How the Circular Economy is Changing Today’s Business Model

The circular economy is a relatively new economic business model that is transforming industry. The circular economy is based on consciously designing production that creates useable waste products while keeping materials viable through reuse, repair, remanufacturing and recycling.

An early example of the circular business model emerged in Kalundborg, Denmark in 1972, where an oil refinery began sending excess gas to a gypsum-board manufacturer nearby, thus creating a loop in which one company’s waste product became the raw input material for another company. In a circular business model, recycling is the best economic way forward as a mitigating force against a world of increasing resource scarcity and mounting waste.

In a circular model, recycling is not an afterthought, but an essential part of business strategy. The circular economy is a new way of looking at the relationships between markets, customers and natural resources. Technological breakthroughs, especially digital in nature, is disrupting the way society produces and consumes, representing a huge opportunity for companies to stimulate a competitive advantage.A 2015 study conducted by Accenture Strategy found that businesses could generate up to $4.5 trillion in value by broadly adopting circular economy principles. Sustainability, specifically circularity, is one of the best ways to increase profitability. Increased urbanization, global economy volatility and clear consumer preferences for brands that show a commitment to sustainability are contributing factors to the increase in circular economic practices.

Digital technologies are playing a role in breaking down one of the circular economy’s primary constraints – the need for proximity. The Internet of Things (IoT) and blockchain, for example, can compensate for geographic distances as well as enabling companies far apart from each other to scale a circular business model. Big Data, analytics and machine learning allow companies to create cost efficient material exchanges at a faster pace than ever before. Digital technology is a driver of circularity by keeping materials and products in circulation longer.

The circular economy makes sense from an environmental perspective. There are six basic principles of circularity.

1. Renewable energy.

In a circular business model, the energy used for production is sourced from renewable resources or reused from other companies.

2. Modular designs.

Products are developed using a modular design. Components can easily be replaced when they become obsolete or broken.

3. Renewable materials.

Items are designed using regenerative, easily accessible materials. Scarce materials are avoided.

4. Maintenance-free.

Products are designed for no or very low maintenance. Parts can easily be refurbished and reused rather than discarded.

5. Easy disassembly.

Products are designed to be disassembled easily, enabling companies to recover embedded parts while eliminating waste.

6. Highly recoverable.

Companies that are committed to circularity design products with parts that use recoverable materials that are biodegradable where possible. Reverse logistics processes, such as product trade-ins allow companies to recover materials that can be recycled, reused or remanufactured.

These digital technologies are making the circular economy possible and profitable.

  • 3D printing lets manufacturers build complex shapes that are impossible using traditional methods.
  • Sensors and the IoT that use live data streaming allow companies to have real-time information about the condition, location and availability of components and assembly.
  • Machine learning enables instant adjustments to circular supply chains.
  • Blockchain automates and simplifies complex exchanges which are of great value in circular systems.
  • Robotics scales assembly and disassembly to previously impossible rates.

The circular economy, driven by technological advances, is becoming more practical every day, while increasing profitability, sustainability and creating a positive impact on the environment.

Marsh & McLennan Agency (MMA) brings together experienced teams with expertise in developing risk protection plans that address the ever-changing manufacturing industry. Contact us here to learn more.