How Data May Solve the World’s Circular Economy Challenges
With manufacturing now responsible for roughly 20% of global carbon emissions, it is imperative for manufacturers to start implementing production processes that avoid the extraction, transportation and use of raw materials. Instead, we must shift focus to recovering those materials from existing products and reusing them in new ones.
Bypassing raw material use and moving toward low or zero waste is challenging. However, once implemented, a circular economy benefits not only the environment, but also offers manufacturers distinct business advantages that can help them meet their sustainability — and even financial — goals.
Traditionally, a company manufactures and ships their products directly to customers or customers’ distribution locations, unlikely to ever see them again. But in a circular economy, a company:
- Designs or engineers products to reduce or eliminate waste and pollution at the source, during manufacturing and at the end of the product’s useful life;
- Keeps products and materials in use by recycling, re-engineering or finding new uses for them;
- Regenerates natural systems and creates a closed loop system that actively feeds natural resources back into the planet after use or as new feed into the supply chain.
Along the way, metrics relevant to emissions, waste and efficiency are tracked. In other words, a successful circular economy sees a business insource many of the steps that were once done by outside companies (e.g., storage, refurbishing). By “shortening” the supply chain, emissions are cut, and the business is placed within its own circular value loop. Companies then gain more control over various outputs and can redeploy parts or re-circulate raw materials back into their supply chain themselves.
Circular economies can look very different depending on the industry, customer and product. Take, for example, electronic waste (e-waste), the world’s fastest growing solid waste stream. When recycled properly, the circular process prepares electronic equipment for maximum reusability at the end of its life cycle. This method lightens the load on landfills and requires less raw material extraction to create new products.
But to realize benefits such as reduced emissions, greater supply chain efficiency and higher cost savings, manufacturers must start capturing data, analyzing it, then implementing the findings throughout a product’s entire lifecycle. Valuable information to track for these purposes could be emissions from the raw material production, transportation and end of life phases, all of which help calculate the net carbon footprint (carbon offset minus carbon footprint) for an entire production cycle.
While data will be the catalyst for this massive shift in how we make things, extensive cooperation, coordination and transparency across businesses and sectors throughout the entire supply chain are also required. Only then can the industry move to a production approach that prioritizes waste diversion and relies on renewable energy and materials. All players within a supply chain should start thinking differently and work collaboratively so we can build true value chains together.
Why is Now the Time to Build Circular Economies?
According to the World Business Council for Sustainable Development, sustaining the world’s current consumption levels through 2050 will require the resources of 2.3 Earths. With only 8.6% of global materials reused and cycled back into the economy annually, Dutch think tank Circle Economy estimates that this rate must double to limit the planet’s warming to 1.5° C or less by 2032.
To help meet this goal, McKinsey & Company proposes that a large array of industries could abate one-third of their carbon emissions by 2050 through “embracing the circular economy, boosting efficiency and optimizing processes.”
Four Business Benefits of a Circular Economy
A data-driven circular economy skips some of the more environmentally damaging “traditional” steps of the production cycle and brings about larger, more holistic wins for business and the Earth.
But currently, where it exists, the process for revitalizing existing products is disjointed. Some companies collect used goods from consumers, others do the recycling and sorting, and even more do the actual refurbishing of old components into new products.
By unifying the uncoordinated phases of a product’s lifecycle and the corresponding data into a more cyclical and streamlined solution, businesses (and the environment) can reap the many benefits of an optimized circular economy:
Benefit #1 — Supply Chain Relief
Every supply chain on Earth has felt the impact of material and component shortages (such as the ongoing chip shortages) as well as increasing freight costs. While these challenges are complex and multi-faceted, a better understanding of product revitalization can help alleviate the pressure to constantly acquire new raw materials and components.
