philips)
or their respective owners. [Link]/circulareconomy