Unlocking the Benefits of a Circular Economy
Today we mostly operate in what’s known as a linear economy: we use raw materials to make goods that get used and then are disposed of as waste. It’s a one-way conveyor belt that pulls resources out of the economy. Landfilled, buried, unused in a warehouse—everything that made up those products is locked away, no longer usable.
In a circular economy, waste products are economically and environmentally beneficial as inputs to be reintroduced into the value chain. When we reuse or transform them, we can generate tremendous opportunities.
Estimates by the Ellen MacArthur Foundation and McKinsey suggest that savings in materials alone could exceed U.S. $1 trillion a year by 2025, while potentially creating more jobs and innovation. Chief supply chain officers like myself spend the majority of our time at this convergence of supply, cost savings, talent development, and competitive differentiation.
Changing the way the world approaches, the economy is no small undertaking. There is a lot of built-in inertia that favors our existing linear model. As pressures mount, disruptive leaders are going to find the ways to design, source and build to this circular method. I believe technology will lead the charge.
Let’s consider mobile technology. The population at large has demanded a transition from solely using large machines on desks to having powerful computing in our briefcases and pockets. This transforms the materials required to source and build to the way existing resources are used to do the same. Beyond untethering us from our physical desks, the mobility of technology has given rise to the sharing economy, where resources have higher utilization rates. Think about ride-sharing services, such as Uber, that use cloud computing (another less resource-intensive method) to pull data from data centers. Previously, this concept would be nothing more than note cards on a dorm bulletin board without our phones.
The current buzz surrounding the Internet of Things is deafening, but therein lies another great opportunity to shift our ways of designing, sourcing and building. It begins with the ability for processing controls and smart automation in manufacturing to using real-time data to be more efficient. Many of these uses have long been a part of the manufacturing process, from using sensors to monitor environmental conditions, to adjusting processes to automating material ordering to maintaining optimal inventory.
It can go much farther than a manufacturing facility, to any true supply chain. In agriculture the use of sensors and edge computing can help farmers optimize watering, increase yields, identify which crops are ready for harvest and reduce spoilage. That same type of technology, applied to smart traffic solutions, can give drivers real-time access to better routes, while giving planners and managers greater control over traffic flow to assist emergency personnel and reduce congestion. (Idling is just another way of wasting resources, both fuel and time).
Those same smart solutions, when viewed across time and in the aggregate, yield an even more important means of transitioning to a circular economy. Big Data analytics is an important tool for looking at the whole ecosystem to uncover inefficiencies and find hidden opportunities. To illustrate, data insights help procurement commodity managers and supply chain managers plan resources, drive collaboration and reduce risks. On the logistics side, moving materials and goods around happens more efficiently, when tapping into weather data, traffic density and GPS-enabled telematics for route planning and inventory manipulation. In fact, data and other geospatial analytics combined with demand forecasts taps into the power of the sharing economy’s ability to crowd-source pickup and delivery.
Ultimately, embracing the principles of a circular economy should not be viewed as a choice between being a good steward of the environment and a good business practitioner. It’s both. Peter Lacy talks about this in his book Waste to Wealth. Wasted resources, underutilized assets and short product lifecycles not only intensify environmental damage and natural resource depletion, but also hurt the bottom line. Efficiency makes the circular economy go round, reducing resource use, cutting costs, gaining productivity and discovering new opportunities. Technology is the key to unlocking it all.
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