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Spurring remanufacturing through public procurement – A case study in the Swedish automotive industry

Wasserbaur, Raphael and Milios, Leonidas LU (2019)
Abstract
There is a growing political consensus in the European Union (EU) to move away from the current resource intensive “linear” economic system, towards an innovative system aiming at closing material loops – the so-called circular economy. An array of new policy proposals targeting all stages of the life-cycle of a product are needed to facilitate the transition to a circular economy in Europe. While current waste management policies have shown some success in increasing the circulation of materials in the economy, a major challenge remaining is to preserve the functionality and economic value of products and components and not just recovering their materials at the end-of-life.
Remanufacturing is an industrial process through which used... (More)
There is a growing political consensus in the European Union (EU) to move away from the current resource intensive “linear” economic system, towards an innovative system aiming at closing material loops – the so-called circular economy. An array of new policy proposals targeting all stages of the life-cycle of a product are needed to facilitate the transition to a circular economy in Europe. While current waste management policies have shown some success in increasing the circulation of materials in the economy, a major challenge remaining is to preserve the functionality and economic value of products and components and not just recovering their materials at the end-of-life.
Remanufacturing is an industrial process through which used or end-of-life products gain a second useful life retaining the same quality, functionality and warranty as new products. Benefits of remanufacturing are the lower price for products, avoidance of raw material extraction for production and job creation, as remanufacturing is typically a labour intensive activity. In the literature, a wide variety of barriers to effective remanufacturing operations have been identified, e.g. uncertainties regarding availability and quality of cores, misperception of component quality, international trade barriers etc. – and recommendations have been drawn for policymakers, researchers and industry to overcome these barriers. One of the main barriers is associated with wider market formation, which implies the size of market and demand for remanufactured products and/or components.
One way to address this barrier is the creation of market channels that can establish a steady level of demand. This market can be induced by governmental interventions, especially through the policy instrument of public procurement. Public authorities hold immense economic power, spending on average 16% of GDP on public purchases in the EU. At the same time, governments can create market conditions that balance the interests of active market players such as customers, independent remanufacturers, and OEMs. Moreover, governmental entities bear the responsibility to procure products and services in a cost efficient manner, while also considering the integration of the Sustainable Development Goals in their strategic planning, including their purchasing decisions.
The aim of this work is to investigate under which conditions can public procurement requirements influence the scale-up of remanufacturing in the automotive industry in Sweden. Through system dynamics methodology, we model the various aspects of the auto-parts remanufacturing system in Sweden combined with public procurement requirements and expected diffusion in public purchasing. Although the literature points to the potential of public procurement to induce resource efficiency, there is no study to our knowledge that backs this claim with relevant quantitative data. This contribution aims to fill this gap in the literature and to provide tangible results to showcase the potential effect of this policy approach, both the policy effectiveness and the remanufacturing market diffusion.
The automotive industry is chosen for its long history of remanufacturing. On the one side, cars contain high value and durable components and on the other side the co-existence of first- and second-hand markets eases reuse of parts and raises willingness to pay for remanufactured parts. The scope is Sweden, a country considered one of the most progressive EU countries in terms of green public procurement, e.g. bio-based healthcare products or remanufactured ICT products.
The Federal Vehicle Repair Cost Savings Act of 2015 in the USA serves as a base for the model scenarios. This law requires federal agencies to encourage the use of remanufactured parts in federal vehicle repairs when this lowers costs, maintains quality and performance, and does not compromise safety. Accordingly, we account for a domestic procurement policy in which public organisations are obliged to purchase remanufactured spare parts for their car fleets. Such a scheme with a predictable market size and demand is assumed to incentivise the automotive industry into extending their remanufacturing operations. This study shall support policymakers in creating frameworks for a more resource efficient public procurement by helping them understanding the underlying system dynamics. (Less)
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author
organization
publishing date
type
Contribution to conference
publication status
published
subject
keywords
Circular Economy, Remanufacturing, Green public procurement
pages
9 pages
language
English
LU publication?
