In our previous blog the case for discarding the linear economy was made. The depletion of the earth’s natural resources due to increasing demands is becoming untenable and puts business operations and society at risk. Over the last few years the concept of the Circular Economy has gained traction as a way to reduce the resource intensity of the economy. This is not only great for the environment, it also makes perfect business sense.
In this blog we will highlight what businesses need to focus on in order to capture the Circular Economy advantage. Business model innovation is key to success; businesses need to rethink their strategy, operations and support systems, which (broadly) comes down to:
In the circular economy the materials used in products are not seen as inputs but as assets. Businesses need to step away from unsustainable ‘take-make-waste’ models and think about how to maximize the value of products over the full length of multiple lifecycles and users. The first place to start is in the design process, designing products with multiple lifecycles in mind. Capturing this value requires new commercial models that are linked to product innovation, such as modular design.
- Google Project Ara is reinventing the smartphone by breaking it down into replaceable modules. As a result, the phone is customizable to individual needs while at the same time reduce the need to buy a new phone as only the broken or obsolete modules can be replaced.
While the focus in manufacturing traditionally has been on incremental efficiency, it is about zero waste and optimizing the entire lifecycle of materials in the Circular Economy. An important aspect in production is therefore the sourcing and procurement of circular resource inputs. This includes switching to fully renewable or biodegradable resource inputs and recycling waste streams. Rethinking production can result in less exposure to supply risk and less costs for waste treatment and less production costs if recycled materials are not “reset” to their most basic stage.
- In Kalundborg Symbiosis, public and private enterprises buy and sell waste products from industrial production in a closed cycle establishing a circular economy. The residual products including dust, gases, and other waste product can physically be transported from one enterprise to another. Through this network industrial symbiosis is developed, an ecosystem of local suppliers.
Where traditionally a narrow buyer-seller relation persisted; today’s businesses are in continuous contact with their clients. Businesses need to move from a one-time sale transaction to managing assets in the market and focus on commercializing under-utilized capacity and maximizing consumer experience. Closer and more dynamic interaction with clients provides multiple opportunities to improve service or accelerate product development through feedback loops and generate new revenues through add-on sales and customer retention.
- Car2Go taps into the demand of young people who can’t afford or don’t want to own a car but are very keen in using one. By offering a fleet of cars that can be located and booked using a smartphone, they do not sell cars, but sell mobility and maximizes revenues by commercializing idle capacity (an average car sits idle for 23hrs a day).
In the Circular Economy waste is limited since it is considered as a valuable resource that can be used as input in other value chains. Businesses need to look beyond their own strategy and industry and identify new cross-industry value chains where waste is turned into a valuable and profitable asset. In today’s waste market, electronic waste is growing rapidly. It is estimated that by 2020 the global market value of e-waste will be around $21 billion providing a unique opportunity to explore the re-introduction of waste into supply chains.
- Umicore has developed an advanced recycle technology that is capable of recovering nearly all the value that is captured in electronic waste. This enables other businesses to use recycled metals and minerals as input for new production processes and reduce the demand for virgin resources.
Capturing the advantages of The Circular Economy requires a fundamental shift away from linear models to circular business models. As result businesses lower resource price and supply risks, reduce environmental pressure and most importantly generate large economic benefits. To illustrate, Renault’s remanufactured parts require for instance 80% less energy, 92% less chemical products and generate 70% less waste during production compared to new parts. Moreover, Renault realized that their remanufacturing factory is actually their most profitable factory in the world. Think of the impact when adoption of the Circular Economy is accelerated!
While the Circular Economy is currently growing at a pace of 13-25% globally powerful barriers still prohibit full acceleration. Luckily technological advancement is paving the way for large scale adoption and has proven to be key enablers in specific cases. Next time on the Circular Economy blog: the role of technology and how it has enabled several Circular Economy businesses!
This blog is written in cooperation with Justin Paarlberg, Consultant at Sustainability Services – Accenture Netherlands