Keywords

1 Introduction

Sustainability topics are apparent across industries. Globally, business environments react to various key drivers such as end customer behavior, shareholder perception, regulation, and emerging technology in the change to a new paradigm [1,2,3]. Circular business models, a subset of sustainable business models, are a popular approach to facilitating a circular economy [4,5,6]. While the concept of sustainable business models roots back in the notion that businesses seek promotion for sustainability activities, currently it is often perceived as a source of achieving competitive advantage and reaching environmental awareness [7,8,9]. Geissdoerfer, Vladimirova and Evans [5] suggest a holistic definition for a sustainable business model: “business models that incorporate pro-active multi-stakeholder management, the creation of monetary and non-monetary value for a broad range of stakeholders and hold a long-term perspective”. Mapping this general definition onto the manufacturing industry, the notion calls for a shift in which EMs should evolve their business model from a linear production approach to a more circular one [10, 11]. Manufacturing processes irreversibly exhaust finite materials and thus prevent organic regeneration. The Ellen McArthur Foundation [12] has aided in promoting the transformation of resources within a product life cycle. There is still a substantial gap for actionable insights, transferring theoretical elaboration to practical implementation. To address this issue, the research question is posed around the impact potential of activities along the recycling value chain (RVC) toward more sustainability in the manufacturing industry: “What are recycling value chain parameters fostering industrial asset recycling taking an EM’s strategic and operational perspective?”.

2 Recycling in the Manufacturing Industry

One way of handling finite resources more sustainably is the application of the so-called “R-principles” (RPs) [13]. These activities prolong the lifetime of industrial assets. At the end of the product life cycle, reaching End-of-Life (EoL), the RP “recycling” can be applied [14]. In literature no clear number and application of RPs can be found, e.g., Reike, Vermeulen and Witjes [15] introduce eight principle options while Wang, Kara and Hauschild [16] focus on three options. This study examines recycling, as this principle closes the loop by transforming asset materials into raw materials reused in production processes and slowing the exhaustion of finite resources [17, 18]. This piece of work focuses on the recycling of industrial assets, manufactured products, at the EoL because of its (1) positive impact reachable along the triple bottom line (economic, environmental, and social impact) and (2) vast neglect by EMs in the past [19]. Aside from literature research, this study follows a practice-based project perspective by gaining insights from a globally operating Swiss EM.

3 Research Method

The manufacturing industry is at the lever to accelerate sustainable production behavior and EoL management yet only a few companies are professionally using RPs in their business operations and transferring theory into practice. As the study considers qualitative and quantitative aspects, the data collection follows a mixed-methods approach by Eisenhardt [20]. Qualitative data is aggregated by conducting interviews with relevant actors in the value chain. The interview findings are contextualized according to the approach presented by Braun and Clarke [21]. Understanding a case-based business case and perceiving cross-industrial initiatives fosters the implementation potential and represent the quantitative data perspective. Iterative cross-checks and repetitive scrutiny of the present data information led to robust analyses. Information is clustered with analytical tools such as open-ended coding of interviews. Table 1 shows an overview of the data sources applied to the analyses.

Table 1. Data sources
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4 Findings

Operationalization efforts of recycling are scattered and unstructured in industrial markets and rarely conducted by EMs. Scrutinizing this shortage of recycling exertion leads to key drivers and parameters revealing challenges and opportunities within the RVC.

Recycling defines mechanically and technologically advanced processing (e.g., shredding or melting) of primary and secondary recyclable materials. The former refers to post-production and pre-consumer by-products (α) and production scrap (β), and the latter one to post-consumer industrial assets at the EoL (γ) to circumvent the need to exhaust finite materials [22, 23]. Primary materials usually have little wear and tear. Hence are in a technically purer condition in contrast to secondary recyclable materials [24]. Figure 1 represents actors’ jobs and processes as well as key drivers of recycling industrial assets in an RVC.

Fig. 1.
figure 1

Flow diagram of processes within the RVC and key drivers facilitating recycling efforts of industrial assets (dashed box).

