how can we measure the technical, socio-economic, and
TRANSCRIPT
IN DEGREE PROJECT MECHANICAL ENGINEERING,SECOND CYCLE, 30 CREDITS
, STOCKHOLM SWEDEN 2021
How can we measure the technical, socio-economic, and environmental performance of circular business models and supply chain?
JAYASURYA VENKATACHALAM
KTH ROYAL INSTITUTE OF TECHNOLOGYSCHOOL OF INDUSTRIAL ENGINEERING AND MANAGEMENT
How can we measure the technical, socio-economic, and environmental performance of circular business models and supply chain?
JAYASURYA VENKATACHALAM
KTH Supervisor: Ove Bayard
CirBES AB Supervisor: Saman Amir
KTH Examiner: Lars Wingård
© JAYASURYA VENKATACHALAM, 2021.
Department of Production Engineering and Management
School of Industrial Engineering and Management
KTH ROYAL INSTITUTE OF TECHNOLOGY
Stockholm, Sweden 2021
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ABSTRACT Circular business models can assist in reshaping and transitioning away from the current linear consumption pattern which can in turn allow us to achieve a circular economy. Businesses can change their operating model and consider a more sustainable alternative to their current production and consumption method. For businesses to assist in the transition of circular economy, the circular economy strategies can be integrated into their business models. Companies have already started to align goals and objectives to achieve this by measuring performance indicators.
Key Performance Indicators (KPIs) are used to effectively communicate and set targets to be achieved within different levels of an organization. KPIs can be used to monitor the progress of different aspects of sustainability including environment, economic and social. Due to this reason, many industries are shifting towards a circular business model to ensure better resource utilization and sustainable operations. For companies to evaluate their progress towards their set targets and goals, performance measurement is crucial.
In this study, relevant existing circular KPIs have been identified which can be implemented by the case companies to measure the performance of their supply chain and entire business model. The technical, environmental, and socio-economic dimensions are focused on this study while identifying the Key Performance Indicators.
A systematic literature review was initially performed during this study. Data achieved from literature was then compared with empirical data. The empirical data is based on interviews and surveys conducted with the case companies which were later compiled to develop the suitable indicators.
KEYWORDS:
Circular economy, Key Performance Indicators, Circular economy performance indicators, Circular business model, Supply chain
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SAMMANFATTNING Cirkulära affärsmodeller kan hjälpa till att omforma och övergå från det nuvarande linjära konsumtionsmönstret, vilket i sin tur kan göra det möjligt för oss att uppnå en cirkulär ekonomi. Företag kan ändra sin driftsmodell och överväga ett mer hållbart alternativ till sin nuvarande produktions- och konsumtionsmetod. För att företag ska bistå vid övergången till cirkulär ekonomi kan strategierna för cirkulär ekonomi integreras i deras affärsmodeller. Företag har redan börjat anpassa sina mål för att uppnå detta genom att mäta prestationsindikatorer.
Key Performance Indicators (KPI) används för att effektivt kommunicera och sätta upp mål som ska uppnås inom olika nivåer i en organisation. KPIs kan användas för att övervaka utvecklingen av olika aspekter av hållbarhet, inklusive miljö, ekonomisk och social. Av denna anledning övergår många branscher mot en cirkulär affärsmodell för att säkerställa bättre resursutnyttjande och hållbara operationer. Prestandamätning är avgörande för att företag ska kunna utvärdera sina framsteg i förhållande till sina uppsatta mål.
I denna studie har relevanta befintliga cirkulära KPIs identifierats som kan implementeras av fallstudieföretagen för att mäta prestanda för deras försörjningskedja och hela affärsmodellen. Fokus för denna studie är de tekniska, miljömässiga och socioekonomiska dimensionerna samtidigt som de viktigaste prestationsindikatorerna identifieras.
En systematisk litteraturöversikt utfördes initialt under denna studie. Data erhållen från litteraturen jämfördes därefter med empiriska data. De empiriska uppgifterna är baserade på intervjuer och undersökningar som gjorts med fallstudiebolagen som senare sammanställdes för att utveckla lämpliga indikatorer.
KEYWORDS:
Cirkulär ekonomi, Nyckelindikatorer, Prestationsindikatorer för cirkulär ekonomi, Cirkulär affärsmodell, Försörjningskedja
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ACKNOWLEDGEMENTS
I would like to express my sincere gratitude to my supervisor at CirBES AB, Saman Amir for her continuous support and guidance throughout this thesis. Her valuable feedback and suggestions were crucial to reshape this thesis and complete it successfully. I want to take this opportunity to thank Farazee Asif and Samruddha Kokare for sharing their knowledge and experience at every stage of my thesis work.
I also want to convey my heartfelt thanks to my KTH supervisor, Ove Bayard for his support and motivation. Finally, I would like to thank my friends and family for their extended support throughout this thesis work.
- Jayasurya Venkatachalam
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NOMENCLATURE
ABBREVIATIONS
OEM: Original Equipment Manufacturer
KPI: Key Performance Indicator
CE: Circular Economy
DC: Distribution Center
EOL: End of Life
TBL: Triple Bottom Line
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CONTENTS
Chapter 1 - Introduction ............................................................................................................................... 1
1.1 Background and problem discussion ............................................................................................ 1
1.2 Overview of case companies ........................................................................................................ 2
1.3 Purpose of study ........................................................................................................................... 5
1.4 Scope and delimitations ............................................................................................................... 6
1.5 Outline of thesis ............................................................................................................................ 6
Chapter 2 - Theoretical framework ............................................................................................................... 7
2.1 Introduction to circular economy ................................................................................................. 7
2.2 Circular economy strategies and barriers to circular economy model ........................................ 8
2.3 Measuring performance in context to CE implementation ........................................................ 10
Chapter 3 - Research Methodology ............................................................................................................ 12
3.1 Literature review procedure ....................................................................................................... 12
3.2 Performance indicators .............................................................................................................. 13
3.3 Data collection methodology ..................................................................................................... 17
Chapter 4 - Research findings ..................................................................................................................... 18
4.1 Interview data analysis - Whitegoods company ......................................................................... 18
4.2 Interview data analysis - Automotive company ......................................................................... 19
Chapter 5 - Results ...................................................................................................................................... 21
5.1 Analysis ....................................................................................................................................... 21
5.2 List of selected indicators ........................................................................................................... 22
5.3 Weak market test ....................................................................................................................... 30
Chapter 6 - Conclusion ................................................................................................................................ 34
6.1 Research questions ..................................................................................................................... 34
6.2 Limitations .................................................................................................................................. 35
6.3 Suggestion for future work ......................................................................................................... 35
References .................................................................................................................................................. 36
Appendices .................................................................................................................................................. 39
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List of Figures
Figure 1. Core management processes ......................................................................................................... 5 Figure 2. Circular economy systems diagram (Ellen MacArthur Foundation, 2019) .................................... 8 Figure 3. The 9R Framework. Source: Adapted from Potting et al. (2017)................................................... 9 Figure 4. Methodology used for screening of KPIs ..................................................................................... 13 Figure 5. Linear, closed loop and circular supply chains ............................................................................. 16
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List of Tables
Table 1. Share of transportation modes. ...................................................................................................... 3 Table 2. Literature review search criteria ................................................................................................... 12 Table 3. Initial list of selected KPIs for Whitegoods company ................................................................... 22 Table 4. Initial list of selected KPIs for Automotive company .................................................................... 26 Table 5. Weak market test responses- Whitegoods company ................................................................... 31 Table 6. Final list of KPIs for Whitegoods company .................................................................................... 32 Table 7. Weak market test responses- Automotive company .................................................................... 32 Table 8. Final list of KPIs for Automotive company .................................................................................... 33
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Chapter 1 - Introduction
1.1 Background and problem discussion
Due to the increasing demand for raw materials and linear consumption of products, the need to follow a systematic approach to efficiently reduce the climate impact is becoming crucial. In the linear consumption model, product-based companies often develop goods that are sold to the consumers who dispose the products when the product no longer fulfills the purpose (End-of-life state) [1]. This leads to the accumulation of waste and involves a significant cost to properly discard the products. Due to this, there has been volatility in the economy and excessive consumption of resources. Thus, a shift towards more sustainable consumption and utilization pattern is necessary.
