Take. Make. Dispose.
For more than 150 years, businesses have subscribed to this linear economic model of production. Companies take raw materials, make their products, and dispose of their waste.
But today, businesses are opting for more sustainable approaches. They’re searching for ways to reuse waste and remanufacture goods. They’re exploring methods to extend service life and repair products. They’re embracing the circular economy.
On a recent episode of Game-Changing Conversations, guests revealed that the circular economy doesn’t only provide businesses with a more sustainable approach to production, it offers an opportunity to increase profitability.
An origin story: The conception of the circular economy
During the broadcast, panelist Christopher Koch, director of thought leadership for the SAP Center for Business Insight, explained how the circular economy came to be.
It was 1972. An oil refinery in Denmark discovered it had an excess of natural gas. A company’s executive brought this up to the leader of a nearby plasterboard manufacturer, and the pair quickly realized it would benefit both organizations to share the surplus.
The oil refinery would no longer have to pay to dispose of its excess waste, while the plasterboard manufacturer would eliminate the costly expense of importing gas from some far-off location.
The arrangement wasn’t made with an eye toward protecting the environment – even though it did. It simply made financial sense for both companies.
Today, the two businesses are saving nearly $100 million per year. And together, they’re greatly reducing waste and significantly lowering emissions.
Seize the moment: Create one if it doesn’t exist
Legendary actor and comedian Milton Berle once said, “If opportunity doesn’t knock, build a door.”
Christopher Koch believes executives who have yet to embrace the circular economy should take these words to heart. He thinks the traditional linear economy has run its course and far too many supply chain organizations are missing out on opportunities created by the circular economy – particularly, growth and profitability.
Citing a 2015 Nielsen global sustainability report, Koch said that consumer brands with a demonstrated commitment to sustainability grew 3% more in one year than their non-sustainable competitors.
Guest Will Ritzrau, SAP’s director of sustainability, mentioned that a 2016 Conference Board report stated that Philips Lighting’s energy-efficient LED bulbs account for as much as 50% of the company’s annual revenue.
Why are organizations that prioritize sustainability surpassing their peers and growing at record rates? Because consumers believe in the cause.
Buyers are eager to do business with companies that share their values. Research has even shown that customers are willing to pay more money for sustainable products.
Alter life as you know it: Rethink the traditional supply chain
Robin Williams, playing the role of high-school English teacher John Keating, uttered his fair share of inspiring lines in the film “Dead Poets Society.” One of his most memorable quotes came when he told his students:
“No matter what people tell you, words and ideas can change the world.”
According to Will Ritzrau, the circular economy is one such idea.
Most supply chain businesses work with finite raw materials. At some point, these resources will cease to exist. Ecotricity estimates that fossil fuels could be depleted as early as 2088.
So it’s crucial that companies begin taking steps to deal with this reality – and the sooner the better.
One solution is to create new business models based on circular economy concepts. If your organization can develop a more sustainable approach that emphasizes reusing materials, repairing goods, and remanufacturing products, you can start reducing your dependence on nonrenewable resources.
Will Ritzrau pointed to Airbnb as a great example of a company that was able to create a brand-new business model that’s both sustainable and economically viable.
Rather than constructing new buildings where out-of-town guests can stay, Airbnb connects homeowners who have extra space with travelers looking for accommodations. So the company – and its users – have found a way to reuse and monetize existing resources.
It’s an idea that’s changed the world – and made life better for businesses and consumers alike.
The final word
Christopher Koch and Will Ritzrau agree that the circular economy is a radical and unproven concept. But it’s one well worth pursuing for supply chain companies. The potential to create additional business value is just too hard to ignore.
So, how can your organization adopt a circular economy approach and start turning sustainability into profitability?
The show’s panelists say the first step is to develop greater trust with your business partners. And they recommend emerging technologies, like blockchain and the Internet of Things, to help build a stronger foundation of trust, enabling you to increase supply chain transparency and confidently collaborate with other companies.
Together, you can run your businesses more efficiently, more responsibly, and more profitably.
Game-Changing Conversations, presented by SAP, is an online radio series focused on co-innovation, purpose, partnership, and collaboration. To learn more, listen to the episode.