Let’s explore the principles of circularity with some practical examples almost everyone may recognize from the time of their grandparents. These examples reveal the basic principles of circularity can be structured in 4 categories: Reduce, Reuse, Renew and Recycle.
Meat, fish, and any kind of plant-based food would have been 100% used in the past. Throughout history, food has been a scarce resource, so nothing was discarded. Excess waste is a relatively new phenomenon which came about in the western world with excessive industrial food production. The negative effects of this are increasingly being addressed by many stakeholders in the agricultural, food and retail sector.
Packaging has been reused almost everywhere in the past. Think of the “milkman” system with refillable glass bottles. Reusable systems have been replaced by single-use packaging in modern retail. But there is increasing awareness that one-way solutions are not sustainable, even if the material is recycled.
Mechanical tools and other assets were maintained and repaired over and over to extend the assets’ lifetime. The preference for refurbishing - instead of dumping and replacing - was logical, as long the refurbishment costs did not exceed the investment in a new one. The replacement option has become cheaper due to manufacturing cost degression. But this has only been possible because the environmental costs for terminating an existing asset and manufacturing a new one have not been included in the pricing. Ignoring the environmental and social cost will not be viable in the future.
Scrap metal is another example. It’s always been collected and re-used due to its near to perfect recyclability. This material loop has never been abolished, simply because it’s always been economically attractive. But there’s potential to improve. The financial viability of a circular business is a key factor for success. However, this financial assessment should incorporate environmental costs, as we explained in the previous example.
Despite falling out of use in the past decades, the examples illustrate how materials and resources can be used effectively following common sense. The principles behind them are as relevant as ever. With modern circular thinking, they can be re-invented and adjusted to fit today's society and economy.
Compared with these good, old best practices, today's circular business models are more complex. They also integrate business processes with sophisticated digital tools. In a nutshell, circularity is about turning value chains into value loops by systematically applying these circular principles with the help of technology.
In modern terms:
Circular businesses are often based on several of these four major concepts. Besides these building blocks, there are some essential considerations that position a circular business for success. The backbone of any circular business is a supply chain that operates in a loop, often referred to as a circular supply chain or value chain.
While linear supply chains integrate all transformational and logistical steps from the source of the materials or ingredients to the final product and its distribution to customers, circular supply chains extend the scope across the entire product lifetime. In other words, circular supply chains include the end-of-life activities or the activities that lead to a product's “second-life.”
Classical supply chain instruments are therefore not fully adequate to manage circular value chains. The value chain term - or value loop - is used deliberately here. Circular businesses include many specific processes, such as product monitoring, reconditioning, maintenance and repair, and reverse logistics. They also consider different ways to make products accessible, such as renting, sharing or pooling services.
While there is a vast range of circular business models with many specific characteristics, there is one overarching enabling function which is crucial to run such businesses successfully. That is, visibility and transparency along the supply chain.
Data needs to be captured along the entire value loop. It should make the supply chain traceable and the product application visible. Collecting data on product usage, its condition and any maintenance performed along the product’s lifecycle is key. Furthermore, information about activities at the end of the lifecycle is essential to determine if the product can be sold “good-as-new”, or whether it can only be used for recycling - to name just two of many options.
Analytics is crucial to derive insights about how a circular business performs. This is part of an overall performance management architecture, with planning tools for strategic decision-making and for tactical and operational purposes.
Synchronizing the processes within a circular business is a key success factor for operational excellence. But this is a data-intensive and demanding challenge. We will focus on the data and planning aspects in the forthcoming articles of this series. Let’s turn to some examples of circularity in today’s business sectors.
The quest to become circular is relevant for both consumer-focused and business-to-business sectors.
In consumer-focused sectors, circularity has rapidly taken the stage and is evolving fast:
While business to business markets may be less known for adopting circularity, there are numerous examples where circular models have been implemented. The potential to increase circularity in B2B is tremendous; new breeds of circular service providers will undergo rapid growth, as they will play an important role in the economy’s transformation towards circularity.
Before we delve into specific industries, we will publish another article that explores the benefits of circularity in more detail. We will discuss how a circular business can generate long-lasting customer relations, how it can generate profitable growth, and how it helps you meet emission reduction targets and get you closer to net-zero.
The following articles will provide best practices to apply circularity. We will discuss the challenges and opportunities and address data-driven aspects such as performance analysis, forecasting and planning. Also, we will provide valuable insights into how analytics and planning tools can help drive the transformation to a circular economy.
We are interested in any feedback you may have and hope you enjoy the next write-ups in this series!
For more than two decades, Sven has been dedicated to make sure that sustainability is well represented in developing and managing companies. He has gained expertise in all aspects of Circularity from managing circular companies and from supporting circular businesses as a consultant with ORTEC. Located in Düsseldorf, Germany, Sven brings in his experience as a former COO of a leading circular service provider with European footprint and many years as a Managing Director at DHL Supply Chain. He combines his business background, also from the waste and recycling industry, with his passion to improve planning processes and in data driven decision making. Sven is always eager to broaden his capabilities and to apply them for companies which experience challenges in their Circular supply chains.
Starting Episode About Circular Economy and Circularity
Part 1
The term circular economy may seem relatively new, but it’s based on ancient principles that will shape the way we do business in the future. Circularity will become instrumental to achieve profitable growth while protecting the environment. It can reach its full potential when applied systematically, using current technologies and innovations that are still in development. This article is the first in a series that will explore the digital and physical aspects of circularity from different perspectives.
By Sven Seidler, Director Consulting, ORTEC Data Science & Consulting
The next episodes about circular economy and circularity will be published in this section. Episode 2 will be about Integrating environmental, financial and marketing aspirations with circular business models and was just published.