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The circular economy (hereafter: CE) can serve as an important building block for the sustainability targets of manufacturing companies. Although the term itself has long been established, we see that proper implementation of CE across entire manufacturing value chains is still lacking and remains a key challenge for companies. However, there are clearly visible and good examples of CE which have already been implemented, generating sustainable and economic value among multiple layers.
Various benefits can potentially be achieved simultaneously by implementing CE. First, the European Union (EU) aims to develop the concept of CE as one of its six strategic objectives in the EU Taxonomy, which will resolutely promote the financing of CE solutions. Second, by minimizing resource consumption, CE will automatically help to reduce costs. Third, as sustainability becomes more and more important, new customer segments can be reached. Fourth, CE will increase supply security as dependency on global raw material suppliers will be reduced. These are just a few examples of how CE significantly contributes to a company’s operational resilience in the New Normal (learn more about it). Finally, CE has the potential to create new business models such as the renting and leasing of used machines.
When introducing CE to manufacturing, the consideration of four cornerstones, which we call the four Rs, is crucial: Reduce, Refurbish/Reuse, Recycle and Recover. Each of the four Rs contributes to sustainable manufacturing. However, their relevance for CE, impact on the current manufacturing strategy and ease of implementation vary. Moreover, the level of impact and applicability is industry-specific.
Challenges and opportunities are likely to vary significantly from one industry to another. Individual assessments and concepts are necessary as there is no one-size-fits-all solution to CE across the manufacturing industry. The graph below shows the different impact of CE in selected industries. In the following the 4 Rs will be explained and visualized by some examples.
Bringing the concept of the CE to life within the manufacturing value chain involves substantial changes in core production and supply chain processes. An effective reverse logistics process to get the used products back into the cycle is essential for the success of CE. This may be done by increasing customer interaction after the initial sale. Gathering data on volume forecasts for the return of used products is necessary in order to fully apply the concept in manufacturing industries
In any case, the introduction of a CE is worthwhile because, in addition to sustainable value, it also generates considerable monetary value for the company. For example, a machinery producer may be able to save up to 60% of the total material costs of the individual products by refurbishing machines and reusing components. Furthermore, the introduction of a green label results in additional sales potential. Moreover, the positive CO₂ impact of reuse, which at first glance seems to mainly involve the aspect of sustainability, results in monetary savings as well if even higher CO2 prices be introduced in the future. The graphics below visualizes a possible CE case including the resulting monetary benefits.
Our simple five-step approach is designed to deliver an implementation-oriented roadmap and leverage the maximum potential:
Please reach out to our dedicated ESG (in) Manufacturing team to learn more about the circular production strategy.
Eva Nguyen, Katharina Heisig, Tim Biskup, and Sebastian Geibig have also contributed to this article.