Creating a "Supply Loop" : The Case of Leasing Washing Machines

The McKinsey and Company article “Manufacturing Resource Productivity” discusses possibilities for organizations to improve their supply chains even further and explore supply chain management opportunities that can generate value for the organization. One such possibility is that of retaining ownership of the products or materials that it sells so that they can later be re-integrated into the supply chain.

In a BBC article titled “Should we be owning our own washing machines?” the author discusses the idea of leasing washing machines rather than buying them – pointing out the benefits that could result from this sort of system. In the case of washing machines, the author points out the loss that occurs when the washing machine is recycled rather than re-used. When scrapped – 40 to 70% of the steel can be lost to a landfill. In the current state of resource scarcity, this kind of waste should be mitigated.

By leasing machines instead of selling them, manufacturers would be able to produce higher quality machines (according to the article, top end machines can wash five times the number of loads of laundry than a cheaper machine) and would also be incentivized to produce machines that have increased longevity so the company could avoid servicing costs. In addition, organizations could create a “supply loop” so that older washing machines could be re-used in some way: whether they be refurbished, taken apart and used for parts, or melted down. This will allow manufacturers to maintain control of resources that are increasingly scarce and therefore exhibit price fluctuations. By creating this supply loop, organizations are able to reap certain benefits after their product is no longer functional while also avoiding some of the negative effects of volatile supply prices.

Though the idea of leasing products rather than selling them has its benefits, consumers would have to be receptive to the idea for it to truly be effective. Especially in America where many consumers seem to prefer the idea of ownership – would consumers be responsive to a shift where manufacturers would lease their products instead of selling them?

Source:

Harrabin, R. (2013). Should we be owning our own washing machines? BBC News. Retrieved from http://www.bbc.co.uk/news/science-environment-21804935