Proven tools can unlock a new way of thinking about the resources products consume, the value they create, and the cost they require.
In most product companies, R&D accounts for around 5 percent of direct spend. Decisions made during the design phase, however, affect around 80 percent of a product’s lifetime resource consumption. In recent years, resource consumption by products in many categories has continuously increased, driven by a combination sales growth and changes in material content.
At launch in 1974, for example, Volkswagen’s Golf had a curb weight of 790kg. The lightest version of today’s seventh-generation Golf weighs 1351kg. That’s around 70 percent more material in every vehicle. Consumer preference for larger, higher-capacity products is driving up the size, weight, and complexity of many product categories, from refrigerators to televisions. Even products that have become lighter frequently do so using higher-value materials, many of which consume more energy in their production than the ones they replace.
Now some companies are embracing a new approach that aims to reduce both the cost and environmental burden of a product over its lifecycle, while also offering greater customer value. Design-for-sustainability (DfS) extends the established design-to-value methodology by considering resource consumption alongside the established dimensions of cost and value.
The sustainability opportunity
Significant shifts in the global landscape are increasing both the importance of products’ environmental impact and the opportunities for companies to reduce it. Rising demand, especially from the fast-growing global middle class, and the depletion of the most accessible reserves is constraining resource availability. That’s making prices more volatile, and forcing companies to source from inaccessible or politically unstable regions.
Sustainability is on the government agenda too. Regional and national authorities, including the EU, the US, and Japan, are developing strategic-resource-management programs. New regulations seek to reduce products’ environmental burden or encourage value recovery. The EU Electrical and Electronic Equipment directive, for example, restricts the use of certain hazardous materials in products, with the aim of keeping them out of the waste stream at end of life. Another European regulation, the Waste Electrical and Electronic Equipment Directive (WEEE), requires member states to establish schemes to keep electrical equipment separate from general municipal waste. The UK imposes a landfill tax on companies disposing of waste materials that aren’t reused or recycled.
Meanwhile, advances in technology and changes in consumer preferences are creating opportunities to develop new products and business models that radically change resource consumption. Customers are increasingly willing to swap outright ownership of a product, such as a vehicle, for ready access to a service, such as car-sharing or ride-hailing. The providers then achieve much higher asset utilization rates than is typical under traditional ownership. Other technological innovations support sustainability initiatives, like systems that enable the tracking, sorting and separation of products and materials.
Room for improvement
Manufacturers are often required to publish information on a product’s energy consumption during use, increasing pressure to reduce consumption. Moreover, because the environmental impact of the product’s fabrication can be a significant part of its overall resource footprint, it’s important to analyze the product’s total resource consumption holistically across its entire life cycle.
For instance, aluminum’s weight advantage over steel—an attractive quality in reducing a vehicle’s power needs—comes at the cost of higher energy consumption in manufacturing aluminum compared to steel. As the amount of aluminum in a car increases, the source of energy used in fabricating aluminum becomes more important in calculating the vehicle’s total environmental burden. Likewise, vehicle body panels made of carbon fiber further reduce a car’s weight, but also further increase the energy consumption at the manufacturing stage.
These highly detailed calculations are showing progress in some fields, such as the fabrication of batteries for electric vehicles. Although the amount of emissions that battery manufacturing produces is subject to widely varying estimates, the “emissions debt” can pay off within the first two years, depending on the type of energy used for electricity generation. Further shifts to cleaner sources of electricity will make the payoff period even shorter.
The circular economy
These trends illustrate a growing interest in a new economic perspective that replaces the linear “take-make-dispose” approach to resource consumption with a model based on processes found in the natural world. This circular economy is built on three central principles: Preserve natural capital (resources) by controlling finite stocks and balancing renewable-resource flows; optimize resource yields by circulating products, parts, and materials at the highest possible level of utility; and reveal and design out negative externalities such as environmental pollutants (Exhibit 1).
Several global companies have already embraced the concept of the circular economy. Cisco, for example, offers various “value-added lifecycle solutions” under its Cisco Refresh banner. The company runs a reverse logistics program that takes products back from customers when they are no longer required, and it sells refurbished or remanufactured equipment at a discount of at least 65 percent on the price of a new product. In 2014, this program led to the recovery of equipment worth $360 million, a quarter of which was then refurbished, resold or reused.
