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The promise of a circular economy has quickly moved from the realm of theory and research to a functional model of reducing waste, retaining value, and increasing profits. However, since this is such a new approach to product lifecycle and because most of our systems were designed around a disposable, or at best, recycling economy, it will take innovation and experimentation to unlock the value of the circular economy in 2020.
1. Leveraging Technology to Maximize Use
As circular economy concepts gain traction, advances in technology and connectivity present new ways to harness more value from existing products. Products lose value when their lifecycle is cut short either through disposal or disuse. Many products are designed with a potential life cycle that is longer than the typical consumer’s needs.
Technology has the potential to aid in gaining more use out of these existing products. Platforms can ease the barriers to direct resale allowing consumers to sell unused products directly to other customers or back to the manufacturer. Other technologies can assist consumers in sharing the use of products that they only need occasionally.
Still other technologies can even help get products at the end of their life cycle into the hands of companies that can refurbish, remanufacture, or reuse components. All of these methods have the potential to increase the overall revenue and meet more consumer demand from the product lifecycle without the same need for natural resources, labor, and energy needed to create a new product.
2. Product as a Service Models
Businesses have understood for some time now that consumers do not typically purchase products simply to own products. They buy products to fill needs. Product as a Service models take that idea seriously and replace ownership-based models with usage-based-services. These come in many forms depending on the exact nature of the product. Some models charge based on actual usage time, allowing consumers to purchase a few hours or days of use at a time.
Others are based on a subscription plan that is more useful for a product used on a regular basis. Still others are based on more long-term use, such as product leases. In all of these, ownership is retained either by the manufacturer or a third party. Either way, control of the life cycle value is intentionally maximized by a party whose best interest is served by squeezing the most value out of the product.
3. Increased Product Life Expectancies
Up until now, in a disposable economy, there was little incentive for companies to extend the lifespan of products. Other than marketing a product as “longer-lasting” and charging a premium price, there was little opportunity to recoup the additional manufacturing costs of a longer-lasting product. More than that was the potential loss of additional revenue from a replacement model.
In a circular economy, even without government incentives to encourage increasing product life expectancies, there is potential to increase revenues while developing longer-lasting products. However, it will take some amount of innovation on behalf of manufacturers. It may be initially challenging to get consumers to accept higher prices for longer-lasting items, especially since they may not need the product for its entire useful life. Manufacturers may need to recoup some of those additional costs by reclaiming those products for refurbishing, remanufacturing, and resale.
4. Circular Design
Eventually, in a circular economy, every product will be designed and manufactured with a plan for how the item and component parts will maintain as much value as possible and be reused as many times as possible. Currently, most products are designed with only one end user in mind. Once the product leaves the factory, the manufacturer has no further interest in it and simply starts over with new raw materials.
However, in a circular economy, the manufacturer would have an interest in the continued value of that product and how additional revenues could be achieved through reuse, repair, refurbishing, remanufacturing, and resale. Even further than that, once the product truly reaches the end of its life, manufacturers would be interested in the value of any raw materials that could be recycled for use in other products.
This is a process that starts back in the design and engineering of products. It will take some intentional design changes to make it efficient and to make use of the ongoing value of the product and components.
5. Cooperative Circular Supply Chains
While much of the work of unlocking the value of a circular economy can be done by individual companies with the creativity and desire to innovate, the real potential will be revealed when multiple organizations across different industries and positions in the supply chain work together. Building cooperative supply chains is one method to get the most value from products and raw materials.
The theory behind the circular economy is that of a closed-loop where no additional natural resources are needed, and nothing is wasted. It will take time to get there. In the meantime, there are already plenty of examples of the innovative use of recycled materials. The more cooperation there is between industries, the more potential there is for the reuse of materials.
Even when a product is at the end of its lifecycle, and even when the original manufacturer can not use the component parts, a different manufacturer can likely use those materials and therefore retain more value and reduce the need for more raw materials.
It will be some time before the potential value of the circular economy is fully realized. In the meantime, there are many opportunities for innovative companies to get ahead and begin to realize some of this value in the form of reduced costs and increase profits. Some of these ideas may be a hard sell to organizations that have existed so long in a disposable economy. However, once people begin to see the untapped value of resources, more companies will adjust to take advantage of the new, more efficient model.
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