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Primary data sources revealed characteristics clustered as “asset design”, “asset lifetime”, “asset condition” and “Bill of Material” (BoM), influential for the recycling of secondary recyclable material. Industrial assets should follow a design that decreases the assembly complexity and improves the time-efficiency of disassembly for jobs performed by the EM and SD [26]. For instance, industrial assets with lots of mechanically connected components (e.g., use of screws to attach parts) are easier to detach and pre-process than materially connected ones (e.g., components glued to each other). The asset’s lifetime largely depends on the asset’s operation time. It was found that an asset’s EoL is reached significantly faster at high operation. Heavy usage along with wear and tear ultimately show an effect on the asset’s condition, which often results in reconditioning practices such as repair and maintenance. Finally, the BoM decides on the valuation and monetization potential of materials in downstream activities within the RVC. Recycling efforts are influenced by external drivers, which are generally applicable across industries and internal drivers that represent microeconomic factors for the investigated case study and are more specific to the machine tool industry. For instance, “sustainability strategy” reflects a need for companies to align with strategic and operational goals internally and externally toward sustainability. “End customer behavior” reflects the increasing request for actions with an impact along the triple bottom line.

Primary and secondary data yielded parameters that influence the recycling efforts of industrial assets within the RVC (cf. Figure 2). The interrelation between actors enables vertical and horizontal integration. For instance, EMs could collaborate with competitors to standardize the design of industrial assets for further recycling steps, or EMs could pre-disassemble recyclable materials for the SDs. Primary data analysis reveals first layer parameters, which critically influence the EM’s operational and strategic efforts. Second layer parameters affect the former ones and contain more generally applicable aspects, such as market demand or regulations.

Fig. 2.
figure 2

The recycling value chain of industrial assets displays four interrelated actors and the integration potential from the EM's perspective (arrows).

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A first layer parameter, “profit margin”, represents the potential to claim profits moving along the actors in the RVC. The profit margin on material prices complies against commodity prices. Fluctuations in commodity prices would affect the profit margin and potentially increase the popularity of closed-loop material treatment. Recycling achieves at most value retention and usually value reduction, the reintroduction price of recycled materials is generally below their new price. Some recyclers specialize in refining recycled assets by adding other materials to suit the production purpose of certain industries (e.g., durable and flexible metal alloys used in aerospace). Recyclable industrial assets are traded linearly down the value chain. Information density and amount of industrial assets recyclable determine the value of materials for the SD and RF. For the EM, the margin potential is dwindling, because the customer’s perceived value of recycling services is minor, and the price elasticity is high, thus the price has to be competitive. At the same time, the conditions for selling recyclable assets to the SD are unfavorable. The EM can counteract by having clarity about the BoM as well as material knowledge. Installed bases of industrial assets at the EoL are diversely scattered across multifarious production plants and information is unstructured. Asset BoMs suitable for recycling efforts hence are challenging to assess. Market prices correlate positively with the density of asset material information. Given stronger economic incentives, e.g., tax relief or material prices, recycling services could be offered to the end customers at an improved financial and ecological incentive, e.g., CO2 certificates or eco-labeling. Eventually, the RVC would benefit from greater value due to Co-creation and a positive environmental impact by closing the loop more efficiently.

“Volume” impacts the recycling feasibility and viability. Related to the profit potential, aggregating a sufficient volume of recyclable industrial assets enables Economies-of-Scale (EoS). The larger the weight of collected materials and the higher the level of material information, the greater a positive price influence. To be economically profitable, a certain collected volume of assets at the EoL is required, e.g., SDs have thresholds where the price paid per weight jumps. Especially, industrial assets, which are bulky and heavy, and together with their typical low residual value, barely cover the transportation costs given a comparatively long product life cycle. This leads to industrial assets being handled rather locally. The hurdle is prevalent due to the immobile locality of SDs and recyclers’ facilities. Simultaneously, it sheds light on an opportunity for EMs. EMs can integrate forward, assuming they can find a way to logistically control the flow of recyclable industrial assets. They would gain negotiation power on the monetization of industrial assets if sold to SDs or RFs. One possible scenario is the use of prevalent EM-owned facilities to mid-store recyclable assets until a certain threshold is reached. Having multiple localities enables shorter and more efficient transport routes leading to competitive advantages for EMs with several distributed facilities. Cross-border routes must consider taxation policies and legal limitations to transport scrap. Upon this operating model, a mobile solution consisting of equipped truck units may perform SD jobs. Reducing idle time leads to rapidly reaching the collection capacity, eventually benefitting the profit margin. Such transparency also leverages the EM’s negotiation power and might result in favorable contracting.

