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Circular Economy: Part 2

In this ongoing coverage of the circular economy, we discuss how the Ellen MacArthur Foundation has been working to incorporate these strategies into manufacturing and other industries as well as the barriers being encountered with implementation.

Bringing the Circular Economy to Small and Medium Sized Manufacturers

The Ellen MacArthur Foundation, a leading proponent of the circular economy approach, identifies three main benefits for businesses who adopt these practices. First, they gain a competitive advantage by lowering material costs, reducing energy costs and improving customer retention (think about social media and the power of positive business in today’s marketplace). Second, businesses gain innovation advantages with the potential to patent and globalize circular designs and technologies. And third, companies can develop and leverage the digital technology that drives so many U.S. manufacturing advances.

Unlike multinational companies, who are able to hire consultants, scientists and marketing teams to incorporate circular economy concepts into their corporate practices, SMEs are likely not to have the financial resources or the time to do the same. SVA could work with these companies to facilitate circular economies among them and show them the impact on their bottom line.

For example, many SVA clients may already be purchasing used equipment, recycling and reusing materials, purchasing locally and fixing broken items instead of tossing them and replacing them. By seeing the positive effect those efforts have on the bottom line, SME may be inspired to embrace some of the other opportunities that exist in a circular economy.

All businesses large or small must acknowledge resource scarcity and environmental standards are here to stay. With our current advanced information technology, material can be traced, identified and tracked through the supply chain. Additionally, consumers seem to prefer access over ownership. By embracing the circular economy, small and medium sized business may be better positioned to address these disruptive trends.

SVA should co-facilitate meetings for sharing knowledge, creating marketing opportunities and resource sharing. SVA should develop a “tool kit” for small businesses to engage in CE.

Product as a Service in a Circular Economy

One of the most exciting opportunities for SMEs fundamental to the circular economy is the notion of treating a product as a service. This business model opens up the value chain and encourages manufacturers to produce better products with longer life spans and ease of repair and replacement. For example, customers (users) sign up for lighting as a service. The manufacturer of the light bulbs, ballasts etc. retains title, but the user compensates the manufacturer for the service. In this model, the user is not burdened with the investment in light bulbs and can utilize time and money otherwise spent maintaining and replacing light bulbs, to focus on their core business. The manufacturer, on the other hand, can more easily retain the user and the product at the end of the usage cycle.

Similarly, in the circular economy, health care sharing platforms may become the norm. Instead of purchasing expensive new MRI machines, the hospital may purchase a pre-owned refurbished MRI machine maintained and upgraded by the manufacturer, rather than a simple outright purchase. Struggling hospitals may find this as a possible solution to provide the best care possible to their patients. Patients would receive access to state-of-the-art MRI machines without requiring hospitals to actually own these expensive machines. Again, the manufacturers, guided by their own self-interest, would be inclined to focus on better design, serviceability, configuration and reusability. A win-win solution for all!

Sharing Economy Contribution to the Circular Economy

Business like Airbnb and Uber have proliferated in recent years. Underutilized resources as a cars and rooms coupled with tremendous strides in technology have certainly spurred real economic growth and have had a positive effect on the environment. Further sharing of manufactured items as tools and clothing may curb manufacturers’ unnecessary excessive overproduction which in reality, is often disposed of in landfills.

Carrot and Stick Approach to encourage SMEs to Embrace the Circular Economy

Policies can be a driver in the adoption of the circular economy. For example, the State of California enacted legislation (AB 1158) that requires the state to purchase carpets that contain a substantial percentage of reused polymers. This legislation changed the rules for carpet manufacturers overnight.

Regulatory trends may also pave the way for SMEs to embrace circular economy concepts. In October of this year, Governor Tom Wolf entered Pennsylvania onto the Northeast’s multi-state system that promotes cleaner air by placing a tax on future carbon emissions. To avoid this tax, manufactures should focus on designing waste and pollution out of their products. It is important that manufacturers account for all cost associated with their products, including disposal costs, landfill costs, carbon tax etc., in essence, an internalization of external costs.

Barriers to the Circular Economy

Planned obsolescence is still with us, a practice that exemplifies the linear economy. Apple is certainly a culprit, manufacturing items that are difficult to repair and slow down and lose their functionality as they get older. If we create cell phones that are easier to repair and can be deconstructed to their more malleable, basic technical “nutrients”, we may be able to refurbish or remanufacture new phones, thus creating a secondary market with less landfill waste to be addressed by the local government entity. The cost of remanufacturing mobile phones could be reduced by 50% per device, if the industry made phones easier to take apart and incentivize the return of older phones.

If we offer a subscription service for laptops, phones etc., we have a chance to keep these manufactured goods in circulation longer. Additionally, we must remember manufacturing a product “built to last” can reduce warranty costs. Although we may lose some manufacturing jobs, we must prepare the workforce for our new inevitable economic paradigm based on regeneration and restoration rather than one of extraction and consumption.

Materials, themselves, have the potential to make or break the circular economy. Some materials cannot be easily reused and sometimes processing used material is too expensive to justify. Many manufacturing systems have been developed with an unsustainable reliance on subsidized commodity and energy prices, thus precluding a real incentive to pursue regeneration and restoration.

We are on the brink of a 4th industrial revolution, autonomous vehicles, 3D printing, nanotechnology, biotechnology, material science, energy storage, quantum computing, artificial intelligence, robotics and the IoT. Not only will small and medium size manufacturers be required to make investments in this technology to continue to be an integral part of the global supply chain, but must invest in training of their incumbent worker so they, too, can keep up with this ever-changing technology, technology that is essential if we ever want to realize the full potential of a circular economy.

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