Circular economy

A new source of competitive advantage in the chemicals industry

Ideation Center Insight

The traditional and dominant linear economic model of “take, make, use, and waste” is unsustainable. The linear model is not only wasteful but also environmentally damaging. Regulators and customers want an end to the linear model and are demanding environmentally friendly practices and products. The linear model’s successor is the circular economy model (CE), which seeks to reuse products and treats waste as a loss of value. Companies are adopting the CE as it can lead to competitive advantage, offers a response to customers, and is less damaging to the environment. The CE can lower operating costs and create new products and services that facilitate incremental value creation and sustained growth.

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Opportunities for chemicals companies

The CE is particularly important for chemicals companies, which can adopt four priority applications for competitive advantage: circular procurement, customer value chain integration, circular products, and end-product recycling.

High-impact circular applications can be adopted in the chemicals industry

Procure more services and fewer products

Circular procurement extends the relationship between buyer and seller beyond one-off transactions, turning suppliers into partners and products into services that can be leased, shared, or used again.

For example, the shift to a circular procurement approach is creating new markets for barrel reconditioning and for pallet pooling. The barrel reconditioning market enables chemicals companies to use reconditioned used barrels instead of new barrels. Similarly, pallet pooling companies now offer rental or leasing services to chemicals companies, while managing pallet redistribution.

Offer solution-oriented services

Customer value chain integration is when a chemicals manufacturer expands its role beyond the production and after the sale of chemicals to provide specialist expertise under long-term management contracts. This approach leads to cost saving for the customer, and more efficient use of resources.

PPG Industries, which supplies paints, coatings, and specialty materials, offers one example. PPG Industries has a large team of specialist employees embedded at an Opel plant in Poland, which manages the painting process and handles the relationship with some 50 of Opel’s second-tier paint suppliers.

Develop differentiated products that are sustainable

Circular products means more-durable, energy-efficient items that are recyclable at the end of their life.

DSM has formed a joint venture with Niaga to make carpets that can be completely recycled because they avoid the use of latex as an adhesive. The process also uses almost no water and just 5 percent of the energy needed for standard carpet manufacturing.

Extract value from waste

End-product recycling consists of mechanical or chemical recycling of used products, with materials and components extracted for reuse during this process.

Tire recycling for instance presents a promising opportunity for chemicals companies in the GCC region. We estimate that Saudi Arabia scraps around 30 million tires annually, of which only a third are recycled — compared to an average 50 percent worldwide. Chemicals companies in the GCC region could use the materials from tires as material for flooring, insulation, and soundproofing.

Advancing the CE agenda internally

Chemicals companies should begin by deciding their commercial rationale for moving to the CE. Once they define the business objectives, they can consider pilot projects that are likely to reap short-term rewards and inspire the confidence to continue within the organization. They also need to change their corporate culture so that the CE becomes second nature to their staff.

A circular transition relies on internal transformation starting with a solid strategy and objectives

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Dr. Yahya Anouti

Partner, Strategy& Middle East

Frederic Ozeir

Partner, Strategy& Middle East

Dr. Nils Naujok

Partner, Strategy& Germany

Iris Herrmann

Partner, Strategy& Germany

Saed Shonnar

Principal, Strategy& Middle East

Jana Batal

Senior Fellow, Ideation Center, Strategy& Middle East

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