Circular Commerce: The Life of Manufactured Products

Circular Commerce can extend the useful life of manufactured products and sustain the life of our planet.

The United States alone is responsible for generating billions of tons of industrial waste annually. For the manufacturing industry, as for many others, minimizing waste - especially that destined for landfills - is therefore at the top of the sustainability agenda. This implies an enormous shift in the way manufacturers have gone about their business down the ages, which is to make products and services that provide value to customers as efficiently as possible. Factories turn raw materials into finished products, consuming finite natural resources - water, energy, and raw materials - along the way. In this linear, unidirectional model, resources flow from the producer to the consumer. This design based around efficiency is now deemed unsustainable because of the waste it generates, which either goes into landfills or leaks into the environment.

Other forces pushing manufacturers to reduce waste, with the goal of driving it down to zero eventually, include cities whose systems are under increasing stress, regulations such as those banning single-use plastic, the emergence of new, toxic waste free business models, and conscious consumers who have adopted a zero-waste lifestyle.

Circular Commerce: A virtuous cycle

The alternative to this traditional consumption model is circular commerce, a system built on three principles:

The pursuit of zero waste resonates with the circular economy, which promotes a new, multidirectional flow of products and materials, prolonging their use to eliminate waste, pollution, and the one-time use of resources. Being regenerative in nature, the circular economy counters the unsustainability of linear commerce, but it also builds economic opportunities - valued at a trillion dollars worldwide - and resilience over the long-term.

An example of economic value creation is the emergence of a new business model based on product repair. The market for refurbished goods was born of the need to extend the life of products. When an automobile is at the end of its life, its valuable parts can be reused or refurbished with a little effort; also, valuable materials can be recycled to reduce the consumption of virgin materials. Now regulators are also championing the right to repair to keep products in circulation. While this will dent revenue from new sales, it also has the potential to generate income by creating local, small business ecosystems for after-sales service, spare parts, retrofits, and upgrades. One need not look further than Apple’s independent repair provider program for out-of-warranty products, which offers spare parts, repair-related information, and technicians’ tools in about 200 countries.

Lately, the circular economy is also going beyond its zero-waste goal to influence product innovation, sustainable packaging, renewable energy use, and responsible consumption to give the most sustainable enterprises new sources of differentiation.

Predictive PLM and Servitization: Long live the product

To design out waste and pollution, manufacturers need to redesign their products so that they live longer, and are easily repaired, reused, and recycled. Naturally, the raw materials used must support circular principles, and should be of a sufficiently high grade such that even after recycling they yield high quality products. Once the virtuous cycle of circularity sets in, the products deliver value repeatedly by being reusable, and thereby justify their higher manufacturing cost.

Predictive product lifecycle management (PLM) optimizes circular design and manufacturing. It has the following stages: conceptualize, design, make, deliver, service, return, and end of life. The last two involve reverse logistics, repair, reuse, recycle, and refurbish activities.

In the final stage of end of life, predictive PLM uses several approaches to achieve circular goals. One of them is servitization, where the product is sold as a service, specifically as product performance. This approach treats a product not as something that is disposable and of low value, but as a long-lasting item that can be sold as a service many times to different customers. Longer lasting products imply lower consumption of materials and energy. Finally, since the servitization model builds in the cost of future product upgrades, it drives manufacturers to adhere to circular goals, such as reusability, recyclability and repairability during product design.

Servitization allows (customer) enterprises to convert their capital expenditure - in machinery, for example - to operating cost. From the manufacturing enterprises’ perspective, it is an opportunity to earn new revenue from services, such as maintenance and fleet logistics, offered through pay-per-use models. A study conducted by Aston University and Xerox concluded that servitization could potentially account for half of a company’s revenues.

The best-known example of servitization is found in the aviation business, where an aircraft engine and replacement accessories are offered as a service, charged at a fixed cost per flying hour. Not only are the automobile, industrial machinery and medical equipment industries also shifting to this model, there are signs that other businesses, including technology services - and here, Amazon’s Elastic Compute Cloud on-demand service is a great example - will do so too, helped along by internet of things (IoT), cloud and high-speed networks.

Digital in the circular economy

Digital technology is a foundational element and critical enabler of the circular economy. The convergence of cloud, artificial intelligence, machine learning, data, IoT, edge computing and connectivity is creating greater possibilities for sustainable manufacturing. Digital technology also supports the strategies driving the changes required for meeting ESG goals. Further, the impact of digital transformation goes beyond the enterprise to touch supplier systems, making sustainability applications more efficient and transparent.

Predictive PLM leverages IoT and other technologies for more than just circular product design - for example, to perform real-world simulations, create what-if analyses, and experiment with new products with a high digital component. It taps information from the outside world, including connected devices and social media platforms, to understand how products are performing and to deploy those insights into future product design cycles.

The rapid digitization of manufacturing enterprises in recent years puts them in a good position to embrace predictive product lifecycle management. At GE Energy, the company digitally replicates power plants and their critical components, comparing fuel versus electricity costs to optimize that expenditure in plant operations. A customer increased energy output by 2 to 3 percent to save $15 million in each plant.

Regenerating natural systems is one of the core principles of circular commerce. Accordingly, supply chains in the circular economy use renewable energy extensively. Big automotive names, such as Tesla and Volkswagen, and tech majors like Intel, are leading the way here. The Renault Group is another great example, having resolved to gradually replace raw materials from natural resources with secondary materials made by recycling.

Supply chain management is all about tracking the right metrics, including order cycle times, fulfilment rates, delivery times, and inventory efficiency. In the supply chain of a circular economy, resource utilization is also turning out to be a valuable performance indicator, and a source of insight. This helps manufacturers understand both the consumption of renewable energy resources, such as water, and the way by-products, including carbon emissions and other pollutants, are being managed.

The challenge, however, is that the traditional measurement methods being used are not accurate enough. Digital technology is changing that by enabling easy access to vast and varied real-time information to inspire environmentally responsible actions. It is conceivable that with the help of technologies - sensors, big data, cloud and IoT - manufacturers will someday track key sustainability metrics throughout the supply chain to compute the total environmental cost of a product at the point of purchase, to inculcate environmentally responsible behaviour in their own organizations and among their user communities.

Over time, local manufacturers can base production decisions on environmental cost, whereas those with global operations can allocate production between regions based on considerations of water cost and footprint, and waste management infrastructure, to minimize their ecological impact.

The only way ahead

Manufacturers that are running on linear source to consumption processes must now pivot to a circular model to become sustainable. They need to broaden their efficiency and productivity- minded focus by adopting circular practices to minimize both waste and one-time use of resources. This is a crucial step in averting environmental catastrophe, but it is also a business imperative for manufacturers to counter serious risks - the probability of running out of natural resources in the face of indiscriminate consumption, and the prospect of irrelevance as regulators and consumers alike advocate a shift to circularity.