Over the last decade, many companies have become aware that the linear consumption pattern places their business in risk due to increase in raw material prices and possibilities of disruption in supply chain [1]. This led the business leaders worldwide to take actions to support their business operations. One such action was the introduction of circular economy concepts and integrate them into their business model.
Circular economy has become one of the most prioritized topics on political agenda. Countries such as UK and Netherlands have estimated that implementing circular economy could boost the national GDP and create more employment opportunities. This also creates positive environmental impact as the concept is restorative by intention and extends the lifecycle of product/service.
A case study in European Union indicates “implementing CE concepts could result in an annual net material cost savings opportunity of up to USD 380 billion in a transition scenario and up to USD 630 billion in an advanced scenario, looking at only EU manufacturing sectors” [1]. The European Union is one among the economic unions that has understood the potential benefits of implementing CE concepts and developed various action plans to increase resource efficiency, employment and generate new business opportunities.
In 2015, the European commission initiated developing an action plan to encourage EU’s circular economy transition [2]. Later in 2019, the European commission announced European Green Deal with its ambitious objective to become the first climate neutral continent by 2050. This plan strived to set path for Europe’s sustainable growth. One of the main agenda covers EU’s transition to a circular economy through Circular Economy Action Plan [3].
In 2019, EU’s Circular Economy Action Plan (CEAP) proposed a total of 54 actions along with legislative plans. These legislative plans focused on proposing targets for reuse, recycling, and landfill. This action plan was proposed to boost EU’s economic growth by reducing the resource consumption. EU predicted the possibilities of supply chain disruption considering the current
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consumption of imported and virgin raw materials. These action plans were carried out in 2019 which made EU the leading pioneer circular economy policy maker worldwide. These action plan has motivated several member states to implement circular economy strategies as well [4].
This thesis aims to focus on the business sector and the development of performance metrics which can be used to measure circular performance of an organization. This thesis highlights the selection of these KPIs from literature study and includes development of company specific KPIs after considering the company’s goals. This thesis will focus on identifying the circular KPIs that would help measure the performance of two case companies in Automotive and Whitegoods sector.
1.2 Overview of case companies
This thesis involves the study and development of KPIs for two case companies. Both the companies are well known OEMs with facilities and network in multiple countries. One of the differences between the two companies is that they have a different control level over their value chain. Value chain can be described as the entire chain of a business’s operations that adds value to the finished product/service delivered to the customer. The activities in a typical OEM’s business usually includes procurement and purchasing, inbound and outbound logistics, marketing and sales and service. The value chain of the OEMs that are studied in this thesis consists of sourcing, manufacturing, product use phase, repair, reuse, and recovery.
In this thesis study, the white goods company has full control over its value chain, whereas, the automotive company, does not have full control of its value chain but partially controls the product stages.
Whitegoods company
Whitegoods company is a home appliance manufacturer based in Slovenia with its operations mainly in Slovenia, Austria, Netherlands, and Denmark. The company has been operating for over 60 years with environmental sustainability being its center-of-attention. Whitegoods company updates its annual sustainability report where different environmental aspects of their operations are clearly mentioned along with the steps required to reach its goals.
Whitegoods company has reported to have invested in advanced production process because of which the company has seen significant improvements in resource efficiency, reduced waste. Between 1997 and 2018, the company has reported to have reduced the amount of hazardous waste by 88.2%, waste disposed by 99.8%, water consumption by 85.7%, and natural gas consumption by 46.6%. This contributes to reduced environmental impact through efficient resource utilization and consumption pattern. The actions that the Whitegoods company has taken towards environmental sustainability will be a motivation for other OEMs operating with a similar business model in the market.
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In this thesis, the pilot of pay-per-wash offering of Whitegoods company’s X model washing machine is focused. Model X is durable and includes more features in the software when compared to other domestic washing machines. This model is specifically designed to last longer, and the company plans to refurbish the model twice which will function over three life cycles in the span of 5 years. As Whitegoods company’s business model also focuses on providing service to their products, it considers upgrading the machines along with refurbishing them in their life cycle. This would generate revenue for the company while extending the lifespan of their products and its parts.
The washing machines are manufactured and sent to the main warehouse in Slovenia. When the products reach the main warehouse, they are then sent over to multiple distribution centers (DCs) in different countries located in Slovenia, Austria, Netherlands, and Denmark. From the DCs, the products are distributed to wholesalers and retailers. The products are transported in two different modes depending on the market location (i.e., train and truck). The share of transportation modes in individual can be seen in Table 1:
Table 1. Share of transportation modes.
Market Location Train Truck Slovenia 90% 10% Austria 0 100% Netherlands 0 100% Denmark 50% 50%
Whitegoods company follows Full Truck Load (FTL) policy. In FTL, the truck transports one dedicated shipment from one location to another and is preferred for transportation of large volume of shipments. The minimum load of a vehicle for the company is set at 90%. This means that the trucks start towards their destination only when they reach a minimum of 90% of their full loading capacity.
When the product requires service or repair after it reaches the customers, a call is made from the customers which will be received by the company’s call center. Depending on the conversation with the customer and considering factors such as warranty period, distance to the customer’s location, etc., the service team carries out the repair.
Whitegoods company pays authorized representatives in each operating country to collect the whitegoods when they reach the End-of-Life (EoL) phase. The authorized representatives are paid to collect the machines from the collection yards. The costs involved in the EoL process (i.e., collection, treatment, recovery, and safe disposal) is included the sales price when the customer purchases the washing machine.
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Automotive company
Automotive company is a well-known multinational company that operates in over 60 different countries worldwide. Automotive company focuses in four different business areas: Mobility solutions, Industrial technology, Consumer goods, Energy and building technology. The business area of mobility solution includes offering of products and services related to injection technology, powertrain peripherals, powertrain electrification and services for the automotive aftermarket. This thesis lays its focus only on the automotive aftermarket business that comes under mobility solutions business sector of Automotive company.
Automotive company’s aftermarket sector provides extensive collection of automotive spare parts to workshops and local aftermarket service providers. The company has introduced a program named ‘Automotive company X program’ that is dedicated to offer remanufactured parts to the aftermarket. The X program product portfolio currently includes electrical rotating machines, diesel systems, braking systems, steering systems, and gasoline systems. The X program provides various benefits to the customers as well as the company and environment. The company has been in the remanufacturing industry for over 50 years with professionals who can remanufacture and test the product quality. This allows the company to provide products that are reliable and with the same warranty period as a new product. The program also allows material savings and offers remanufactured products at 30% cheaper price than new products. The company also helps protect the environment through this program. It is estimated that CO2 emissions are reduced by 25.000 tons every year when compared to production of new product. Also, it allows material savings of up to 90% and CO2 savings of around 50% due to re-use strategy followed by the company.