This goes along with the parameter “market intelligence”, which indicates the EM’s knowledge available about their ECs’ installed bases. Intertwined with the previous parameter, the data information received through the EC can stack the information density, respectively. Communication flows between actors are usually bilateral via outdated communication media such as fax or telephone, indicating that Industry 4.0 technologies’ potential is not utilized. It is challenging to find industrial assets at the EoL with geographically scattered assets. One mechanism that leads to this situation is shielding insights from competitors. A second mechanism is the end customers’ ignorance with the lack of recycling options. Finally, a third mechanism is the absence of an adequate incentive system, which links back to the aforementioned margin squeeze. To date, there is no uniform solution to close this gap. A promising approach would be to set up a database platform that collects information about the industrial assets’ lifetime at the EM’s installed base, condition, and geographical location. Such a platform would increase knowledge about asset locality while addressing the inherent volume dependency of SDs and RFs. Certain companies exhibit strategic intentions toward data and asset management in B2B (e.g., service model “Nuron” from Hilti Group [25]). Gaining access to the required data is a challenge. In the past, ECs and EMs were not used to share date, but an aligned value proposition might initiate a change. Primary data samples reveal a widely scattered EC sentiment regarding the willingness to share information, while some proponents argued for a transition toward more sustainability in the industry, others do not disclose any data.

Finally, timing the introduction of recycling activities is crucial to pick up the momentum of sustainability drivers. The "Time-to-Market" (TtM) defines the speed at which an initiative is launched and introduced to the market. Reflecting the EM’s embedment in the value chain, integrating toward the EC can have a faster TtM than toward the RF. Equipment manufacturers currently are active with locally implemented recycling activities that mostly focus on primary material. Interviews with organizations in the machine tool industry exhibited an interest among competitors to co-create value, e.g., developing recycling standards. Focusing on market competitiveness, a prompt TtM might unfold first-mover advantages and chances to steer market practices e.g., influencing the price behavior and expectation of customers.

5 Conclusion

Recycling builds on an RVC and the interdependence among its actors, yielding a promising approach in the transition toward sustainable business models. Nonetheless, current recycling efforts are inefficient. Our study shed light on the prerequisites to foster and facilitate an efficient RVC taking the EM’s strategic and operational perspective. Based on our case study, we identified key characteristics of industrial assets and parameters influencing the RVC and uncovered the fundamentals of fostering recycling. Among the RPs, recycling holistically is a difficult step to implement. Primary data exhibits progressive initiatives and incentivization from international committees and country initiatives (e.g., cross-border transportation of recyclable materials). For example, recent initiatives such as the “European Green Deal” (2019), the “Circular Economy Action Plan” (2020), or the “Sustainable products initiative” (2022) of the EU Commission promote a more sustainable industry [27]. Cross-industries are introducing material passports, which precisely record the BoM and material composition of industrial assets. For instance, within the maritime industry, the shipbuilder Maersk introduced a “cradle-2-cradle passport” to facilitate recycling [28].

This woks’ data collection follows a single case study approach that focused on one company’s embedment in the RVC. The boundary conditions and limitations of our single case study need to be considered when internalizing and generalizing our findings. First, we studied a leading firm with a strong competitive position in the machine tool industry. And second, we gathered our primary and secondary data within Europe, predominantly in Switzerland, Germany, and Italy. We propose further investigation with a greater number of sample cases to enhance the understanding of the suggested parameters. Our research is initially centering on an EM. The scope of actors in the RVC should be extended by exploring intermediaries such as secondhand asset dealers and scrutinizing the role of the actors. Finally, recycling activities can be supported by Industry 4.0 technologies (e.g., digital twins, Industrial Internet of Things, big data analytics, etc.) to overcome introduced challenges in the current RVC.