Framework 109 Circular Business Model

Introduction

This involves

"...Businesses create supply chains that recover or recycle the resources used to create their products......is only sustainable if that you can be economically recovered from a product..."
Atalay Atasu et al, 2021

Ways of doing this include

- reusing the product (this will extend the value of the materials and energy used in the manufacturing process)

- breaking it into components or raw materials to be recycled for other uses

NB The value can be either tangible or intangible. An example of intangible is recycling designer clothing

Some of the appeal of this is reducing the environmental footprint and operational waste plus using resources more efficiently.

To get the business model right requires

- a pathway that aligns with the organisation's capabilities and resources

- addressing the constraints of the operation

Three strategies for circularity

i) Retain Product Ownership (RPO) (rather than sell, producers rent or lease their product to the customer rather than selling it. Some examples:

    - Xerox leases its printers and photocopiers to corporate customers; this requires much effort in after-sales and maintenance capabilities.

    - renting clothes, ie rent designer clothes to people for one-off events like a tuxedo

Some issues around this are

- perception that you will pay more over the life of the lease than if you owned the product

- the services provided from a leasing contract could cost more than you are willing to pay on maintenance

To handle these issues, ask the following 2 questions

    - how easy is it to get a product back?

For example, consider Norway where nearly 100% of plastic bottles are recycled. This success is due to the government providing infrastructure (large network including reverse vending machines for bottle collection) and support (government-run deposit-refund scheme) plus public participation (Norwegians are enthusiastic about recycling).

Other elements that can be helpful include secondary markets for used products and commodity markets where extracted raw materials can be sold.

However used products that have a high resale or exchange value (like power tools and construction equipment) will require expensive buyback or trading programs.

One of the advantages of leasing is that it is easier to recover product if you own it!!!

    - how easy is it to recover value from my product?

Some of the factors to consider include how heavy or bulky is a product; does it involve potentially hazardous material; is it expensive to move recondition; how intricately is construction ( like advanced smart phones and laptops are less easily reconstituted courser-grained, modular devices such as desktop computers); how much skill labour required .

"...The feasibility of value recovery will depend on the availability of cost-effective solutions for reformulated products..."
Atalay Atasu et al, 2021

ii) Product Life Extension (PLE) (focus on building products that will last, as durability is a competitive differentiator and allows for premier pricing; help prevent customers defecting to rival brands. Some companies doing this include Miele (luxury home-appliances), Patagonia (outdoor-clothing manufacturer), Bosch Power Tools (remanufactures its tools)

iii) Design For Recycling (DFR) (redesign products and manufacturing processes to maximise recoverability of the materials involved for use in new products. This can involve partnering with organisations that have specific technological expertise and/or are best able to use the recovered materials. For example, Adidas partners with Parley for the Oceans to use plastic waste (found in the oceans) to make textile threads for manufacturing Adidas shoes and apparel

NB In investigating which strategy suits best, you need to ask the following questions

- Can you reclaim your product from the customer?

- Can it be moved?

- Can you remanufacture it?

Circularity Matrix

"...the greater the value locked into a product - whether in terms of brand cachet, resources consumed in manufacturing it, or the premium customers might pay for environmentally friendly products - the greater the potential for creating a circular business model..."
Atalay Atasu et al, 2021

 

circularity_matrix.jpg


https://www.hbr.org/2021/07/the-circular-business-model

1. Products in the right-hand top quadrant (hard to both access and process) are not easy to repair and/or remanufacture. Thus product life extension is usually not option; they could have a reasonable resale value in customer-to-customer secondary markets and this would make it harder for manufacturers to access products for reconditioning. In these cases a combination of design for recycling and retaining of product ownership are the preferred options.)

Two examples:

- Michelin (French tyre manufacturer)

"...committing to use 80% sustainable material in its manufacturing, the company has acquired Lehigh Technologies......maker of environmentally friendly rubber powders produced from ground-down end-of-life tyres. Meanwhile, it is pivoting to RPO in B2B markets, promising commercial fleets performance enhancements and cost savings for leasing tyres..."
Atalay Atasu et al, 2021

Part of the leasing involves using modern information technologies, like digital sensors in vehicles measuring performance including monitoring carbon emission, fuel efficiency, etc

- Wind turbines (despite valuable ingredients used in construction, they have low value potential for recycling; it is their remote locations and size that makes it difficult to access the materials plus difficult to extract usable materials or components owing to their composition and complex architecture. A more suitable approach may be unlocking value through a strategy of product life extension, ie investing in durability and modularity with products lasting longer and easily maintained. They could use

"...RPO model, whereby turbine manufacturers, rather than power companies, would retain ownership of and responsibility for turbines. In the long term they might be able to adapt a DFR strategy, making the turbines less reliant on non-recyclable materials and easier to dismantle..."
Atalay Atasu et al, 2021

2. Products in right-hand bottom quadrant (easy to access but hard to process). This includes low-embedded-value products like carpets, mattresses, footwear, etc. As these products lack a lucrative secondary market and are easy to access, they are easy to recover from consumers. However they are not easily reconditioned and extracting materials from them is complex.