The reverse logistics for the automotive aftermarket is taken care of by service brand of ECO company named C-Net. ECO is a company that offers service solutions to circular economy and similar businesses. To ensure that the quality of remanufactured products meet the standards and requirements set by the company, it is crucial to have an efficient core management. Effective core management ensures that the product meets the requirement of the customer. Core management includes processes such as collection of used parts from the market, identification of cores, evaluation of cores, sorting of cores, storing of core, delivery of cores to remanufacturing plant (Figure 1). The cores that are part of the X program are returned from the different workshops to wholesalers to C-Net in the original package. This saves time when identifying the cores and quickens the return process. When the returned core reaches C-Net, it is sent to the selection station where the cores are identified and evaluated as per the return criteria where the testing takes place. After the cores are identified and evaluated, the details are documented along with value of cores and their quality status. The cores are then labeled, sorted and stored at C-Net’s warehouses and then delivered to the remanufacturing plant when the inventories need to be replenished.
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Figure 1. Core management processes
1.3 Purpose of study
The main purpose of this thesis is to study the circular key performance indicators related to supply chain and business model from the existing literature. The selected indicators that are obtained from this study will be used in the pilot study with two case companies. The ambitious aim of this study is to encourage existing and future OEMs companies to include circular economy performance along with other performance metrics. This can generate awareness about how circular economy performance indicators could motivate the adoption of circular business for OEMs and consumers which in turn would lead to the implementation of circular economy.
Although there are many dimensions to consider while measuring performance of an organization or supply chain, many companies often only use financial performance indicators to evaluate their progress. In today’s competitive business market, it has become crucial to include other dimensions of sustainability such as environmental and social measures. Including other circular performance dimensions could improve a company’s business performance by assessing impacts in the supply chain and improving the overall business model. This thesis also has a theoretical goal of suggesting circular KPIs that could be used in the OEM business models to evaluate and enhance the business performance.
Research questions
This thesis consists of two research questions:
RQ1: What are the circular key performance indicators that influence the technical, socio-economic, and environmental performance of circular business models and supply chains?
This research question allows us to investigate relevant circular key performance indicators from existing literature, circularity reports and interviews with case-companies.
RQ2: How do we efficiently measure these circular key performance indicators?
This research question allows us to explore the methodology that is used to measure the selected key performance indicators. It also helps us define what needs to be measured and how measuring them could improve the business performance.
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1.4 Scope and delimitations
The focus of this thesis is only to investigate circular key performance indicators that are relevant to the two case companies. The study is suitable for companies that are currently in the OEM business. Although key performance indicators have been used in OEM business several decades, only few of them focus on the circularity aspect. This study involves identification, screening of existing circular KPIs that are suitable for the two case companies in this thesis. The ranking and implementation phases of these circular KPIs are out of scope of this thesis. The results and suggestions are based on findings from relevant literature studies and might need to be modified before applying in other OEM companies.
The scope of the thesis will be limited to identification of circular KPIs that can be measured considering the supply chain and business model of the two case companies.
Also due to time-constraint of the thesis period and its complexity, only products and component level in the supply chain will be studied leaving out the design and material flow level. The KPIs focus on the product and component level of the material flow and excludes the product design aspects of material usage.
This study elucidates only the key performance indicators in the downstream supply chain. The upstream part of supply chain is not taken into consideration as it as it is not covered in the scope of this thesis.
1.5 Outline of thesis The first chapter introduces us to the background of the topic and highlights the need for circular economy. It also describes the problem of linear consumption, discusses the supply chain network of the two case companies and highlights the purpose of study. Chapter two gives an overall introduction to the concept of circular economy and gives a classification of key performance indicators. The literature review and the methodology selected for this research is discussed in chapter three. Chapter four reveals the details collected from the interviews. The fifth chapter discusses the results after data compilation and analysis. Chapter six presents the conclusion and summary of the findings along with focus areas for future research.
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Chapter 2 - Theoretical framework
2.1 Introduction to circular economy
Although the topic of circular economy is young and continuously developing, the definition of Circular economy has been extensively researched by several scholars and practitioners. Circular Economy is a concept that's constantly evolving, and its importance is recognized widely across different countries. Circular economy can be described as an economic model in which the products and materials have a prolonged value in the overall lifecycle due to the practice of reusing, repairing, refurbishing, and recycling. The concept of circular economy follows a regenerative approach instead of the traditional ‘take-make-consume-throw’ approach. This assists in increasing the resource efficiency of a product/service and reduces the overall material consumption. Circular economy concepts help us rethink the concept of waste and retrieve value from the waste generated.
Even with more than 300 academic articles on CE literature, there is no general agreement on the definition as there are different interpretations. Kirchherr et al analyzed 114 circular economy definitions and finally after considering different views, proposed the definition as “an economic system that replaces the ‘end-of-life’ concept with reducing, alternatively reusing, recycling, and recovering materials in production/distribution and consumption processes. It operates at the micro level (products, companies, consumers), meso level (eco-industrial parks) and macro level (city, region, nation and beyond), with the aim to accomplish sustainable development, thus simultaneously creating environmental quality, economic prosperity and social equity, to the benefit of current and future generations” [5]. (Murray et al have defined circular economy as ‘the economic model wherein planning, resourcing, procurement, production and reprocessing are designed and managed, as both process and output, to maximize ecosystem functioning and human well-being’ [6]. This definition shifts the emphasis to sustainability and links the circular economy strategies to the environment, economy, and society.
In short, circular economy is a model that is designed to minimize the use of finite resources and sustain the resources produced in the value chain for a longer period. One of the main objectives of circular economy is to try to close the material loops as much as possible. This can be achieved through implementing strategies such as reusing, recovery, recycling and remanufacturing repairing and upgrading. The Ellen MacArthur Foundation illustrates circular economy comprising of two cycles through the Circular economy systems diagram (Figure 2).
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Figure 2. Circular economy systems diagram (Ellen MacArthur Foundation, 2019)
The resources are divided into two categories: the first being ‘biological’ cycle and the second being ‘technical’ cycle [7]. The biological cycle consists of regenerative resources such as wood and food waste that can be decomposed and restored into the biosphere. Technical cycle consists of finite resources such as metals and alloys which can’t be restored into the biosphere. A systemic change in existing pattern of producing and consuming technical materials is crucial to close the loop as much as possible.
2.2 Circular economy strategies and barriers to circular economy model To close the loop and transition towards a circular economy, it is vital that businesses follow strategies. One important principle in circular economy is the 3Rs, which correspond to Reduce, Reuse, and Recycle. ‘Reduce’ refers to reducing the weight, volume of material used so that the materials that end up in landfill is reduced. ‘Reuse’ refers to using the materials again if it meets the set requirement. ‘Recycle’ refers to processing of materials that have lost its functionality. Potting et al introduced the 9R framework with strategies ranging from Refuse to Recover.
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Figure 3. The 9R Framework. Source: Adapted from Potting et al. (2017)
The R-strategies was introduced to reduce material and resource consumption in the value chain which would assist in the transition towards a circular economy. The R strategies ranges from a lower circularity level to a higher circularity level as shown in Figure 3. The 9R circular strategies are prioritized and are categorized into three groups: Smarter product use and manufacture, Extend lifespan of products and its parts, Useful application of materials [8]. Various theoretical frameworks have been proposed by scholars and practitioners that would enable circular business operations. The British Standard BS 8001:2017 was introduced to focus exclusively on circular economy and resource efficiency. This standard assists organizations to understand their operations and its impacts [9]. It also focuses on how circular economy principles can generate new opportunities and values.