A company that plays more than one role within a circular production system (such as manufacturer and recycler) can create for itself a more resilient supply chain. Although some new processes would need to be implemented for the receipt, sorting, refurbishing and redistribution of products, the more roles a company takes on within a supply chain, the more opportunities for innovation, automation and cost savings exist. The recovery and preparation of these materials for reuse would also generate a new economy of jobs.
Benefit #2 — Secondary Resource Streams
With e-waste, recovering materials like copper requires significantly less emissions than mining for the raw material. Some experts even estimate there is 80 times more gold in one ton of smartphones than a single gold mine. Since the amount of effort that goes into extracting raw materials like these is very intensive and environmentally invasive, the more materials, like precious metals, that can be reclaimed from products at the end of their useful life, the better.
While the sustainability benefits to be had here are large, the business benefits may even be grander. According to the World Economic Forum, the circular economy poses a net savings opportunity of up to $630 billion a year on material costs. Even in a more conservative scenario focusing on changes in product design and reverse cycle capabilities, this figure is still estimated at $380 billion in net material cost savings.
Less reliance on and demand for virgin raw materials could also mean falling price points and reduced volatility, compounding the potential savings for when new materials do need to be purchased.
Benefit #3 — Greater Efficiency
Circular economy hubs also create efficiency at scale. In a reverse logistics ecosystem, used goods are shipped from the end user to collection centers, to consolidation centers, to recovery facilities. Historically however, this supply chain is displaced and fractured all over a country or the world, involving multiple organizations who were typically not involved in the product’s creation.
By taking this traditional cycle and compressing it from 20 “touches” to just three or four, the more efficiency and control there is to be had. Investing in innovation at three sites as opposed to 10-plus then frees up more resources for investment in innovation, technology and automation.
Benefit #4 — Increased Consumer Agency
Better visibility into how products are made also helps consumers make smarter decisions that further support the circular economy.
More holistic data would make the idea that chemist Michael Braungart and architect William McDonough write about in “Cradle to Cradle: Remaking the Way We Make Things” possible.
The duo proposes detailed labels that tell how long a product will last, how easy it is to recycle, how much maintenance it needs, if it eliminates the need for other products, if it’s made from post-consumer material and if the components are benign from a biological perspective (such as biodegradable packaging lined with plant seeds).
Three Challenges and Solutions of a Circular Economy
To meet the challenges of a circular economy, growth must be untethered from consumption as we move toward a reduce-reuse-recycle-rethink paradigm that is quantifiable at every level.
Challenge #1 — Getting the Needed Data
For any product, having visibility into the components involved is critical. Tracking Scope 3 emissions from the raw material production, transportation, application and end-of-life stages — as well as Scope 1 emissions from company sources and Scope 2 emissions from energy consumption — allows for emission reduction strategies around the highest-emitting phases to be implemented. This provides definitive evidence of progress toward a business’ sustainability goals.
In some cases, the data needed to calculate emissions and implement a circular economy approach may exist, but it may not be easy to find and use. This results in a very manual and labor-intensive process. Other times, the data a business needs is non-existent. Capturing it requires a holistic approach that begins with tracking energy usage, working with suppliers to calculate their emissions inventories and more.
Only with comprehensive data can organizations partner to attack inefficiencies and optimize for greater growth, cost savings and positive environmental impact. With minerals and precious metals, this could look like identifying the carbon offset and mining abatement achieved through the recirculation of commodities back into the supply chain.
Solution: Capturing emission data throughout the product’s supply chain allows for more recovery-friendly designs to be built and for the optimization of circular economy processes.
An internal analytics project like a carbon calculator allows for organizations not to just implement data collection processes, but also automate and manage them intelligently. This is easier to put in place when a company is both designing and manufacturing their products themselves or working with a manufacturing solutions provider to do so; putting these pieces together in more fragmented systems can be a major roadblock.
Once in place however, the data points available can be used to drive and support circular economy goals instead of just lowering line costs. It can also help consumers make informed decisions that better support a circular economy.
