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May 14, 2018
Understanding the Circular Economy
“Does anyone else know about this?” was the question asked by an incredulous young German man in Europe last year, after explaining my work in the Circular Economy. To him it sounded such an impossible system and thus, perhaps, something I had conjured up.
The World Business Council on Sustainable Development (WBCSD) recently issued ‘8 Business Cases for the Circular Economy’ where they state “Even some of the most revered corporate sustainability companies face challenges in understanding what the circular economy is, its implications for their business and which methods to use for identifying the business case.”
So how did the Circular Economy start? The origins of the Circular Economy are firmly rooted in environmental economics from the 1990’s and, more recently, Walter Stahel’s The Performance Economy (2010).
Importantly Stahel writes “The vision of a low-carbon economy has been intensively proposed by policymakers in the UK and the US, and the desire to reduce carbon emissions is ubiquitous …the overruling issue should not be GHG emissions but resource consumption in industrialised countries. If this is reduced by 90 per cent – a factor of 10 – GHG emissions will not only be reduced by a similar amount, the acidification of soils, air, and aquifers will also be reduced.”
Implementing the Circular Economy: How Reverse Logistics Will Enable the Circular Economy
To reduce overall resource consumption will require a complete reboot to how products are designed and manufactured. Whilst we may understand the basic requirements of:
1. Design for Durability
2. Design for Maintenance and Repair
3. Design for Adaptability and Upgradability
4. Design for Refurbishment / Remanufacturing
5. Design for Recyclability
6. Material Choices
7. Software Compatibility
There are three main areas that need to be addressed. The first is logistics, both forward and reverse logistics to ensure products and / or parts can be repaired and / or replaced easily and conveniently and then returned to the customer.
The second and third are linked together: Training and Business Model. If companies begin to commit to this circular system what will be their HR requirements. Or will they outsource or endorse the millions of new repair shops that are likely to capture this new opportunity. Or will more companies lock into place proprietary repair systems which negate any product warranties if repairs are completed by small operators with OEM parts?
While this may be the preferred option for most larger companies, there may be a consumer or regulatory backlash especially once the size of the repair industry grows. After all do we really know how big this may become if every product on the planet could be repaired, reprocessed, reused or remanufactured?
Both the EU and the USA have ‘Right to Repair’ legislation in various stages and styles however the EU Right to Repair is far more comprehensive than anything the USA has debated or legislated.
Really it is only a matter of time before the EU passes a radically detailed Right to Repair law which will require products to be redesigned for repair and those broken parts should end up being reprocessed into new products.
Which brings me back to the beginning: Training, Business Models and Logistics.
Implementing the Circular Economy: Extracting Secondary Raw Materials for Reuse
Material reutilisation lies at the heart of reducing primary resource consumption by reprocessing, refurbishing and remanufacturing end-of-life products. To achieve this end also requires the process of moving goods from their point of consumption to a consolidation point for the purpose of capturing value or for proper disposal1.
Our signature project, Recyclable Resource Recovery Collection Systems (RRRCS), is designed with this goal in mind. Whilst it may sound like glorified recycling our aim is much broader as it also addresses the structural weaknesses around the periphery of Resource Recovery.
In most developed countries, returning materials for reutilisation may be relativity simple given the sophistication of logistics yet these same logistics will not be immune from system change to ensure economic viability for Circularity. For example Heineken installed a glass crusher at their customer sites in France, reducing space taken up by whole bottles by 80%, lowering transport costs to reprocess back at the factory and minimising health and safety risks for employees handling glass2 is just one example.
Here in Asia a successful reverse logistics material reutilisation system comes from the Tata Motor’s Prolife Program3, which was launched on World Environment Day in 2013. Their website states “Prolife is a customer-focused service program to recondition engine long blocks, aggregates, parts to ensure quality reconditioning which will result in superior performance of the vehicle. This new service program will help extend life of aggregates using reduced quantity of materials than required for a new part / aggregate. Key benefits of reconditioned parts are high up-time, low cost-of-ownership and contribution to a sustainable environment.”4
Implementing a RRRCS does require a multi-stakeholder approach as “Our sole focus is to establish a National Policy for Recyclable Resource Recovery in Malaysia… Therefore it will be necessary to establish a cohesive and efficient recycling collection system that can significantly increase recycling rates so industry can scale up reuse of secondary raw materials.” which can also become as a template for other countries in the region.
The aim is to overhaul the whole recycling collection system by legitimizing informal recycling collectors and orientating collection towards a ‘Service Model’ to increase collection rates, tackle comprehensive improvements in working conditions and undertake the serious requirement of recyclable resource management.