Although the concept of circular economy has recently received recognition, it is still arguable on how it should be implemented. Researchers have found two approaches on implementing circular economy principles: (i) Systematic economy-wide implementation and (ii) implementation with a focus on a group of sectors, products, materials, and resources. In the case
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of systematic economy-wide implementation of circular economy, there are three levels: micro (product, company); meso (industrial symbiosis, eco-industrial parks); and macro (global, national, regional, city) [2]. Circular economy performance measurement is often seen as a major barrier in organizations [8]. For a company to become circular, it might need to completely change how it operates. It is evident from research that companies need to make large initial investments to implement the circular economy model. Lack of cooperation between different companies can also be seen as a major barrier towards implementation of circular economy.
In the context of supply chain, manufacturing of products and consumption of products often take place in different countries. This would mean that the supply chain needs to be restructured and policies of different countries needs to be followed [10]. Circular supply chain models have been introduced to extend the life of products but still face challenges related to economic restrictions and inadequate knowledge of circular economy concepts. Countries are yet to announce tax policies for companies promoting circular economy models. For companies to implement circular models, it is crucial that government introduce strict environmental laws and guidelines. Lack of coordination among the supply chain members can also be seen as a major hindrance for effective implementation of circular economy.
2.3 Measuring performance in context to CE implementation
Circular economy can be seen as a vision for the future where both nature and economy prosper together. As the current economy is based on a linear consumption pattern, circular economy concepts have been receiving spotlight worldwide. Companies have started switching to circular business models which operates with circular strategies integrated in their organization’s goals. Although, several businesses have recently started switching to a more circular way of operation, our progress is very slow. This results in circular economy remaining a vision that is still too far away to attain. The circularity gap report which measures the world economic progress every year revealed that our world economy is only 8.6% circular [11]. This shows a huge circularity gap that currently exists that can otherwise potentially decelerate the environmental impact and save billions of Euros through material cost savings.
To transition towards a circular economy, certain framework is necessary. To promote CE, different pillars must be monitored, and standards must be followed. There have been studies on CE tools and indicators that assist in this transition. Although there are some implementation scales and tools to evaluate CE, it is still not clear on what should be measured. Researchers and scholars have developed and reviewed various methodology and tools to measure the circular performance of specific business sector or organization. The CE indicators can be used as a tool to evaluate the circular performance of an organization. There have been studies to find out what must be measured, and the parameters required to measure the circularity of services and products.
From a business perspective, circular business models must be acknowledged by the stakeholders and consumers. To identify and improve the business models, certain performance
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measurement systems already exist. Performance measurement systems can help monitor, improve the operations in an organization. But there are only limited existing performance measurement systems for circular business models and circular supply chains. Circular performance measurement systems help monitor the progress made in achieving the strategic objectives of an organization. Measurement of circular economy performance is an unfamiliar concept for various business sectors. Since the definition of circular economy is still debatable, it can be unclear for organizations to understand what needs to be measured. The triple bottom approach of sustainability focuses on three different dimensions; environmental, economic, and social. Corporate performance measurement systems often measure only the financial aspects leaving out other important aspects that could assist in the transition to a circular economy. The triple bottom line approach focuses on other aspects to measure the performance of an organization. It is evident that triple bottom line approach captures the essence of sustainability as it focuses on the three dimensions that is closely related to sustainability. Scholars have researched about how CE practices could help reach Sustainable Development Goals (SDGs) targets. TBL dimension-based indicators can measure performance in an organization which can contribute to circular economy and henceforth realization of UNSDC goals. This is the motivation to focus on the environmental, economic, and social performance in this thesis.
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Chapter 3 - Research Methodology
3.1 Literature review procedure
A systematic approach was considered when reviewing the existing literature. The main purpose of the literature review done in this thesis is to identify relevant circular key performance indicators. To do this effectively, screening of circular economy related key performance indicators was necessary.
The criteria considered to filter the relevant indicators are mentioned in Table 2:
Table 2. Literature review search criteria
Criteria Filters used
Key words used in literature search
{circular OR circular economy OR circularity} AND {indicators, index, KPI, performance, performance measure} AND {remanufacture, refurbish, service, repair}
Academic databases referred
Scientific journals (e.g., Science Direct, Emerald, Springer, MDPI, Taylor and Francis, and Google Scholar), Master thesis report, Conference paper from google search.
Non-academic databases referred
Reports from research organizations (e.g., Circular Economy Initiative, Circle Economy), Reports from government organizations (e.g., European union,
Publication years 2000 - 2021
The first step was to search from the academic databases and non-academic databases such as scientific journals, master thesis reports and business sustainability reports. The search was done based on different combinations of input string keywords. The keywords used in the first screening phase are mentioned in Table 2. Only the published articles which were written in English were chosen.
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Figure 4. Methodology used for screening of KPIs
In the second screening phase, the title of the article and its abstract were skimmed (Figure 4). This was done by selecting the articles which were relevant to the current study. The title and abstract of the articles obtained from the first phase screening were carefully studied. The articles which focus on the environmental, economic, technical, and social aspects of sustainability were selected.
3.2 Performance indicators Performance indicators are used to understand what needs to be changed in a value chain. The goal of using a performance indicator is to see how an organization performs and moves towards their achieved targets. Organizations select performance indicators depending on its business operations and objectives. Many organizations do not monitor their actual KPIs, but instead incorrectly measure the wrong indicators [12].
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Parmenter classified performance measures into four types [13]:
1. Key result indicators (KRIs): Gives an outline of the organization’s previous performance. Does not discuss about how to improve the results.
2. Result indicators (RIs): Gives an outline of efforts of different departments or teams on a particular area.
3. Performance indicators (PIs): Informs the team members and management on what they should do to get better results.
4. Key performance indicators (KPIs): Informs the team members and management on what they should do to improve their performance in specific areas.
Definition and characteristics of key performance indicators
Parmenter defined KPIs as ‘indicators that focus on the aspects of organizational performance that are the most critical for the current and future success of the organization’ [13]. In other words, KPIs are metrics that focuses on assessing the organization’s critical factors and improving the performance to achieve the targets and goals of the organization.
Eckerson has classified KPIs into three types [14]:
1. Leading indicator: This type of KPI measures actions that are critical to achieve the targets and goals of the organization in future.
2. Lagging indicator: This type of KPI measures the results of the past actions of the organization.
3. Diagnostic measure: A KPI that is neither leading nor lagging but communicates the state of activities in an organization.
Various researchers have defined the characteristics of a KPI and there are still discussions going on about constructing an effective KPI. To ensure that the management of an organization meets its objectives, Doran has introduced the acronym S.M.A.R.T, which many researchers have agreed on. SMART criteria are often used to bring clarity and to structure the measurability of the performance indicators in an organization. Although there are many alternate objectives and goals of this criteria, the acronym SMART stands for:
1. Specific: Target a specific area for improvement 2. Measurable: Quantify or at least suggest an indicator of progress. 3. Assignable: Specify who will do it. 4. Realistic: State what results can realistically be achieved, given available resources. 5. Time-related: Specify when the result(s) can be achieved.
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Doran highlights that the objectives need not fulfill all the five criteria but emphasizes that the objectives will be smarter when they are closer to the SMART criteria guidelines [15].