Challenge #2 — Accessing Quality Materials
Due to low consumer recycling rates and/or a lack of sufficient trade-in programs in many areas, companies are having trouble finding enough post-consumer materials to use in their products. For instance, in 2019 only about 9% of plastic was recycled globally according to the Organisation for Economic Co-operation and Development.
An additional caveat is that these available materials must also meet high traceability standards. Certain highly regulated industries, including medical devices and food and beverage packaging, take a long time to accept new post-use materials to ensure the materials can be processed in a completely safe, sanitary manner, like chemical recycling.
But by helping generate a reliable source for it, circular economies can help businesses generate and capture the high-quality post-consumer material that they desire.
Solutions: According to a 2022 McKinsey analysis, decisions made during the research and development phase of production account for approximately 80% of a product’s total resource footprint. Considering sustainable design early in the product development process allows manufacturers to create circular economy processes for recovering components and materials after consumer use. Businesses can also develop relationships with supply chain partners who handle that recovery process (see #3 below).
Sustainable design, or Design for Sustainability (DfS), is a systematic approach to product design that strategically identifies and eliminates areas where emissions are generated by that product throughout its lifecycle.
With DfS or sustainable design, considerations include:
- How can the product’s carbon footprint be reduced?
- What is the predicted outcome for the materials post-use (e.g., landfill, waste-to-energy, circular economy)?
- What is the environmental impact of the materials’ production?
- What are the materials suppliers’ sustainability credentials?
- How can manufacturers engage with their supply chain partners to make the most sustainable choices for their product?
In the product design phase, OEMs should also plan for how recycled materials will be used. Only capturing materials that will have a place in a new product ensures that energy expended to recycle components does not go to waste. Understanding how material will be captured and where it will go is critical, and the design stage offers that flexibility. Waiting too long to design your circular economy loses that agility.
By focusing on how used materials can be reintroduced back into the product lifecycle, tremendous emission-saving opportunities become available.
Challenge #3 — Lack of Cross-Sector Partnerships
Historically, cooperation between governments, waste management companies and brands themselves has been limited when it comes to solutions for collecting products and packaging from consumers. Even when companies try to encourage the circling of their products and components back into a supply chain via recycling — outside the organization’s own closed loop — a lack of inter-supply chain visibility makes the process impossible to trace.
Some innovators are trying to bridge this gap between manufacturers and product reclamation sources. HyperScale, Asia’s first waste-tech accelerator aims to “identify, invest and nurture innovations that create a major impact on the waste sector.” The 12-week workshop focuses on nurturing innovative solutions that close Singapore’s resource loop toward its goal of being a zero-waste nation by 2030.
However, these types of programs often face issues getting the funding, market awareness and customer access needed to make an impact. Even if a company is technologically capable of implementing circular economy approaches, the outside business model it requires for enablement may not yet exist. Without being able to plug into the “real world,” the data monitoring systems these startups employ have nothing relevant to feed off.
This creates a chicken-and-egg problem: Without widespread participation in the circular economy, costs remain high and adoption rates low. These factors then deter the new engagement needed to initiate real change.
Solution: In addition to designing a product lifecycle that minimizes waste, our industry must establish partnerships with suppliers that have reclaimed materials from old products, agreeing to share and unify data along the way. By establishing intentional partnerships that connect industries and countries, organizations can amplify their efforts through the merging of resources.
Government support also plays a large role. Luxembourg’s Fit 4 Circularity program provides companies long-term guidance around establishing new collaborative platforms, business models and materials for more responsible production. Through this analysis, the governmental program helps companies “explore the possibilities of extending the life cycle of products and highlights potential gains linked to circular supply chains.”
Unless a business does all of its designing, producing, intaking, separating and refurbishing-recycling-repackaging under one roof, a strong network of partnerships is necessary to make the circular economy concept viable enough to turn trash into treasure. Working with an end-to-end manufacturing solutions provider can make this one-stop shop approach a reality.