Three Ways Organizations Can Prepare for the Circular Economy
This summer, Starbucks built on previous commitments to the circular economy by pledging to eliminate plastic straws from their stores by 2020, replacing them with a novel recyclable lid design.
The coffee house giant was just the latest in an increasingly long line of corporations such as Philips, H&M, Unilever, Renault, Nike, and Google that have abandoned the linear “take, make and dispose” industrial model in favor of a more sustainable approach.
Corporate leaders have been heading in this direction for many years. It’s not just about protecting the planet by reducing carbon emissions and the amount of trash ending up in landfills. We must also preserve resources to assure we can continue producing enough goods to meet rising demand. With the global population expected to swell to 8.6 billion by 2030, we simply cannot afford to continue exhausting finite resources.
This is precisely where a circular economy comes into play. With this model, companies design products fully intending that when they reach the end of their lifecycle, they will be recovered, recycled and returned to use in a closed, waste-eliminating loop.
Until recently, the idea of a circular economy was more of an aspiration than a defined goal for most companies. But many nations are beginning to embrace the concept, and some governments are compelling businesses to do the same. In Europe, for example, the European Union’s Circular Economy Package (CEP) now requires many companies operating in the EU to ensure their products can be recycled.
Beyond regulatory pressures, more companies are embracing the circular economy for business benefits, such as cost savings from reused materials as well as new business generated by delivering environmentally conscious products and services. For example, HP experienced a 38 percent jump in sales bids last year on deals where sustainability was required, and sustainable impact was a key factor behind at least $700 million of new revenue, according to HP’s latest Sustainable Impact Report. Enterprise customers showed a fair amount of interest in sustainable products, but HP found that Millennials and Generation Z buyers, in particular, consider it a key factor in their purchasing decisions.
The circular economy is clearly gaining momentum with Accenture predicting it could unlock $4.5 trillion in new economic potential by 2030. Here are four ways companies can prepare for this emergent trend:
1. Understand the “Why” Behind Your Decision
The starting point for any circular economy effort is to ask, “Why should we do it?”
While a worthwhile goal, re-tooling business operations to produce environmentally sensitive products takes time, money and commitment. Companies launching circular economy programs cannot go down that path lightly. In fact, about 80% of companies with circular strategies also have a clear business case underlying it, according to a World Business Council for Sustainable Development and BCG survey. In most cases, this relates to acquiring customers, strengthening existing relationships or operating in new markets.
Whatever the motivation, it is also vital to gain input on any potential plan from internal and external stakeholders. The last thing a company wants is to appear to be “green washing,” so it is important to know if sustainability programs under consideration would be viewed as meaningful or meaningless by customers and key stakeholders.
2. Consider New Business Models
The traditional linear model most businesses still use has always stressed the idea of ownership. Once a product is produced and sold, the manufacturer hands over responsibility for it. Then it is up to the owner to maintain, dispose of and ultimately replace it.
In the circular economy, however, ownership is no longer a key consideration. In fact, product service models begin to come to the forefront, enabling customers to use products through a lease or pay-for-use arrangement rather than the convention buy-to-own approach.
Some companies are already doing this. Philips, for instance, is leasing light-as-a-service instead of light bulbs to the London office of the National Union of Students (NUS), a nonprofit that represents students across the United Kingdom. And H&M Foundation is rapidly progressing on ways to re-spin used garments into new fibers.
With the circular economy, businesses do not need to limit their thinking to outdated business models. The possibilities to embrace new, more sustainable approaches are truly endless.
3. Explore Supply Chain Opportunities
With the old linear manufacturing model, companies take resources from the planet and shape them into products that sit in warehouses until they are ready to ship to customers across sometimes vast distances. Each of these steps carries costs, creates waste and can adversely affect the environment.
But in the circular economy, disruptive technologies such as 3D printing will shorten supply chains, reduce carbon emissions and eliminate production waste and overstocked warehouses by bringing production closer to the point of consumption. It will also eliminate the need for larger, energy consuming warehouses as it shifts production to more of a just-in-time (JIT) inventory system. Commercial 3D printing is about letting people manufacture on-demand. If a product could be delivered in this way, it is worth considering for its cost savings, efficiency and environment advantages.
The path to participating in the circular economy will be long and sometimes complex to navigate. But the business payoff will be substantial if companies prepare early and are creative, diligent and resolute in their commitment to a more sustainable future.