Another description of the characteristics of effective performance indicators was suggested by Wayne Eckerson [14]. Wayne has listed the following ten characteristics of an effective KPIs:
1. Sparse: The fewer KPIs, the better. 2. Drillable: Users can drill into detail. 3. Simple: Users understand the KPIs. 4. Actionable: Users know how to affect outcomes 5. Owned: KPIs have an owner. 6. Referenced: Users can view origins and context. 7. Correlated: KPIs drive desired outcomes. 8. Balanced: KPIs consist of both financial and non-financial metrics. 9. Aligned: KPIs do not undermine each other 10. Validated: Workers cannot circumvent the KPIs.
KPIs for circular supply chain and circular business models
Nowadays, many organizations focus on supply chain performance evaluation and monitor them regularly to improve the efficiency and effectiveness of operations. Supply chain management deals with management of flow of materials and information in different levels and thus a bigger opportunity lies in this topic to integrate circular economy concepts. By integrating circular economy concepts and strategies to the Supply chain, numerous benefits can be obtained [16], [17].
The term circular supply chain was established when circular economy is integrated into supply chain management [18],[19],[16],[17]. Due to the unavailability of a definition of circular supply chain management in a broad perspective, Farooque et al [20] have proposed their own definition. The proposed definition of circular supply chain states that ‘Circular supply chain is the integration of circular thinking into the management of the supply chain and its surrounding industrial and natural ecosystems. It systematically restores technical materials and regenerates biological materials toward a zero-waste vision through system-wide innovation in business models and supply chain functions from product/service design to end-of-life and waste management, involving all stakeholders in a product/service lifecycle including parts/product manufacturers, service providers, consumers, and users’. Farooque et al have also mentioned that circular supply chain management includes a systematic application of circular economy concepts in different supply chain levels and tasks from a sustainability perspective. Generally, a circular supply chain produces no waste due to its design to restore and regenerate resources to
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keep the resource flows within the ecosystem. In practice, circular supply chain management is designed to generate zero waste as the value is often recovered by activities such as recycling, reusing, repairing, remanufacturing, recovery, and refurbishment.
In a circular supply chain, there are two types of resource flows: Primary resource flows and circular resource flows [20]. The primary resource flows have two types of forward flow of resources: Linear supply chain and closed loop supply chain. The linear supply chain illustrates a tradition flow of resources and disposal the end-of-life products, waste in the end stage of supply chain. Whereas a closed loop supply chain focuses on recovering resources by delivering back recovered values to the producer, thus reducing the overall environment impact. But the recovery rate capacity by a closed loop supply chain is limited and does not account for the secondary supply chains. It is also not realistic to recovery all the types of wastes within the same supply chain. This is where a circular supply chain has a huge advantage. A circular supply chain aims to recover values from waste by working together with organization in similar or different industrial sectors [21].
Figure 5. Linear, closed loop and circular supply chains
With regards to measuring performance of circular supply chain management, Jain et al. established a strategic framework to measure circular supply chain management by using supply chain operations reference model (SCOR model) [22]. This developed strategic framework did not focus on the social and economic factors by instead focused mainly on the environmental dimensions. Most of the key performance indicators from the literatures focused on product and material level circularity instead of technical process as the processes vary even within the same industry sector. With abundant existing circular economy indicators, it has become a challenge to make decisions for top management in organizations. This is often due to the complexity of the
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indicators to completely understand its meaning and relevance and then translate them to measurable values [23]. One example of a complex element to measure is the environmental footprint, which needs to calculate multiple impacts of an activity and needs to numerous parameters to be accurate.
3.3 Data collection methodology
There are different types of data collection methods. To collect qualitative data, data gathering methods such as interviews, surveys are used. Interviews are often seen as a useful method to collect data directly from the case companies and have an advantage when it is complex to gather data from written responses or observations [24]. For qualitative research, there are three common types of interviews: unstructured, semi-structured, and structured. The semi-structured interview method was chosen for this thesis as it has a higher flexibility while allowing the interview to stay on the topic of interest. A semi-structured interview provides the interviewee with opportunity to express their views on the open-ended questions asked by the interviewer. Another data collection method used in this thesis is the survey, which is often used to gather data from targeted group of employees in a company. This allows us to gather more opinions and knowledge from the company. The survey was used as it was not possible to conduct one to one interview with several employees due to the time constraint of the thesis.
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Chapter 4 - Research findings
Interviews of the case companies were conducted during April and May 2021. The interviewees from both the case companies were initially contacted by an email which included the aim of the interview. The aim of the interview was to understand the needs and challenges of the case companies involved in the project. Another objective of these interviews was to understand how familiar the companies are to the concept of circular key performance indicators. Both the companies use metrics such as KPIs for evaluating the internal operation but were reluctant in providing the existing indicators as were not in context to circular economy and the companies were concerned about confidentiality.
To collect data effectively as possible from the interviewees, an interview guide was developed with different themes. The developed interview guide can be found in Appendix A. The interview guide was sent to the interviewees a few days before the interview to ensure that they properly understand the questions to avoid misinterpretation and get better results. The interviews were conducted in Zoom, documented though recording and then transcribed.
Both the case companies were focused on improving profitability and wanted KPIs developed that saves cost while reducing the environmental impact. The interviewees from whitegoods and automotive companies interviewed in this thesis explained how they have included sustainability in their company’s responsibility goals.
4.1 Interview data analysis - Whitegoods company
The Lead R&D Engineer at Whitegoods company was initially interviewed. Whitegoods company is said to be one of the first companies in Slovenia to share environment monitoring system (EMS) report and have been reporting the information publicly for more than two decades.
Whitegoods company has been producing long lasting appliances and the revenue depends mostly on the leasing options and repair offered by the company. But a challenge perceived by the company is when the machines are built to last long, it requires less repair which can affect the profitability of the company’s business model as it could reduce the revenue generated. The products are built to last longer due to its value being extracted by the company that owns the recycling facility at the end of a product’s life cycle. For this reason, Whitegoods company wants to focus on service-based business model where the products are long lasting, and the revenue is generated through service.
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Another point highlighted by the interviewee was the inclusion of local resources for the repair and service which would boost the local economy and generate local employment.
“If we want the society to use more local resources, you cannot provide service from another country, you have to do it with the local companies here. And this could be very interesting incentive, because the taxes should go to stimulate this service, which actually generates local employment.”
- (Lead R&D Engineer at Whitegoods company)
During the interview, the importance of including the French repairability index was emphasized. The repairability index is connected to the ability of the product to be repaired based on how expensive the spare parts are, possibility of upgrading the software of electronic products etc. As their business model relies primarily on service and maintenance provided to the pay-per-use washing machines, it is important that a KPI that focuses on failure rate and time to resolve the complaint be included.
4.2 Interview data analysis - Automotive company
The Quality Manager at ECO was initially interviewed. Although the automotive company were aware of the importance of circular economy, but the management was not familiar to concept of circular key performance indicators. It was clear that they haven’t categorized their KPIs into the three sustainability dimensions (environmental, economic, and social), but they have considered only the technical KPIs which aims to evaluate the internal operations.
As reverse logistics is a major part of the business model for the automotive company, the company wanted to understand the impact of its logistics network. For the company, the most important KPI would be something that measures and evaluates the environmental impact such as CO2 impact of its logistics network.
The interviewee highlighted the requirement of KPI for CO2 impact of the logistics network:
“The CO2 impact of our logistics and transport and understanding what the impact of those or transport because we have a large transport network, and if there's a way to optimize that, it will be good. And even better if you can understand the environmental impact, especially in the context of climate change. That's definitely what we want.”
