Case Study Before you start this assignment, please make sure you have read the assignment description, the Case company description, as well as the Circul
Case Study Before you start this assignment, please make sure you have read the assignment description, the Case company description, as well as the Circular Business Model Planning Tool.
In this first part of the assignment, you will be using an example built from work by the real-life case company Caterpillar, and analyze how a company’s business model may be shaped to enable greater circularity. For this, you will learn to apply the Circular Business Model Planning Tool introduced in Week 2. In the assignment you will focus on a few of the business model elements and start working with a version of the tool that is partially pre-filled. If you would like to see a full case mapped, you can go back to Lecture 3: “Business model Innovation” in which the tool is applied on the case of Fairphone.
As a first task, you will explore Caterpillar’s business model and fill in parts of the Circular Business Model Planning Tool. After studying the case description, you “fill in” the three blank spots in columns C and D of the tool (see the template attached). N.B. By “filling in” the cells we do not mean editing or writing in the template, but providing a description for each of the three blank cells, in a text box below.
As second task, you get to pick two examples of business model elements filled in the tool that you think help the company realize circularity. For each of them, briefly explain how you think they help realizing circularity.
By using this planning tool, you can gain an insight into how business value is created along a product’s life cycle, plan and analyze how circularity may be integrated into a business model, and recognize interdependencies of business model elements across various life cycle steps. The case company – Caterpillar
The case description for this assignment has been compiled from publicly available information on Caterpillar’s website during 2018. The key sources of information for creating the case study are provided in the reference list at the end of this page. Please however, note the following: first, all or any interpretations included in this assignment are those of the task authors at IIIEE, Lund University and are not intended to present views held by the case company; second, case information on the company site may have changed – even if this is the case, – please use the information provided in the case study description below; this is sufficient for completing the assignment. References are provided for those interested in reading beyond the assignment.
Caterpillar – Case Study
“Wherever possible, we keep resources in the Caterpillar value chain through a circular flow of materials, energy and water. Our focus on developing better systems optimizes our use of resources, maximizes the total life cycle value of our products and minimizes the cost of ownership for our customers. Viewing our equipment through a total life cycle lens allows us to make sustainable progress for communities, the environment and the economy.“
Caterpillar website, 2018
From the Caterpillar website, 2018
For first-life sale, Caterpillar offers machines and services to develop, amongst others, infrastructure and natural resource assets. As value proposition, the company strives to provide customers with quality equipment that provides the best economic proposition and lowest life cycle costs for their business, including maintenance services for increasing efficiency and lifetime of their machines. The company operates through its three main customer segments – Construction Industry, Resource Industry, and Energy and Transportation. Caterpillar offers regular maintenance check-ups at their local dealers and performance optimization through digital monitoring. Material acquisition, manufacturing, and establishing the sales channels are key activities, while key resources and capabilities are the companies’ manufacturing technology as well as the machine design for remanufacturing. Material costs make up the largest share of overall costs, followed by fixed costs such as labour. Revenue is generated through sale of machines and services.
To organize take-back and reintegrate machines in the value chain at the end of their first use cycle, Caterpillar offers customers return of products’ core parts. As
, customers receive a deposit in exchange for the core. Increasing core recovery rates is a challenge for any manufacturer engaging in remanufacturing activity, but offering an economic incentive to return the component helps keeping embodied value within the Caterpillar network. Caterpillar’s close relationship with customers helps identify core parts before they break to increase value of recovered parts.
to collect and reintegrate cores include reverse logistics and disassembly of the machines and their cores. Key resources and capabilities are the reverse logistic network and transport capabilities, as well as the global dealer network to facilitate take-back. Operating reverse logistics as well as paying the deposit are substantial costs and no revenue is generated at this stage. However, it allows Caterpillar to retain value in core parts and prepare them for additional sale.
Caterpillar enables additional sale of core parts through offering most of its machines in remanufactured or rebuild condition. A complete certified remanufactured and rebuild machine includes more than 350 tests and inspections, automatic replacement of approximately 7,000 parts. As
, remanufactured products come with a ‘like-new machine’ warranty, but with a price well below the price of a new one (typically, 25 per cent lower). Through offering remanufactured machines, Caterpillar can tap into the after-market of their products and expand to customer segments to whom the lower price is attractive. Main channelsare dealers that keep in close relationship with customers and inform about the possibility of remanufactured products and their benefits. Key resources and capabilities are those to operate key activities as quality checks and remanufacturing (e.g. robotic disassembly; washing). Key partners include partners developing testing and remanufacturing technologies. Costs include remanufacturing (technology and labour), but through additional sales of their product and the attached services, Caterpillar continues to generate revenues and makes the most out of the value embodied in used components.
Caterpillar website, 2018