Virtuous Circles: The Circular Economy Gets Rolling

Dan Wellers and Christopher Koch

They’ve already shown great potential for increasing profits while reducing production costs and improving our planet. Meanwhile, opportunities to create competitive advantage via traditional linear methods are running out of steam.

The circular economy doesn’t just make sense from an environmental perspective, it is likely the only logical way forward as a business strategy.

Circular economy techniques could create $4.5 trillion in value by 2030.
In a recent survey, 66% of consumers say they would be willing to pay more for products deemed sustainable.
Sales of consumer goods from brands with a demonstrated commitment to sustainability grew more than 4% globally in 2015, while those without grew less than 1%.
Of the $16 in precious metals in a typical cellphone, only $3 worth is recovered using current recycling methods.

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What’s Driving Circularity:

  • Waste. The traditional linear economy does not factor the high cost of waste into the equation. In the circular economy, waste is a valuable resource in a profitable business model.
  • Scarce Resources. Skyrocketing demand for consumer goods has turned finding and maintaining reliable sources for many raw materials into risky business. Price volatility for metals during the 2000s was higher than any decade of the 20th century.
  • Customer Preference. Customers prefer to buy from companies that visibly demonstrate sustainability, such as products that can be easily repaired or upgraded, instead of being tossed into a landfill.
  • Urbanization. Urbanization will give the circular economy a boost by creating new opportunities for companies to share resources, recovery and logistics as markets become more concentrated.

Circular from the Start

By factoring circular principles into product design, companies will net more profits from production, logistics, and the entire value chain. For example:

  • Modularity. By designing products in modular fashion, components can be easily replaced when they wear out or become obsolete.
  • Maintenance. Products are designed for easy maintenance, with parts that can be refurbished and reused rather than discarded.
  • Disassembly. By designing products to be easily disassembled, companies can recover the embedded materials for reuse or recycling, while eliminating waste.
  • Materials. Products are designed to use regenerative, easily accessible materials, not scarce ones or those sourced from countries with high geo-political risk.
  • Energy. The energy used to produce products comes from renewable sources or is reused from other companies.
  • Recovery. By designing products with many similar materials as possible, using biodegradables where possible, and using reverse logistics processes such as product trade-ins, companies can recover the materials that can be reused, remanufactured, or recycled.

Digital Technologies: Drawing the Circles Closer

  • 3D printing. It lets manufacturers build complex shapes that are impossible using traditional methods. That means fewer parts, less waste, and easier reuse.
  • Sensors and the Internet of Things. Live data streams about condition, location, and availability of components are the foundation for product life-extension and advanced recovery and recycling.
  • Machine learning. Instant adjustments to demand and logistics enable circular supply chains that save costs while reducing or eliminating waste.
  • Blockchain. Automating and simplifying complex exchanges of information are of great value in circular systems.
  • Robotics. Apple’s disassembly robot can rip apart and extract the usable materials from an iPhone in 11 seconds.

Download the executive brief Virtuous Circles: The Circular Economy Gets Rolling.

Read the full article Circular Economy: Reshaping the Industrial Ecosystem.

About Dan Wellers

Dan Wellers is the Digital Futures Global Lead and Senior Analyst at SAP Insights.

About Christopher Koch

Christopher Koch is the Editorial Director of the SAP Center for Business Insight. He is an experienced publishing professional, researcher, editor, and writer in business, technology, and B2B marketing.