Circular economy is the latest buzzword catching the imagination of big businesses such as Google, Unilever, Philips and Nike. A systems thinking approach, circular economy aspires to use resources to their maximum value, keeping them within the economy indefinitely, preferably as whole products rather than materials, and aiming to ‘design out’ waste from the system. In practice this means products which last longer, can be repaired, upgraded, re-manufactured (returned to as-good-as-new condition with warranty to match) or recycled in combination with accompanying new business models. In simple terms circular economy is exploring how to make more money whilst selling less stuff (or less new stuff!), an ambition which in principle should deliver both commercial as well as environmental benefits.
Circular economy – an industrial system that is restorative by design
Source: Ellen MacArthur Foundation: www.ellenmacarthurfoundation.org
A classic example of a large multinational who has enthusiastically and publicly embraced circular economy as a business opportunity and integrated it into corporate strategy is Philips, with a target in its 2016 Annual Report to generate 15% of revenues in 2020 from circular products and solutions. Circular economy opportunities are already realising benefits across different parts of the Philips business. Philips has pioneered lighting as a service or “pay-per-lux” business model, rolled out at scale in Schiphol Airport Amsterdam. Fundamentally an airport requires light rather than lamps, and recognising this difference enabled the creation of an entirely new, mutually beneficial, relationship between Philips and its customer. The airport no longer has the high up-front cost of investment or the ongoing hassle of maintaining assets, instead this is left to Philips who as manufacturer has the most detailed understanding of the product function. Philips is able to work closely with the customer to maximise the performance of the assets, delivering energy savings. And because Philips retains ownership of the assets, they are able to take them back for refurbishment or recycling – generating further value at end-of-life. Circular economy thinking has also been applied to Philips’ healthcare portfolio, where the re-manufacture of medical equipment is a €200 million business. Key to convincing customers to purchase or lease a re-manufactured product is the warranty, providing the same guarantees as would come with a new product.
Circular economy is not just a corporate buzzword; innovative start-ups are spotting opportunities to develop products or business models which use resources effectively. Many are companies seeking to transform waste into a resource, turning coffee grinds into biofuels and biochemicals (Bio-Bean), transforming discarded fire hoses into designer bags (Elvis & Kresse), producing fertilizer from abattoir waste (Elemental Digest) or even growing mushroom-based packaging used to protect Dell computers using agricultural waste (Ecovative). SME remanufacturers are transforming redundant assets back into valuable products including office furniture (Premier Workplace Services), IT equipment (Re-Tek) and engines (Autocraft Drivetrain Solutions). Others use digital platforms to help consumers access assets and services, think AirBnB, ZipCar, Peerby.
If you’re considering circular economy opportunities for your business then get in touch with our strategic technology innovation team to see how we can help you capitalise on the opportunity and bring your ideas into reality. If you’re not then I hope to convince you of the reasons why in the second of my blogs on the topic coming soon.