yes
id
aed1f29f-6b84-4c63-9225-5c182035de05
date added to LUP
2019-09-24 15:20:01
date last changed
2019-10-01 06:18:53
@misc{aed1f29f-6b84-4c63-9225-5c182035de05,
  abstract     = {There is a growing political consensus in the European Union (EU) to move away from the current resource intensive “linear” economic system, towards an innovative system aiming at closing material loops – the so-called circular economy. An array of new policy proposals targeting all stages of the life-cycle of a product are needed to facilitate the transition to a circular economy in Europe. While current waste management policies have shown some success in increasing the circulation of materials in the economy, a major challenge remaining is to preserve the functionality and economic value of products and components and not just recovering their materials at the end-of-life.<br/>Remanufacturing is an industrial process through which used or end-of-life products gain a second useful life retaining the same quality, functionality and warranty as new products. Benefits of remanufacturing are the lower price for products, avoidance of raw material extraction for production and job creation, as remanufacturing is typically a labour intensive activity. In the literature, a wide variety of barriers to effective remanufacturing operations have been identified, e.g. uncertainties regarding availability and quality of cores, misperception of component quality, international trade barriers etc. – and recommendations have been drawn for policymakers, researchers and industry to overcome these barriers. One of the main barriers is associated with wider market formation, which implies the size of market and demand for remanufactured products and/or components.<br/>One way to address this barrier is the creation of market channels that can establish a steady level of demand. This market can be induced by governmental interventions, especially through the policy instrument of public procurement. Public authorities hold immense economic power, spending on average 16% of GDP on public purchases in the EU. At the same time, governments can create market conditions that balance the interests of active market players such as customers, independent remanufacturers, and OEMs. Moreover, governmental entities bear the responsibility to procure products and services in a cost efficient manner, while also considering the integration of the Sustainable Development Goals in their strategic planning, including their purchasing decisions.<br/>The aim of this work is to investigate under which conditions can public procurement requirements influence the scale-up of remanufacturing in the automotive industry in Sweden. Through system dynamics methodology, we model the various aspects of the auto-parts remanufacturing system in Sweden combined with public procurement requirements and expected diffusion in public purchasing. Although the literature points to the potential of public procurement to induce resource efficiency, there is no study to our knowledge that backs this claim with relevant quantitative data. This contribution aims to fill this gap in the literature and to provide tangible results to showcase the potential effect of this policy approach, both the policy effectiveness and the remanufacturing market diffusion.<br/>The automotive industry is chosen for its long history of remanufacturing. On the one side, cars contain high value and durable components and on the other side the co-existence of first- and second-hand markets eases reuse of parts and raises willingness to pay for remanufactured parts. The scope is Sweden, a country considered one of the most progressive EU countries in terms of green public procurement, e.g. bio-based healthcare products or remanufactured ICT products.<br/>The Federal Vehicle Repair Cost Savings Act of 2015 in the USA serves as a base for the model scenarios. This law requires federal agencies to encourage the use of remanufactured parts in federal vehicle repairs when this lowers costs, maintains quality and performance, and does not compromise safety. Accordingly, we account for a domestic procurement policy in which public organisations are obliged to purchase remanufactured spare parts for their car fleets. Such a scheme with a predictable market size and demand is assumed to incentivise the automotive industry into extending their remanufacturing operations. This study shall support policymakers in creating frameworks for a more resource efficient public procurement by helping them understanding the underlying system dynamics.},
  author       = {Wasserbaur, Raphael and Milios, Leonidas},
  keyword      = {Circular Economy,Remanufacturing,Green public procurement},
  language     = {eng},
  month        = {06},
  pages        = {9},
  title        = {Spurring remanufacturing through public procurement – A case study in the Swedish automotive industry},
  year         = {2019},
}