The Circular Economy: An Essay on Hope in the Supply Chain
Stick your head in a garbage can!
You’ll see your contribution to the global waste problem. Directly, as an individual you can act to reduce waste; collectively we can and will do more.
What happened to us? Our current economic model is one where we assumed infinite resources to extract, harvest, and reap benefits for shareholders. This model worked well until we observed the signs of abuse. Emissions exceeding the ability of the biosphere to absorb the toxins; the degradation of water supplies due to contamination from confined animal feed operations; landfill sites being filled with discarded fast moving consumer goods which are no longer fashionable or technically advantageous. A sense of consumptive entitlement.
What might save us? More responsible use of resources and improved product design being championed and introduced through the circular economy principles. The impetus for the circular economy movement is credited to Ellen MacArthur and her vision for a sustainable world. It’s early days but the circular economy is giving us the sense of hope that there are better ways to deliver value and affect social and economic development.
The principles of the circular economy are:
- Preserve and enhance natural capital
- Optimize resource yields
- Design out negative externalities
How might these principles affect your supply chain? The circular economy has the ability to turn the supply chain pyramid on its head. How would this affect sourcing if no new raw materials could be used to sustain production? What actions might be taken to ensure supplies would not be interrupted in the absence of conventional materials? What changes in the market would need to take place to ensure material availability could be met? How could a company remain competitive within a circular economy model? After all, to the latter question, we need economic benefits to avoid bankruptcies and support social programs.
What should we do? The implications for buyers and sellers is to take stock of their supply chains in the market. Companies could start having the dialogue today on sustainable strategies in order to stay alive tomorrow. The supplier you need in 5-years may not exist today given the transformative properties of the circular economy. Conversely, companies dependent on infinite resource access and continuous consumption may not adapt to the new world we are entering. There will be losers and winners.
Even if the circular economy does not unfold exactly as predicted, reducing waste, becoming more efficient with resources and conserving energy adds to the bottom line. Doing nothing is not an option.
The failure of recycling to solve the waste problem. The basic premise behind recycling was that manufacturers would continue to produce goods and society would bear any disposal related costs. Lower cost goods increased demand until it is no longer economically viable to recycle the mountains of waste.
Goods, especially in the fastmoving consumer goods sector, were developed with increasing volumes of synthetic compounds such as plastics which made it more difficult to recycle. In spite of the Society of Plastics Industry symbols for the various types of resins included in products and containers, many recyclers will not necessarily accept these products; or the products may not be recyclable within a specific community.
Case study. Rather than reduce waste — a better idea is to eliminate the concept of waste at the design stage. A great example can be found with the 120-year old European lighting company Philips. While Philips has long embraced recycling and refurbishing of its products, it has recently taken these strategies to the next level. They won’t sell you lights!
For a hundred years, their revenue was based on selling lighting products. How can they have an economically sustainable business without selling lighting?
In 2009, Philips took up the challenge from one customer who said that they only wanted to pay for the light they used but not all of the requisite infrastructure wiring, receptacles and controls. This resulted in Philips and its design partners, developing a bespoke, fully functional LED lighting system which is provided on a pay-per-use model to the customer. The customer does pay for maintenance and servicing as required. This system delivers a 55% energy saving. All the lighting components and equipment remain as Philips’ assets and can be brought back to a Philips production facility for material recovery and repurposed. From its initial foray into this service, Philips is now the supplier of Amsterdam’s Schiphol airport’s lighting service.
The Philips’ example could easily be characterized as a form of leasing. Leasing, however, is essentially a financial incentive strategy. You could lease a Hummer. The Philips’ model provides a mutual incentive to eliminate e-waste, conserve energy and resources, and reduce costs by the parties to an agreement. Municipalities and commercial businesses reduce their capital investment with bespoke systems where technical upgrades are inherently frequent.
Philips’ model is also a scalable solution. Other sectors are adopting similar strategies with their products to reduce waste and conserve energy and resources in a pay-per-use model. Hospitals can engage in pay-per-use programs on MRI services through Philips. Michelin is developing similar conservation-strategies for its tire business. Cisco is offering IT services on a pay-per-use program. Caterpillar’s take-back program conserves 70,000 tons of material per year with a target of 20% more in their remanufacturing and rebuilding program by 2020. Renault redesigns components to be used again in newer vehicles. This strategy has reduced their energy consumption by 80% per unit.
As early adopters are successful with a disruptive business model which reduces energy, conserves resources and saves operating and capital costs, more will follow. As customers and consumers gain a greater affinity for responsible products and services, it is likely this innovative strategy will become the new norm. Imagine your world without a garbage can. The circular economy is hope with a plan.
-Larry Berglund
