What is a disadvantage of a 'close loop contract'?

A 'close loop contract' refers to an agreement that encompasses the entire lifecycle of a product, which includes usage, maintenance, and recycling or disposal. While these contracts can foster efficiency and sustainability, a notable disadvantage is the greater performance demand on logistics and maintenance.

In such arrangements, the provider not only delivers the product but also remains responsible for its ongoing performance, including repairs, maintenance, and eventually taking back the product at the end of its life. This extended responsibility can place significant pressure on logistics and maintenance operations, as they need to ensure high levels of service and manage a more complex supply chain.

Moreover, the need for constant communication and coordination can strain resources and require a more sophisticated logistical approach, leading to potential challenges in meeting performance standards. This level of demand can drive up operational costs and complexity for the organization managing the contract, making it a critical point of consideration for businesses looking to implement close loop contracts.