Making the world go round - circular manufacturing

The case for circular thinking in manufacturing.

The circular economy is not new. However, most companies have considered these activities separate from main business activities and have not implemented them seriously, seeing them as a cost item and an extension of broader corporate social responsibility efforts.

The main issue with wider adoption of the circular economy is that, beyond a limited number of use cases, companies have not really seen the economic returns promised by advocates. In our conversations with experts and companies in the space, most agree that there are no clear financial benefits to leveraging a circular economy model given the significant upfront investment while benefits may only show in the long-term.

However, recent changes in the business environment are pushing companies to reconsider the circular economy, and it is critical to think through it in a strategic and objective manner.

Traditionally, in a ‘linear economy’, manufacturers pass off responsibility to the consumer at the point of sale, and consumers pass off responsibility after consumption. However, in a circular economy, manufacturers retain greater responsibility for their products throughout its lifecycle and therefore take a more proactive role in reducing waste.

In speaking to different stakeholders, three main themes have emerged as key changes:

1. Changing regulatory landscape – governments are now starting to expand regulation to areas such as solid waste. For example, the EU’s Packaging and Packaging Waste Directive has set out a target of 55% recycled content target for plastics packaging by 2030.
2. Shifting consumer preferences – customers are becoming more discerning about sustainability and changing their purchasing criteria accordingly.
3. Pressures in the supply chain – challenges in the global supply chain are emerging due to geopolitical events and changing demand patterns. New solutions are needed to address pain points in ensuring the reliability of raw materials and manufacturing, working with both suppliers and customers.

This changing business environment in the context of sustainability underlies the need for a new framework to rethink how companies do business and engage with customers. Circular thinking is a good way to systematically look at their product journey and identify key pain points. There are three main areas where companies need to apply circular thinking.

1. The core relationship with the customer. The blurring of the lines between companies and customers on responsibility over products requires innovative business models and can help strengthen customer relationships. For example, retailer Selfridges launched Re-Selfridges, which refurbishes and resells premium clothing returned by its customers.
2. Companies need to look at their value chains to adapt to changing conditions and regulations, while reducing friction and costs. This can be done through more considered product design and cooperation in improving supply for raw materials, especially through recycling. For example, home goods manufacturer Ikea has been working with partners to design more lightweight constructions and taking the lead in high-quality recycled fibreboards.
3. Companies should use circular principles to consider the dormant value present in the production process. This can either help reduce operating costs or even unlock ancillary revenue streams. For example, AB InBev is looking to use spent grains from the brewing process to produce new protein-based drinks.

To do this, companies must take some initial steps to clarify how the circular economy can make the most impact in their product journey. First, by identifying the most critical pain points in the product journey reflecting the changing consumer attitudes and business environment. Then evaluate internal capabilities and decide ‘core’ areas of the circular economy where the company can create material outcomes. Lastly, they can map out an initial view of the value chain ecosystem to determine potential partners or acquisitions.

Fully embedding circular thinking is a huge undertaking that will take time. Taking these steps comprehensively and effectively requires an objective and systematic approach considering information about both the internal and external environment. Having resources removed from ‘business as usual’ can be a good way to rethink the product journey in a way that reflects the changing environment and so considers outside-the-box solutions.