- (Quality Manager at ECO)
Another important point discussed is the cost of transportation in the supply chain. It could be complicated to measure as there are many different parameters and actors in the supply chain to be considered. This thesis mainly focuses on reverse logistics from the automotive company’s perspective and so, calculating the cost of transportation of reverse logistics could be a valuable economic indicator.
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To measure the revenue generated from their current business model, a KPI to measure the economic performance was required. The current business model relies on revenue from remanufactured products, so it is important that a KPI be selected for this area.
Material savings is another topic mentioned that would allow to evaluate the company’s circular business model. But the material savings through product design is out of scope of this thesis work.
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Chapter 5 - Results
5.1 Analysis
This study aims to identify a set of circular key performance indicators that will help evaluate the performance of the case companies and be adopted in similar business models with slight modifications. The chapter consists of an analysis that was established by referring to literature from journals, business reports and empirical data gathered from the case companies. The availability of circular economy related indicators in the context to supply chain are very limited and both the case companies in this study are not fully aware of the value these indicators can generate to both environment and the economy. This is mostly because of the complex nature of circular economy and information transparency within the companies. It is also important that we know what to measure and how measuring a particular KPI can help improve the performance in an organization. Also, it is crucial to include both standardized circular performance indicators and organization specific circular performance indicators for the OEMs.
The purpose of this thesis is to develop a comprehensive understanding of most relevant circular key performance indicators. This is done by including a simple description of the selected KPIs, the purpose of measuring the KPIs and the methodology/ formulae used to measure the KPIs while considering all the required parameters. Although, many researchers have included what a particular circular KPI measures, many have failed to explain how measuring them could benefit the organization or society. It is crucial for the organization to know the purpose of measuring a specific circular KPI to ensure their full involvement in developing the KPIs.
Circular performance indicators need to be specific and simple to understand yet easy to implement. This study aims to keep circular performance indicators as simple and relevant as possible. However, a few circular performance indicators found from the existing literature are extremely complex and needs many parameters to be considered for measuring the performance. The circular key performance indicators are first screened from the literature study and then relevant indicators are selected based on results from weak market test that was carried out by collecting responses to the email query sent to the case companies.
Studies usually focus on technological innovation that measures economic and environmental dimensions, but the social dimensions have not been included by several researchers. The social performance needs to be given more importance as it has the potential to assist the transition towards circular economy. Since the introduction of sustainability reporting in most of the organizations, it has become increasingly important to communicate the social performance indicators to the stakeholders to maintain a positive relationship.
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5.2 List of selected indicators
A set of relevant circular key performance indicators were carefully selected for the business model of the case companies. The information on circular key performance indicators were gathered from different literatures including scientific journals, business reports and then correlated with the empirical finding obtained from the case companies to construct an indicator pool. This indicator pool consists of indicators that are both generic and company specific. The constructed indicators focus on different themes such as: gas emissions, material waste recovery, customer retention, repairability, revenue generation and other economic benefits. The KPIs are categorized in Table 3 and Table 4 as environmental, economic, technical, and social based on what each one of them addresses. Next, the description of each KPIs along with its purpose and methodology/calculation formulas are mentioned.
Whitegoods company
Table 3. Initial list of selected KPIs for Whitegoods company
Category Name of KPI Reference
Environmental Logistics performance (Freight transport) [25] Emissions from transport (Forward and reverse logistics) [26] Old scrap collection rate [27]
Economic
Cost of transportation in reverse supply chain [28]; [29] Take back cost [28]; [29] Revenue from refurbished products [29] Revenue from upgrade, repair and maintenance services of products [29]
Technical
On time delivery to customer [30] Maintainable period after sales [29] Mean time between failures [31] Mean time to repair [31] Repairability index [32]
Social
Total customer complaints [30] Purchase of locally produced and offered goods and service [33]; [29] Total number of hours of capacity and skill development training per employee
[29]
Job creation per unit of product [29]
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Logistics performance (freight transport): • Description: Performance of logistics considering a particular type of freight transport. • Purpose: Evaluates vehicle energy efficiency by relating distance to weight transported.
Can be used evaluate the performance of both truck and train transport. • Formula/Methodology: Annual total weight of goods transported by all the units / Annual
distance travelled by all the units
Emissions from transport (forward and reverse logistics):
• Description: Emissions from transporting goods in both forward and reverse logistics (expressed in kg CO2 e/tonne-km)
• Purpose: Lower CO2 emissions from transport to save cost and reduce environmental impact
• Formula/Methodology: Emissions from road transport = ∑ (Weight of good transported (tonne) * distance travelled * emission factor of transport mode
Old scrap collection rate:
• Description: Measure of how much end-of-life metal is collected and enters the recycling facility.
• Purpose: Reduces landfill and reduces the possibility of unsafe waste disposal • Formula/Methodology: End-of-life metal collected for recycling / end-of-life products
(metal content)
Cost of transportation in reverse supply chain:
• Description: The cost of transportation in reverse supply chain. This cost depends on the total distances traveled in reverse supply chain (can include collection of products at the customer, delivery to the disassembly/remanufacturing site to either another supplier or original manufacturer)
• Purpose: Helps reduce and assess the reverse supply chain cost • Formula/Methodology: [(Transported distance (km) / fuel consumption (km/l)] * cost of
fuel (EUR/litre)/ Total quantity of used products transported) * information sharing cost and ordering cost (IT cost)
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Take back cost:
• Description: The costs incurred by a company that are associated with a procedure of product take back option
• Purpose: Ensures that the manufacturer or producer offers to responsibly collect products at the end of its life cycle at a reasonable price
• Formula/Methodology: Number of products ordered to be taken back* cost of collecting each product
Revenue from refurbished products:
• Description: Total income generated by the sale of refurbished products • Purpose: Extend product's use cycles by offering refurbished products and goods for sale. • Formula/Methodology: Number of refurbished products sold * unit sale price for
refurbished product
Revenue from upgrade, repair, and maintenance services of products:
• Description: Total income generated by providing options for upgrading, maintenance and service of products.
• Purpose: Assess the revenue generation from maintenance and repair. Can help create new service-related opportunities for the company if required.
• Formula/Methodology: Total revenue from upgrading the product + Revenue from maintenance and other related services offered
On time delivery to customer:
• Description: Sales unit delivered on time to customer. • Purpose: Helps decide if route needs to be more optimized and assess other necessary
options. • Formula/Methodology: Sales units delivered on time/ total sales unit
Maintainable period after sales:
• Description: Maintainable time of the product after it reaches the customer. • Purpose: Helps extend the maintenance and service period of a product. Generates more
revenue. Can compare with products in similar business sector. • Formula/Methodology: Time of maintainable service (in months or years)
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Mean time between failures:
• Description: Average time passed between a machine failure. • Purpose: Helps anticipate how likely a machine is to fail within a certain time period or
how often a certain type of failure may occur. Helps reduce breakdown cost when measured and analyzed.
• Formula/Methodology: Number of operational hours / Number of failures
Mean time to repair:
• Description: The average time taken to repair a machine. • Purpose: Can improve maintenance planning and decide if preventive maintenance
scheduling and better tools are required for maintenance. • Formula/Methodology: Total maintenance time / Total number of repairs
Repairability index:
• Description: Measures the repairability of the products sold. • Purpose: France has already introduced repairability index. With this, EU might
introduce stricter laws soon for manufacturers to be more responsible in extending the life of products to ensure better resource efficiency and safer disposal.
• Formula/Methodology: Refer to Appendix B for calculation sheet
Total customer complaints:
• Description: Total number of complaints compared to the washing machines sold. • Purpose: Helps understand customer needs. • Formula/Methodology: Number of complaints / Total sales units
Purchase of locally produced and offered goods and service:
• Description: Measures the amount of goods and services that a company has purchased locally.
