Benefits of adopting a circular model
1. Long-term value for stakeholders
Companies can no longer afford to focus solely on short-term financial performance geared to shareholders. Successful companies are shifting their attention to creating long-term value for all stakeholders, including customers, employees, suppliers, communities and investors. In fact, investors are increasingly scrutinizing companies’ environmental, social and governance (ESG) efforts, including circular economy practices, in making investment decisions. Community activists, consumers and shareholders are also holding companies accountable for their sustainability actions — or inaction — increasing pressure on companies to adopt circular models.
2. Cost reduction
The circular economy allows businesses to grow without using more resources, since material is always in flow. The fewer the resources needed, the lower the cost. Closed loop models can increase their profitability while sheltering them from resource price fluctuations.
3. Boost in sales
Companies are embracing circular thinking to improve sales. One European automobile manufacturer says they will generate more than 1 billion euros from turning one of their factories into a recycling and repair center. And startups as diverse as rentals of baby clothing and maternity wear to consumer electronics are boosting revenues as subscription services for everyday items gain traction.
4. Regulatory compliance
Regulatory action is one of the drivers of the circular economy; in fact, the circular economy is a building block of the European Green Deal, which forces companies to go circular in certain areas such as packaging, batteries and repairability of products, among others. Countries with circular economy legislation or guidelines include China, Japan, Canada, France, Germany, Finland, the Netherlands, UK and Scotland.
Building your supply chain for the circular economy
Circular thinking demands a shift in company culture, as the traditional view of how a business operates and makes money is turned upside down. Circular models require a longer-term view and ample patience — sometimes cash flow might not be realized until the second iteration of a product when resources finally get reused.
For a circular strategy to work, all the ecosystem partners — including suppliers and manufacturing partners — must commit to the process. One of the biggest obstacles is bringing all the participants of a value chain together and having them act as one company. Often, it’s a matter of “who goes first,” as each supplier may feel they’re in the wrong position in the value chain to launch the effort.
Then there’s the added complexity of the supply chain. From start to restart, a circular supply chain is larger and much more complicated than a traditional linear model. Designs must account for durability and consistency to keep components in play longer and for ease of disassembly to efficiently reuse resources. Tracking all the parts of a product and their histories is necessary to determine which parts need to be replaced and when. Reverse logistics are an added link in the chain to make sure parts get returned to the original manufacturer for recycling or reuse.