www.r2piproject.eu ROLLS-ROYCE A Circular Economy Business Model Case Aleyn Smith-Gillespie, Associate Director, Carbon Trust Ana Muñoz, Consultant, Carbon Trust Doug Morwood, CEO, Whole Earth Futures Tiphaine Aries, Analyst, Carbon Trust NOTE: These deliverables have not yet been finally approved by the European Commission and should be considered draft versions. If you would like to comment on them, please feel free to contact us at [email protected] 1 This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No. 730378 www.r2piproject.eu Contents Executive Summary ........................................................................................................................... 5 1 Introduction .............................................................................................................................. 7 1.1 Background and context..................................................................................................... 7 1.2 Business overview .............................................................................................................. 8 1.3 The case study analysis process .......................................................................................... 9 1.4 Report outline .................................................................................................................... 9 2 Rolls-Royce’s business context analysis .................................................................................... 11 2.1 Scope of the business context analysis ............................................................................. 11 2.2 Contextual factor analysis ................................................................................................ 11 2.2.1 Demographic trends ................................................................................................. 11 2.2.2 Rules and regulations ............................................................................................... 12 2.2.3 Economy and environment ....................................................................................... 13 2.2.4 Competition ............................................................................................................. 13 2.2.5 Technology trends .................................................................................................... 14 2.2.6 Customer needs ....................................................................................................... 14 3 Business model assessment ..................................................................................................... 15 3.1 Business model overview ............................................................................................. 15 3.2 Customer segments...................................................................................................... 16 3.2.1 Customer needs ....................................................................................................... 16 3.2.2 Optimising maintenance costs and time-on-wing ..................................................... 18 3.2.3 Maximising aircraft availability ................................................................................. 22 3.2.4 Maximising operational efficiency ............................................................................ 22 3.2.5 Managing asset value ............................................................................................... 23 3.2.6 Customer requirements over the engine lifecycle ..................................................... 24 3.3 Value proposition ......................................................................................................... 26 3.3.1 Historical perspective – before TotalCare ................................................................. 26 3.3.2 Origins of TotalCare .................................................................................................. 26 3.3.3 The engine product .................................................................................................. 28 3.3.4 The TotalCare value proposition ............................................................................... 30 3.3.5 TotalCare Term ......................................................................................................... 30 3.3.6 TotalCare Life ........................................................................................................... 31 3.3.7 TotalCare Flex ........................................................................................................... 31 3.3.8 Extending the range of services and support offered ................................................ 32 2 This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No. 730378 www.r2piproject.eu 3.3.9 Summary of value created by TotalCare ................................................................... 34 3.4 Channels ...................................................................................................................... 35 3.4.1 Direct customer sales ............................................................................................... 35 3.4.2 CareStore ................................................................................................................. 35 3.4.3 Airframe OEMs ......................................................................................................... 36 3.5 Customer relationships ................................................................................................ 36 3.6 Revenue streams .......................................................................................................... 37 3.6.1 Engine sales .............................................................................................................. 37 3.6.2 Service revenue: Power-by-the-hour ........................................................................ 38 3.7 Key resources ............................................................................................................... 38 3.7.1 Engine fleet .............................................................................................................. 38 3.7.2 Engine performance data ......................................................................................... 41 3.7.3 Global CareNetwork ................................................................................................. 42 3.7.4 Customer Service and Relationship Network ............................................................ 43 3.8 Key activities ................................................................................................................ 44 3.8.1 MRO services............................................................................................................ 44 3.8.2 Digital analytics and value-added service .................................................................. 44 3.8.3 Revert Programme ................................................................................................... 47 3.9 Key Partners ................................................................................................................. 48 3.9.1 MRO service partners ............................................................................................... 48 3.9.2 Digital partners ......................................................................................................... 49 3.9.3 Suppliers and Risk and Revenue Sharing Partners ..................................................... 49 3.10 Cost structure............................................................................................................... 50 3.10.1 MRO service delivery ................................................................................................ 50 3.10.2 Engine development and production costs ............................................................... 50 3.11 The Value Network ....................................................................................................... 52 3.12 Business model circularity assessment ............................................................................. 55 3.13 Financial outcomes assessment .................................................................................... 56 3.13.1 Commercial success.................................................................................................. 56 3.13.2 Commercial risks ...................................................................................................... 60 3.14 Non-financial outcomes assessment ............................................................................. 61 3.14.1 Material efficiency through extending lifetime and utility ......................................... 61 3.14.2 Material efficiency through better parts management and reuse ............................. 62 3.14.3 Material efficiency through recycling (Revert programme) ....................................... 62 3.14.4 Material efficiency through better repair processes .................................................. 63 3.14.5 Customer satisfaction and deepening relationships .................................................. 63 3 This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No. 730378 www.r2piproject.eu