The impact of product development
Decisions made during R&D can dramatically influence both the cost and resource footprint of a product during its lifecycle. Opportunities to significantly change that footprint include:
- Understanding real customer requirements and developing solutions that meet those requirements efficiently
- Designing the product with features that encourage efficient use (like auto-off functions thermal insulation) and without features that consume unnecessary additional resources
- Shifting from products to services
- Reducing the impact of transportation and packaging, through multi-use packaging, local sourcing and production, and in transport, high packaging density and low-resource packaging
- Extending product lifecycles by facilitating maintenance and repair, for example with standardized, interchangeable parts across a product portfolio
- Facilitating recycling by using easy-to-separate, recyclable materials and setting up an infrastructure for reverse logistics
- Reducing the impact of disposal using biodegradable or recyclable and recycled materials
Design-for-sustainability aims to deliver maximum customer value while reducing product cost and environmental impact. In this respect, it expands on the well-established design-to-value approach, which focuses on delivering high value to the customer while maximizing economic profitability for the manufacturer.
Giving this context to design-for-sustainability helps overcome a significant barrier to adoption. Many companies fear that reduced environmental impact will drive higher costs, hurting their profitability or competitiveness. By considering sustainability alongside other cost and value improvement levers, companies can often identify opportunities to reduce both cost and environmental impact. And they can use savings in one area fund investments in sustainability improvements elsewhere. Environmental abatement cost curves can help in prioritizing such opportunities (Exhibit 2).
Moreover, considering the full range of cost and value effects arising from a design change can transform the business case for alternative technologies or approaches. Take the case of factory lighting. LED lighting consumes less electricity than other technologies, but the additional investment required to install LED-ready fixtures can outweigh the energy savings from the bulbs. LED technology offers a host of other benefits, however. The long life of the bulbs reduces maintenance and total lifecycle costs. Lightweight, low-power LEDs can use thinner cables, simpler power supplies, and cheaper support fixtures. As they produce less heat in operation, LED lights reduce summer cooling loads. Brighter, more natural lighting can improve workforce productivity and reduce accidents.
Beyond the physical product, design-for-sustainability also critically assesses the traditional use-case of the product. One common example is the replacement of outright ownership of a product with a rental or share use approach. Aircraft engine makers pioneered this approach with the “power-by-the-hour” model, for example, and car-sharing or ride-hailing schemes are doing the same thing for urban transportation. This “servitization” typically increases the utilization of products and encourages improvements in maintainability.
A change in use case can drive the complete redesign of a product. Take the example of the washing machine from Exhibit 2. Ultimately, the consumer very likely does not want to own, or even use, a washing machine. Most consumers just want clean clothes. They may see owning a washing machine as more convenient (and, especially in the long run, cheaper) than the standard alternatives—visiting laundromats or hiring laundry services. That creates an opening for a new product or service offering that could meet this demand at a lower environmental footprint, perhaps even at a lower cost.
Tools for DfS
Many of the tools and approaches developed for design-to-value can be adapted or extended to support DfS too. Comparative product teardowns for example, act as a powerful idea generation mechanism. By breaking their own and competitors’ products into their component parts and comparing them, companies can find ways to use fewer materials, reduce energy consumption, extend product lifecycles and simplify end-of-life recycling. Cleansheet models can be used create bottom-up estimates of the resources consumed by products and services, and to quantify the trade-offs of different manufacturing methods or design approaches.
By applying these and other analysis techniques to existing products in their portfolios, companies can generate a whole range of concrete efficiency improvement ideas: substituting different materials, reducing part counts, or increasing modularity. The cost of each of these options can be balanced against the environmental impact reduction they achieve. Cost-saving or cost-neutral measures can be adopted as soon as practicable. The investment required to implement more expensive ideas can be balanced against the additional value they deliver, in terms of improved customer perception or corporate sustainability goals, for example.
When one consumer-electronics company conducted a systematic DfS study on a new virtual-reality headset, it found opportunities to reduce the amount of material in the device by 35 percent. Those changes didn’t just reduce the product’s environmental impact, though—they also increased comfort and usability, allowing the company to eliminate counterweights that had previously been required to prevent the unit from slipping in use.
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These approaches are about much more than incremental improvements. Taking a detailed, data-driven view of resource consumption across a product’s lifecycle is also a powerful way to identify new design approaches, use-cases, and business models that can unlock entirely different sources of value for companies, their customers, and the wider environment.
Stephan Fuchs is an expert in McKinsey’s Munich office, where Stephan Mohr is a partner.