Current Asian government’s or contracted waste management collection systems across the Asian region will never be able to achieve significant levels of recycling targets within an acceptable amount of time without including informal recycling collectors. Government or contracted waste management collection systems simply do not have the financial, human or mechanical resources to achieve decent rates of collection for industry to extract vital secondary raw materials for reuse. Nor can they engage in reverse logistics.
Implementing the Circular Economy: Working in Parallel
While our work may seem rooted in recyclable resource collection, in effect it allows us to significantly broaden the composition of assignments to include a range of other activities that must work in parallel for true Circularity. Otherwise the promise of jobs and cost savings will not be realized.
It enables us to implement either directly or in collaboration with others to include:
• Skills training, that will provide employment in the new jobs created in
o Reuse / Repair / Remanufacturing industries
o Reprocessing of recovered resources
• Renewable energy: Collection vehicles powered by renewable energy (food and organic waste).
• Data Collection
o Vital for measuring global resource management and a country’s overall competitiveness
o Reduces risk for investment into reprocessing facilities
o Enables us to track collections (subject to Data Collection Privacy Laws in each country)
• Financial services:
o Work with financial institutions to provide financing for SME’s that clearly show future cost savings through system change yet are unable to invest to make this transition.
• Review of chemical, water and land use with the focus on reducing or replacing with alternative solutions.
• Circular Businesses: Collaborate with local institutions to nurture a new breed of entrepreneurs who are interested and willing to tap into the new future the Circular Economy brings.
• Circular Design: Redesign of products and redesign manufacturing processes.
The SME Sector
Our organisation’s biggest concern is with the SME sector due to the sheer amount of economic activity they contribute. From a marketing perspective our RRRCS offers a very visible entrée to promote the values of the Circular Economy to all segments of society. Yet we cannot afford to think locally as the movement of products (resources) around the world demands a global perspective and why supply chains, mostly made up of SMEs, also need to come under review.
The success from Tata Group (India’s largest conglomerate) Prolife initiative is due to the financial clout of being able to manage the training, forward and reverse logistics. However the question begs “What about every one else”? And here is where the informal recycling sector, under proper guidance and structure, has the potential to facilitate reverse logistics providing additional income outside of recyclable resource collection.
Our organisation has come up with two solutions which aims to harness the potential of human capital of not just informal recycling collectors but other segments of the population in order to ensure RRRCS can actually reach its full potential.
ERP and an Informal Recycling Collector’s Cooperative or Industry Association: Figure 1: Basic Flow System shows a simplified version of what can be achieved when an industry association also coordinates EPR activities. Otherwise the Cooperative may not be financially sustainable over the long term. Whilst this is the preferred model, it will not be applicable or appropriate in all areas within Asia mainly due to remoteness and / or distance from the centre.
The Cluster Model provides an alternative where an assorted number of manufacturers / businesses of all shapes and sizes often cluster in a particular area or even a whole town that only manufactures for one industry. By working with a cluster you can potentially begin to open up economies of scale for Circular innovations to become financially profitable.
In addition, the cluster model provides ample opportunity to embrace the more problematic areas such as reducing the usage of chemicals, water and land, and increasing renewable energy. Furthermore certification may be easier, less expensive as the cost can be, potentially, shared by the cluster and buyers from around the world know that a particular cluster is a working cog in the Circular Economy. It also provides the opportunity to consolidate secondary raw materials for reprocessing.
Many organisations do not find the Circular Economy an easy concept to understand in its entirety. This year at the World Economic Forum in Davos Factor 10 was launched, and the focus will be on three priority areas:
The term Factor 10 comes from The Factor 10 Club which has been created to provide practical support for achieving significant advances in resource productivity in the production and consumption sectors5 and as quoted by Stahel as a way to rethink GHG emissions.
The Circular Economy offers the best path forward for maximising resource management, and as we have pointed out, the periphery is as equally as important as the centre. However all companies, regardless of size, still need to tread carefully as only focusing on profitable opportunities may eliminate the potential environmental benefits.6
As the Circular Economy gains traction, the promises made by this new mantra for sustainability cannot be realised unless all the elements are woven and administered together. Our organisation, Circular Economy Asia Inc. is sparing no effort to secure all the cogs move together.
1 Remy Le Moigne “Why Reverse Logistics is an Essential part of a Circular Economy”, March 2018, Circulate. http://circulatenews.org/2016/06/why-corporations-will-have-to-invest-in-their-reverse-logistics/
4 Press Release “Tata Motors launches ‘Tata Motors Prolife’ for Commercial Vehicle Customers’, 06 June 2013: https://www.tatamotors.com/press/tata-motors-launches-tata-motors-prolife-for-commercial-vehicle-customers/
6 “Circular Economy Rebound’, Trevor Zink and Roland Geyer, Journal of Industrial Design, February 2017.