• Purpose: Higher value indicates larger extent to which the company or facility contributes to local economy from buying local materials and products
• Formula/Methodology: Number of locally purchased products(goods) / Total output number of products produced
(or)
Weight of locally purchased products(goods) / Total weight of products produced
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Total number of hours of capacity and skill development training per employee:
• Description: Measures the time spent on employee's education and professional and personal development per employee.
• Purpose: Introducing policy and initiatives to expand workers’ capabilities and skills, thus increasing their capacity and employability. Capacity development is important as it contributes to the growth of human capital within the organization.
• Formula/Methodology: Total number of hours of training aimed at capacity and skill development per employee per year.
Job creation per unit of product:
• Description: The extent to which the company or facility creates new jobs in circular business sector.
• Purpose: Measures the increase in opportunities for circular business job. Higher value indicates a larger community employment.
• Formula/Methodology: Total number of workers working on a specific product type/ Total number of products produced or serviced.
Automotive company
Table 4. Initial list of selected KPIs for Automotive company
Category Name of KPI Reference
Environmental
Annual greenhouse gas emissions [34] Emissions from transport (Forward and reverse logistics) [26] Energy consumption for disassembly [33]; [29] Core disposal rate [35]
Economic
Cost of transportation in reverse supply chain [28]; [29] Revenue from remanufactured products [29] Take back cost [28]; [29]
Technical
Core/Product ratio [35] Component salvage rate (Cores) [35] On time delivery to customer [30]
Social
Total customer complaints [30] Purchase of locally produced and offered goods and service [33]; [29] Totally number of hours of capacity and skill development training per employee
[29]
Job creation per unit of product [29]
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Annual greenhouse gas emissions:
• Description: Company's greenhouse gas emissions converted into CO2 equivalents. • Purpose: Used to reduce the company's energy consumption and carbon footprint. • Formula/Methodology: Refer to Appendix B for calculation sheet
Emissions from transport (forward and reverse logistics):
• Description: Emissions from transporting goods in both forward and reverse logistics (expressed in kg CO2 e/tonne-km)
• Purpose: Lower CO2 emissions from transport to save cost and reduce environmental impact
• Formula/Methodology: Emissions from road transport = ∑ (Weight of good transported (tonne) * distance travelled * emission factor of transport mode
Energy consumption for disassembly:
• Description: Energy used to disassemble one product. • Purpose: Reducing the energy consumption could reduce the cost spent on electricity. • Formula/Methodology: Energy consumed to dismantle one part (kWh) * Total number of
parts
Core disposal rate:
• Description: The percentage weight of cores which do not get remanufactured or whose components are not recovered or sold on.
• Purpose: Could help reduce landfill and the possibility of unsafe waste disposal. • Formula/Methodology: CDR= Waste/ (Weight of Incoming cores + Weight of new
components)
where, Waste = Weight of incoming cores - Weight of invoiced goods
(Weight of invoiced goods includes remanufactured products and components, components sold unprocessed and for recycling)
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Cost of transportation in reverse supply chain:
• Description: The cost of transportation in reverse supply chain. This cost depends on the total distances traveled in reverse supply chain (can include collection of products at the customer, delivery to the disassembly/remanufacturing site to either another supplier or original manufacturer)
• Purpose: Helps reduce and assess the reverse supply chain cost • Formula/Methodology: [(Transported distance (km) / fuel consumption (km/l)] * cost of
fuel (EUR/litre)/ Total quantity of used products transported) * information sharing cost and ordering cost (IT cost)
Revenue from remanufactured products:
• Description: The total amount of income generated by the sale of remanufactured
products. • Purpose: Helps assess and compare the improvements • Formula/Methodology: Number of remanufactured products sold * Unit sale price for
remanufactured product
Take back cost:
• Description: The costs incurred by a company that are associated with a procedure of product take back option.
• Purpose: Helps assess and compare the improvements • Formula/Methodology: Number of remanufactured products sold * Unit sale price for
remanufactured product
Core/Product ratio:
• Description: The average number of cores used to produce one remanufactured product. • Purpose: Less usage of virgin resources helps in resource efficiency. • Formula/Methodology: Cores processed/ (products shipped+ stocked midbuild products+
work in progress)
Component salvage rate (Cores):
• Description: The percentage of components and/or subassemblies salvaged. • Purpose: Higher this percentage, normally the lower the total cost of remanufacturing,
due to minimizing purchasing cost. • Formula/Methodology: Number of reused cores / total number of cores entering the plant
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On time delivery to customer:
• Description: Sales unit delivered on time to customer. • Purpose: Helps decide if route needs to be more optimized and assess other necessary
options. • Formula/Methodology: Sales units delivered on time/ total sales unit
Total customer complaints:
• Description: Total number of complaints compared to the washing machines sold. • Purpose: Helps understand customer needs. • Formula/Methodology: Number of complaints / Total sales units
Purchase of locally produced and offered goods and service:
• Description: Measures the amount of goods and services that a company has purchased
locally. • Purpose: Higher value indicates larger extent to which the company or facility
contributes to local economy from buying local materials and products • Formula/Methodology: Number of locally purchased products(goods) / Total output
number of products produced (or)
Weight of locally purchased products (goods) / Total weight of products produced
Total number of hours of capacity and skill development training per employee:
• Description: Measures the time spent on employee's education and professional and personal development per employee.
• Purpose: Introducing policy and initiatives to expand workers’ capabilities and skills, thus increasing their capacity and employability. Capacity development is important as it contributes to the growth of human capital within the organization.
• Formula/Methodology: Total number of hours of training aimed at capacity and skill development per employee per year.
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Job creation per unit of product:
• Description: The extent to which the company or facility creates new jobs in circular business sector.
• Purpose: Measures the increase in opportunities for circular business job. Higher value indicates a larger community employment.
• Formula/Methodology: Total number of workers working on a specific product type/ Total number of products produced or serviced.
5.3 Weak market test
Although there are no limits to the number of KPIs that should be implemented in an organization, it is preferable to measure what brings the most value to an organization. Thus, it is necessary to limit the number of KPIs gathered from the literature study and empirical findings from the case companies. A market test can be conducted to learn if the case companies are interested to implement a specific developed concept. Rautiainen et al classified market test into three different levels: weak, semi-strong and strong [36]. The weak market test is passed when the manager or group responsible for the project in the case company is willing to implement the developed construction [37]. A weak market test for the developed set of indicators has been conducted by Hakulinen [38].
Similarly, a weak market test has been conducted during this thesis to find out which KPIs might work better in practice when implemented. The weak market test here only validates and checks the relevance of the solution but does not implement the solution.
The questionnaire that was sent to the case companies included the list of screened circular key performance indicators from the literature study. A scale of 1 to 5 was used to collect the responses to the questionnaire with 1 being the most irrelevant KPI (out of scope and not related to the company’s goals) and 5 being the most relevant (useful and can be implemented).
From the responses obtained from the focus group, the responses shows that most of the KPIs are relevant for the case companies. Among these KPIs, a set of indicators for all the four categories (environmental, economic, technical, and social) were determined based the responses received from the survey. The final set of indicators are listed in Table 6 and Table 8. The entire survey results along with the open responses are presented in Appendix C.
Whitegoods company
Job title of respondents: Innovation leader, Business development manager, Head of Sales
Most of the respondents had more than 5 years of experience related to circular economy, sustainability, or supply chain management.