Some examples

- carpets (using a homogenous design that significantly facilitates material recovery and reduces the water and energy needed in the production process; they would be lighter making transport and handling costs lower)

- athletic shoes (Nike uses Niki Grind that

"...takes used athletic shoes and recycles them into materials for entirely new products, such as AstroTurf's playing fields and Future foam's carpet padding..."
Atalay Atasu et al, 2021

- smart phones (have many highly integrated components plus toxic material which is difficult to extract plus very short life cycles; usually have a busy secondary market which is good from an environmental perspective but can impede original manufacturers' access to them)

High-tech consumer electronics can create exit barriers for device owners and lower access barriers for manufacturers. For example, Apple

"...customers buy, repair, and trade in their devices at Apple's own retail outlets, and their activity on these devices generate data that Apple owns...... iPhones and iPads have an active secondary market, which normally would limit the company's recovery of them - but the speedy rollout of next-generation products and trade-in rebates incentivise customers to relinquish their old Apple devices exchanged for discounted upgrades. The easy access afforded by the dynamic of the ecosystems enables large-device manufacturers to invest heavily in DFR as their pathway to circularity..."
Atalay Atasu et al, 2021

From 2018 Apple has used robots (Daisy) for dismantling iPhones to recover valuable material like cobalt, tin, aluminium, etc

3. Products in top left-hand quadrant (hard to access but easy to process), ie products whose use makes it difficult to retrieve, eg takeaway food packaging

"...may contain easily recyclable materials but very often wind up in landfills because of the food residue on it, which is costly to remove..."
Atalay Atasu et al, 2021

The strategy here is DFR and is focused on the recovery infrastructure.

As embedded value increases, secondary markets appear that make access to product more difficult for the original manufacturer. Also,

"...the greater the embedded value, the more common are PLE and RPO combinations, because both facilitate access to parts that would be extremely costly to rebuild from scratch and promotes customer trust, thereby improving participation in trade-in remanufacturing programs..."
Atalay Atasu et al, 2021

Leasing works when the cost of retrieving and transporting used machines for remanufacture and reconditioning is low.

Some examples

- Caterpillar (a heavy-equipment company that provides multiple PLE options to extending the on-site life of equipment sold, eg customers can return equipment at the end of its serviceable life for restoration for same-as-new condition or buy used equipment from licensed dealers. On the RPO site, various loans and lease options are provided as alternatives to outright ownership

NB All this is supported by Caterpillar's ability to monitor the condition of its products remotely, using digital technology and AI)

- Xerox (iPutts business model involves all 3 basic circularity strategies

"...It's pay-per-use both discourages frivolous usage, thereby prolonging the life of the machine and allows Xerox to retain ownership of its products. The modular design of its copiers' inner workings, most of which are standardised for all models, also furthers PLE. Across production generations, Xerox recycles, re-uses, and refurbishes standard components in the core imaging technology - thereby keeping machines in action longer. The company complements these approaches with an ambitious material-recycling program (DFR)...... the internal components of its machines are made from 100% recycled plastics..."
Atalay Atasu et al, 2021

4. Products in the lower left quadrant (easy to access and easy to process, ie usually items or components already have an effective recycling infrastructure, like for plastic bottles; it is estimated that around three quarters of all commercial-variety and aluminium ever produced remains in use today (Aluminium Association of the United States). appropriate circularity strategies are based on expanding and streamlining the process that are already effective. Some examples of incremental DFR innovations include minimising the amount of aluminium lost in industrial by-products (Real Alloy of USA), reducing the quantity of by-products generated in production processes, etc

"...High-value products that are easy both to access and to process are ideal for circularity, because they require neither a significant business model change nor efforts to facilitate material recovery..."
Atalay Atasu et al, 2021

Sometimes the value lies in the brand, rather than the use for the product or what they're made from. An example is Patagonia (they encourage customers to send their used Patagonia clothes in return for store credits; with the clothing being repaired and resold; also introducing a line of hand-sewn clothes that is made from returned items considered beyond repair.

 

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