What is the Circular Economy and how does it affect us
Many of us are comfortable using UBER and Airbnb nowadays but what if your business never had to buy a light bulb again instead you leased it like a car or an apartment?
This is just one idea that's part of what is called the Circular Economy.
Circular Economy versus Linear Economy
Before we can understand the Circular Economy, we need to examine the linear economy. Your organization most likely operates in the linear economy which is based on a take-make-and-dispose model. For example, a light bulb company takes resources like glass or metal to manufacture products and sells them to its customers. Once the product has stopped working, it is very unlikely that the company or the customer will ever see that light bulb again. For a light bulb company to make money in the linear economy, they will try to buy materials at the lowest cost possible and sell as many bulbs as possible. The linear economy operates as if there are infinite resources like glass or metal in the world, but you and I know that's not the case, in contrast, the Circular Economy treats materials like they're finite.
In a Circular Economy, companies have lifetime ownership of their products
A company in the Circular Economy may not just recycle products but often will maintain lifetime ownership of them so the model looks more like make, use and return.
On Jan 18, 2018, CNBC reported the following example of Circular Economy: In London, customers can now lease their lighting instead of buying bulbs. How does this work? Phillips Lighting assigns a term lease for the service and the customer pays a service fee each quarter. Philips still owns the actual light bulbs and provides maintenance and replacements when needed at no extra cost. This supplier-customer relationship increases the incentive for Phillips to produce energy efficient light bulbs while in the process reducing waste. This is just one example of how developing circular economy thinking can produce a radically different business model that turns companies into service providers rather than just sellers of a physical product.
“More and more companies are looking for ways to develop circular economic relationships with their customers. H&M, one of the world’s largest clothing retailer is working out a strategy to become 100% circular. The company has been collecting old garments at its stores since 2013. H&M says it has collected more than 55,000 tons of fabric to recycle to produce new garments so far”. (Source: CNBC)
In a Circular Economy companies may engage in Industrial Symbiosis
The lifetime product ownership model is not the only way a company can get involved in the Circular Economy, there are various other models that are emerging. One such model is called “Industrial Symbiosis” or “IS”; this is where things become interesting for all organizations large or small.
This is how “Industrial Symbiosis” works:
Produces = Paper products
Discards = Carbon Dioxide + Heat + Water
Has unused resources = Land
Needs = Fuel to burn
Produces = Tomatoes
Discards = Broken Wooden Pallets
Has unused resources = Land
Needs = Carbon Dioxide + Heat + Water
An “IS” relationship is developed when:
Incredibly, the following objectives are met with this one single “IS” relationship:
> Carbon Dioxide emissions are reduced = the carbon footprint of Company- A
> The amount of virgin materials being consumed in both Company A and B is reduced
> The supply chain transportation is reduced for both Company A and B which further lowers the use of virgin materials, energy and Carbon Dioxide emissions
> Local economic activity increases as we now have two new contracts where goods and money are exchanged
Þ The production costs in both Company A and B go down due to a reduction in environmental fees and taxes associated with the disposal of waste material and Carbon Dioxide emission.
KAIZEN™ as a way to prepare for the Circular Economy
Our Founder Mr. Masaaki Imai, brought to the world’s attention in 1985 ‘Kaizen, the secret to the rise of Toyota’. The Toyota Production System was born out of necessity: Postwar Japan suffering from a chronic lack of production capacity and raw materials. Engrained in KAIZEN™ is the relentless reduction of waste of resources of all kinds, as well and focus on developing standard processes that enables the flow of materials, goods and information. A study (our workshops at KAIZEN™) of KAIZEN™ is a great way to prepare leaders and employees to engage in the Circular Economy.
National & Local Governments role in developing the Circular Economy
As the debate rages on in North America about the efficacy and effectiveness of Carbon Taxing, business owners and leaders can all help to move the Municipal, Provincial / State and Federal Environmental agenda towards more Circular Economic models and away from the current linear models of take, make, dispose & pay tax.
Elsewhere in the world, some governments are getting on board with the Circular Economy. This year the European Union adopted an action plan to make supply chains in members states more circular. The estimated shift to the Circular Economy in the EU based on the current plan they adopted could increase GDP by an additional 12 Percentage points by 2050.
What can you do today to help develop the Circular Economy where you live and work?
1. Reduce waste in your company, increase flow efficiency and optimize the supply chain
2. Take part in a local Industrial Symbiosis workshop. These are free to join and act as a kind of speed dating service matching your companies waste and or spare resources with a potential buyer/renter in your area
3. Look for opportunities to buy products and services that contribute to the Circular Economy either as a company or personally as a consumer
4. Contact your local and Provincial / State elected officials and executive managers and ask them what they are doing to help create the conditions for the Circular Economy to develop locally.
Sources & references:
The Circular Economy in the EU
EU examples of the Circular Economy working
What is the Circular Economy? | CNBC Explains
This article was prepared by Chris Leonard, Director Client Services at Kaizen Institute North America.