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Total number of responses: 4
Table 5. Weak market test responses- Whitegoods company
Name of KPI Responses (Scale level: Frequency of responses) Logistics performance (Freight transport) 5: 1
4: 3 3: 0
Emissions from transport (Forward and reverse logistics)
5: 3 4: 1 3: 0
Old scrap collection rate 5: 3 4: 1 3: 0
Cost of transportation in reverse supply chain 5: 2 4: 1 3: 1
Revenue from refurbished products 5: 2 4: 2 3: 0
Revenue from upgrade, repair and maintenance services of products
5: 3 4: 1 3: 0
Take back cost 5: 1 4: 2 3: 1
On time delivery to customer 5: 3 4: 0 3: 1
Maintainable period after sales 5: 4 4: 0 3: 0
Mean time between failures 5: 3 4: 1 3: 0
Mean time to repair 5: 4 4: 0 3: 0
Repairability index 5: 4 4: 0 3: 0
Total customer complaints 5: 3 4: 1 3: 0
Purchase of locally produced and offered goods and services
5: 0 4: 2 3: 2
Total number of hours of capacity and skill development training per employee
5: 0 4: 1 3: 3
Job creation per unit of product 5: 0 4: 1 3: 3
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Table 6. Final list of KPIs for Whitegoods company
Category Name of KPI
Environmental Logistics performance Emissions from transport (Forward and reverse logistics)
Economic Revenue from refurbished products Revenue from upgrade, repair, and maintenance services of products
Technical Maintainable period after sales Mean time to repair Repairability index
Social Total customer complaints
Automotive company
Job title of respondents: Quality Manager, Product manager, Circular economy manager
Most of the respondents had more than 10 years of experience related to circular economy, sustainability, or supply chain management.
Total number of responses: 8
Table 7. Weak market test responses- Automotive company
Name of KPI Responses (Scale level: Frequency of responses)
Emissions from transport (Forward and reverse logistics)
5: 1 4: 4 3: 1
Annual greenhouse gas emissions 5: 2 4: 4 3: 1
Core disposal rate 5: 2 4: 2 3: 1
Energy consumption for disassembly 5: 0 4: 2 3: 1
Cost of transportation in reverse supply chain 5: 1 4: 2 3: 3
Revenue from remanufactured products 5: 2 4: 3 3: 1
Component salvage rate (Cores) 5: 2 4: 4 3: 0
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Take back cost 5: 3 4: 1 3: 2
Core/ product ratio (CPR) 5: 3 4: 0 3: 3
On time delivery to customer 5: 3 4: 2 3: 1
Total customer complaints 5: 3 4: 2 3: 1
Purchase of locally produced and offered goods and services
5: 0 4: 0 3: 2
Total number of hours of capacity and skill development training per employee
5: 0 4: 1 3: 3
Job creation per unit of product 5: 1 4: 2 3: 3
Table 8. Final list of KPIs for Automotive company
Category Name of KPI
Environmental Emissions from transport (Forward and reverse logistics) Annual greenhouse gas emissions
Economic Revenue from remanufactured products Component salvage rate (Cores) Take back cost
Technical On time delivery Social Total customer complaints
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Chapter 6 - Conclusion
Circular economy indicators are becoming increasingly popular in many public and private organizations. Developing and implementing circular key performance indicators in an organization will assist in the transition towards the circular economy. With rapid changes in customer requirement in a product/service, it is crucial that companies change how they operate and measure their progress more efficiently. Circular key performance indicators can be used as a tool to progressively measure the progress which can lead to a better understanding of the organization’s performance.
6.1 Research questions
RQ1: What are the circular key performance indicators that influence the technical, socio-economic, and environmental performance of circular business models and supply chains?
The research findings indicate that measuring performance of a business model and its supply chain varies based on the industry sectors. But for OEM industry, it generally depends on factors such as emissions from transport, revenue generated by the business model, and customer complaints. This thesis answers this question based on inputs from target groups in the OEM business. Relevant circular indicators were identified based on data gathered from academic and non-academic literature, case company interviews and survey sent to the case companies. The interview data along with the weak market test highlighted the most relevant circular key performance indicators that can be used in the case companies.
RQ2: How do we efficiently measure these circular key performance indicators?
The research findings indicate that methodologies which currently exist can be used to measure the identified circular KPIs. The supply chain in an OEM company typically involves numerous entities with different operations and flow of information. The first key to efficiently measuring the performance is to ensure that all main entities including the top management are aware of the reasons for which these circular KPIs are measured. Secondly, efficiency depends on the ability of the organization to share sensitive information with other partner companies. Finally, the identified methodology for each of the KPIs can be initially implemented to measure the performance of the company and after the first review, more parameters that the company considers missing can be included.
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6.2 Limitations
Circular key performance indicators that were identified in this study were based on data gathered from limited respondents from the case companies. Also due to COVID-19 and complex nature of OEM companies, it was only possible to gather limited data in this study. Since only limited information of the technical operations were provided by the case companies, the technical KPIs might need be modified before implementing them. Thus, further research is needed to study the indicators in detail and develop them further (especially technical KPIs). Finally, several data sources and methodologies of measuring KPIs are not disclosed to public as companies are reluctant to share sensitive information even among their corporate partner companies.
6.3 Suggestion for future work
Although, these identified KPIs are relevant to the case companies, there is always a need to prioritize these indicators based on separate weights that can be set by the companies. Separate weightage can be assigned to the KPIs and more parameters of each KPI can be reviewed. More teams from the case companies from other departments can be involved in the study to finalize and provide feedbacks for the identified KPIs. A systematic management system to implement the identified KPIs could be set up at the case companies to ensure the effectiveness of measuring them. For a company to progress towards their targets, it is important that KPIs are evaluated regularly, and individuals accountable for them should be assigned to achieve the required target levels.
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Appendices
Appendix A: Interview guide of case companies
1) How familiar are you with the concepts of circular economy?
2) How do you think your company’s business model contributes to the transition towards a circular economy?
3) Are there any existing KPIs in your company?
- Is it possible for you to provide us the list along with how they are measured?
- When were these indicators introduced within the company?
- Who decides these metrics?
- Whom do you report these KPIs to?
4) What is the level of knowledge that the management has on circular KPIs?
5) What do you think are some metrics that the company wants to measure, but can’t measure them currently?
6) What do you think are some areas for which more indicators need to be developed?
- Is there any preference on which areas should be focused more? [To prioritize KPIs]
7) What kind of challenges do you have in terms of measuring the circular economy performance of your company?
8) Do you measure customer satisfaction, annual product returns and complaints? Do you keep track of them?
9) Do you keep track of environmental KPIs? If yes, how do you measure them? If no, what do you think should be measured?
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10) How do you plan to calculate ‘Net energy savings generated over 2 reuse cycles (both production and use phase)’? Do you have any methodology that might help measuring it?
11) How do you plan to calculate cost savings of transportation and additional revenues through reverse logistics? Do you have any methodology that might help measuring it?
Appendix B: Calculation sheet for KPIs
• Repairability Index: The Excel-based calculation sheet along with the instruction manual can be found here. https://www.ecologie.gouv.fr/indice-reparabilite
• Annual Greenhouse gas Emissions: The Excel-based calculation sheet along with the instruction manual can be found here. https://ghgprotocol.org/ghg-emissions-calculation-tool
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Appendix C: Weak Market Test responses
Whitegoods company:
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44
45
46
47
Automotive company:
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49
50
51
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TRITA -ITM-EX 2021:557
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