Can the Circular Economy work for your business?
At the World Economic Forum in Davos in 2014 a different industrial model was on the agenda: the circular economy. It’s a concept the average person may not be familiar with yet, but the idea has gained dynamic traction in business, political and environmental circles. It is becoming the focus of an initiative supported by leading companies to encourage business to embrace its principles.
Currently, the dominant business model for most industries is a Linear economy model of "Take, Make, Dispose" processes. In this current system, organisations extract resources from our planet at an ever-increasing pace, and turn them into a product that we consume unconsciously and mostly dispose after use. This linear Industrial process often involves digging up resources to manufacture products and infrastructure, then discarding to landfill or recycling when we are finished with those materials. The businesses and lifestyles that rely on this process tend to deplete finite reserves to create products that end up in landfills or incinerators. In the consumer goods sector worldwide only about 20% of total material value is recovered while 80% goes to waste. We are anti-consciously throwing away valuable resources in this “linear” model. This approach is indeed unsustainable.
So what is the circular economy and why should individual and businesses care about it?
A circular economy is one that is waste-free and resilient by design. It addresses the unnecessary resource losses. While many may assume it is about reuse or recycling, the concept involves much more than that. The circular economy goes beyond recycling as it is based around a restorative industrial system geared towards designing out waste. It aims to eradicate waste—not just from manufacturing processes, as lean management aspires to do, but systematically, throughout the life cycles and uses of products and their components. The more effective use of materials will enable businesses to create more value, both by cost savings and by developing new markets or growing existing ones.
Analysis by McKinsey estimates shifting towards circularity could add $1 trillion to the global economy by 2025 and create 100,000 new jobs within the next five years.
Here are the top five circular economy strategies for businesses to eradicate waste -
1. Strive to eliminate the concept of waste entirely by making smart sourcing a number one priority and ensuring any materials not used up in the manufacturing process are reused.
2. Sell by-products and off-spec items from the manufacturing process to another company or other industry sectors for use in that company’s production of goods. (e.g. P&G Pampers plant in the U.S. sells scrap generated during the production of baby wipes into the furniture industry for use as upholstery filling)
3. Repurpose and recover the 'used' product and reprocess fibers into raw material and put back into production of new products of similar value and utility (e.g. Patagonia takes back the used items when people no longer need their Patagonia gear, and makes it into new gear)
4. Implement waste free packaging for the product. Product packaging should be designed for recovery, and then reused, repurposed or recycled, in that order of priority.
5. Refurbish rather than replacing equipment is another important part of a circular economy. By extending the useful life of existing equipment rather than buying new, businesses can reduce procurement costs and waste.