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Making the Case for Manufacturing’s Circular Economy

Feb. 14, 2021
Alert manufacturers are rethinking how they design and produce their products, minimizing waste, optimizing shipment, and growing the after-market repair and recycling market.

With a raging pandemic, disrupted supply chains, climate change, political instabilities, and a growing scarcity of raw materials, 2021 no doubt will present a number of serious challenges to the global manufacturing industry. Paradoxically, however, I believe the trials and tribulations of 2020 have given many organizations a moment of clarity.

Having kept my fingers on the pulse of the industry throughout 2020, I see a renewed resolve among manufacturers to focus on sustainability and join the circular economy – the name for the strategic effort to eliminate waste and the maintain a continual use of resources. Many manufacturers are approaching the circular economy model by rethinking how they design and produce their products with as little waste as possible, how they ship them and, crucially, how they approach the rapidly growing after-market repair and recycling market.

Besides the obvious benefit of reducing their strain on the environment, there are some noteworthy business benefits for manufacturing companies taking a circular approach: improved efficiency, greater public appeal, more attractive to shareholders and investors, better employee retention, and reduced risk of losing market share to fast-moving challengers.

I have isolated three main topics that I believe will have a profound impact on the manufacturing space in 2021 and beyond. This is what I foresee:

Manufacturers close the loop. The circular economy is putting pressure on companies to reexamine their business processes; not only to improve quality and profitability, but because an efficient supply chain consumes less energy, uses fewer resources, and produces less waste. In short, gearing production toward sustainability is just good business for manufacturers.

One example is DyeCoo, a textile company that has partnerships with Nike and IKEA, has developed a water-free process for dyeing. Using highly pressurized, recyclable carbon dioxide instead of water, the company can produce its product in half the time, using a fraction of the energy of traditional methods, without straining water resources.

Beyond processes, an increasing number of environmentally aware manufacturers are looking at their plants and fixed assets to find ways to create closed-loop operations. By upgrading or tuning plants and equipment, companies can optimize their use of fossil fuel, eliminate waste, and reduce pollution.

A great example of how forward-thinking companies are putting sustainability into practice is Cambrian Innovation. This U.S. company treats wastewater contaminated by industrial processes, not only turning it into clean water, but even producing biogas that can be used to generate clean energy.

I believe that in 2021, we will see an acceleration among manufacturers to find new or reinvent existing processes that will help them adapt their business to the circular economy. This transformation will create ripple effects beyond the manufacturing sector: consumers and the environment stand to benefit from more efficiently produced goods while enterprise technology vendors will have to rise to the challenge of creating business software that can handle a circular business model.

Designing, developing circular products. The drive toward circular plants and processes is only half of the battle. Manufacturing companies also will need to reengineer, and in some cases reimagine, their products. What I am referring to here is not merely the process of servitization, i.e. selling product outcomes rather than the product itself, but the transformation of linear products into circular ones. Let me explain.

Manufacturers are realizing that adopting a servitized business model means that they must build products that will last. In the old, linear economy, manufacturers would plan obsolescence into their products to capitalize on a lucrative spare parts and after-service market. Today, manufacturers are moving wholesale to a circular economy, which means building for longevity is the only sustainable business plan.

For example, if you are a lighting fixture manufacturer selling light as a service to an international airport, naturally you will want to produce lightbulbs to last long as possible, to maximize ‘uptime’ and revenue.

Repairability is another important trait of circular products that will receive increasing focus in 2021, and beyond. For example, it is no longer feasible for electronics manufacturers to force customers to discard fully functioning products simply because one component needs to be upgraded. Manufacturers are taking serviceability into account in the design phase.

One example of this accelerating trend is Dell and its Latitude laptop computers, which have been designed with recycling in mind. Using things like removable batteries, standardized fasteners, and by eliminating mercury and adhesives, Dell is able to produce laptops that are more than 97 percent recyclable.

For manufacturers, the business case for designing and manufacturing for recycling is a solid one: If a company can reclaim old products and easily recycle some or all raw materials, it will be able to reduce its costs considerably.

I believe that 2021 will be the year when the three over-arching trends in product development discussed above—designing for repair, recycling, and longevity—will come to the fore as primary factors for decision-making among manufacturers. Companies that still consider these trends to be mostly placative ‘window dressing’ will put themselves at risk of being spun out of the circular economy.

Remanufacturing fuels recycling — and vice versa. All the themes discussed so far coincide in an area where I foresee explosive growth in the coming one to three years: remanufacturing.

As a linchpin of the circular economy, remanufacturing is attracting attention both from new, fast-moving entrants and well-established incumbents. According to OPI, the U.S. spends an estimated $47 billion a year on remanufacturing. Yet, though this dollar figure is far from trivial, it represents only 0.4 percent of GDP, compared to 10 percent for new product manufacturing — which indicates a huge potential for growth.

To capitalize on recycled and upcycled products, manufacturers need to establish a service-led organization. After all, if companies want to transform a ‘pre-loved’ product into a new one, they will need to ensure traceability. This means accessing information on what the customer was sold in the first place, what components went into the original product, and, based on age and state, what are the product’s likely points of failure. Assuming that data has been captured and is readily available, remanufacturers are in an excellent position to strip the product and replace components with recycled, non-virgin materials.

As the driving force behind remanufacturing, recycling will be an increasingly vital part of the circular economy model. And, recycling faces increasingly strict legislation in 2021 and beyond. Already in the food and beverage space there is a broad movement away from single-use plastics, while retailers like Walmart encourage customers to bring plastic bags and films to their in-store recycling drop boxes. Another example is Kellogg's, which eliminated single-use plastics spoons starting in 2018 and now aims to reduce the thickness of bag-in-box retail cereal packages by 17%.

Circular economy and centrifugal force. I believe that the 2020 pandemic has driven a new sense of urgency among manufacturers regarding sustainability and the circular economy. In 2021, I predict that this new awareness will lead to a never-before-seen acceleration of activities in the areas of process and plant efficiency, recycling, and remanufacturing.

This movement will pick up speed as we move further into the next normal. It is therefore difficult to predict what the manufacturing space will look like in five years. The only certainty is that the manufacturers that cannot or will not join the circular economy now probably will not occupy that space for much longer.

Colin Elkins is vice president of manufacturing industries for IFS - an ERP software developer. Contact him at LinkedIn.