The great reinvention: A business case for the circular economy

AJ Gonzalez | December 10, 2020

IT Web, Johannesburg, 09 Dec 2020

Future trends impacting the global manufacturing industry, by Colin Elkins, IFS VP, Manufacturing.

With a raging pandemic, disrupted supply chains, climate change, political instabilities, and a growing scarcity of raw materials, 2021 will no doubt present a number of serious challenges to the global manufacturing industry. Paradoxically, however, I believe the trials and tribulations of 2020 have given many organisations a moment of clarity, much like the people in India who were able to see the Himalayas for the first time in decades, thanks to reduced pollution.

Having kept my fingers on the pulse of the industry throughout 2020, I see a renewed resolve among manufacturers to focus on sustainability and join the circular economy. Many manufacturers are starting to rethink how they design and produce their products with as little waste as possible, how they ship them and, crucially, how they approach the rapidly growing after-market repair and recycling market.

Besides the obvious benefit of reducing their strain on the environment, there are some major business benefits for manufacturing companies taking a circular approach: Improved efficiency, greater public appeal, more attractive to shareholders and investors, better employee retention, and reduced risk of losing market share to fast-moving challengers.

I have isolated three main topics that I believe will have a profound impact on the manufacturing space in 2021 and beyond. This is what I foresee for the sector:

Processes and factories transform as manufacturers close the loop

The circular economy is putting pressure on companies to re-examine their business processes, not only to improve quality and profitability, but because an efficient supply chain consumes less energy, uses fewer resources, and produces less waste. In short, gearing production towards sustainability is just good business for manufacturers.

One example is DyeCoo, a Dutch textile company that has developed a water-free process for dyeing. Using highly pressurised, recyclable carbon dioxide instead of water, the company can produce its product in half the time, using a fraction of the energy of traditional methods, without straining water resources.

Beyond processes, an increasing number of environmentally aware manufacturers are looking at their plants and fixed assets to find ways of creating closed-loop operations. By upgrading or tuning plants and equipment, companies can optimise their use of fossil fuel, eliminate waste and reduce pollution. One great example of how forward-thinking companies are putting sustainability into practice is Macphie of Glenbervie. With two wind turbines and a biomass facility on-site, 50% of the company’s energy comes from renewable sources.

I believe that in 2021, we will see a major acceleration among manufacturing companies to find new or reinvent existing processes that will help them adapt their business to the circular economy. This transformation will create ripple effects well beyond the manufacturing sector: consumers and the environment stand to benefit from more efficiently produced goods, while enterprise technology vendors will have to rise to the challenge of creating business software that can handle a circular business model.

Designing and developing circular products

The drive toward circular plants and processes is only half of the battle. Manufacturing companies will also need to re-engineer, and, in some cases, re-imagine their products. What I am referring to here is not merely the process of servitisation, ie, selling product outcomes rather than the product itself, but the transformation of linear products into circular ones. Let me explain.

Manufacturers are realising that adopting a servitised business model means they must build products that will last. In the old, linear economy, manufacturers would plan obsolescence into their products to capitalise on a lucrative spare parts and after-service market. Today, manufacturers are moving wholesale to a circular economy, which means building for longevity is the only sustainable business plan.

For example, if you are a lighting fixture manufacturer selling light as a service to an international airport, you will naturally want to build as long-lasting lightbulbs as possible to maximise ‘uptime’ and revenue.

Another key trait of circular products, which receive increasing focus in 2021 and beyond, is repairability. It is no longer feasible for electronics manufacturers, for example, to force customers to discard fully functioning products simply because one component needs to be upgraded. Manufacturers are already starting to take serviceability into account in the design phase.

One example of this accelerating trend is Dell and its Latitude laptop computers, which have been designed with recycling in mind. Using things like removable batteries, standardised fasteners, and by eliminating mercury and adhesives, Dell is able to produce laptops that are more than 97% recyclable.

For manufacturers, the business case for designing and manufacturing for recycling is a solid one: If a company can reclaim old products and easily recycle some or all raw materials, they will be able to massively reduce its costs.

I believe that 2021 will be the year when the three over-arching trends in product development discussed above – designing for repair, recycling and longevity – will decisively come to the fore as primary factors for decision-making among manufacturers. Those companies that still consider these trends as mostly placative ‘window dressing’ will put themselves at risk of being spun out of the circular economy.

Remanufacturing fuels recycling and vice versa

The themes discussed so far all coincide in an area where I foresee explosive growth in the coming one to three years: remanufacturing.

As one of the linchpins of the circular economy, remanufacturing is attracting attention both from new, fast-moving entrants and well-established incumbents. In Europe alone, the remanufacturing industry generates a turnover of 30 billion euros, and it employs 190 000 people. Still, the ratio of remanufacturing to new manufacturing is only 1.9%, which indicates a huge potential for growth.

To capitalise on recycled and upcycled products, manufacturers need to establish a service-led organisation. After all, if companies want to transform a ‘pre-loved’ product into a new one, they will need to ensure traceability. This means accessing information on what the customer was sold in the first place, what components went into the original product, and, based on age and state, what are the product’s likely points of failure. Assuming that data has been captured and is readily available, remanufacturers are in an excellent position to strip the product and replace components with recycled, non-virgin materials.

As the driving force behind remanufacturing, recycling will play an increasingly vital part in the circular economy. The area of recycling is facing increasingly strict legislation in 2021 and beyond. In the food and beverage space, there is already a broad movement away from single-use plastics, with companies like Waitrose encouraging customers to bring their own containers to the store. Another example is Australian geosynthetic product manufacturer Geofabrics, which uses discarded plastic bottles to create geotextiles that stabilise terrain in road and railway construction, among other applications.

The biggest hurdles to industrial recycling are segregation of raw materials, collection, and a lack of system control to keep track of returned goods for processing and repair.

Encouragingly, however, the need to recycle is driving technological advances far beyond the time-honoured example of stripping circuit boards for copper and gold. In the UK, it is estimated that more than 50 million litres of decorative paints go to waste each year (let’s be honest, we all have a few cans gathering dust in the garage). While paint was generally considered a sunk cost, there are now companies specialised in de-inking the paint and feeding the raw materials back into the top of the value chain, closing the loop and easing the conscience of over-ambitious DIYers.

Circular economy and centrifugal force

I believe the pandemic of 2020 has driven a new sense of urgency in the manufacturing industry when it comes to sustainability and the circular economy. In 2021, I predict that this new awareness will lead to a never-before-seen acceleration of activities in the areas of process and plant efficiency, recycling and remanufacturing.

This is a movement that will pick up speed as we move deeper into the next normal. It is therefore difficult to predict what the manufacturing space will look like in five years. The only certainty is that the companies that can’t or won’t join the circular economy now will probably not occupy that space for much longer.

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