The circular economy – a model that keeps resources in productive use in the economy for as long as possible, consequently turning waste into wealth – is perhaps the biggest revolution for the global economy in the last two and a half centuries. Fifteen years from now, it could be worth $4.5 trillion.
This comes as no surprise. The circular economy creates value while it eliminates waste and maximizes product use, ultimately upending traditional notions of competitiveness.
What Does this Mean for the Supply Chain?
In the circular economy, what would have been missed economic and business opportunity (e.g. lost resources and underused assets) becomes an engine for growth. Take British Sugar, which has built its award-wining horticulture business on circular strategies, enabling it to produce upwards of 140 million “eco-friendly” tomatoes each year at just a single glasshouse. Among other sustainable practices, the company takes extra carbon dioxide from its sugar factory and pumps it into this single growth site, where the plants absorb it during photosynthesis, transforming what could have been wasteful, and harmful, emissions into a key accelerator of the supply chain.
Supply chains can also tap into the rapidly expanding product-as-a-service model to increase efficiencies, eliminate waste and stay competitive in an evolving landscape. There are any number of products with high price tags and long payoff times – items that consumers rarely use. Whether it’s a city dweller who finds carpooling more efficient than taking his or her own car out during rush hour, or a homeowner who periodically needs a power tool or piece of equipment for lawn maintenance, product-as-a-service has become increasingly popular among today’s consumers. According to estimates, the average car is parked 95 percent of the time.
To stay ahead of these shifts, General Motors recently shook up the industry with its new car-sharing service, Maven, which offers customers temporary access to vehicles waiting to be picked up around cities. The service has enabled it to maximize use of its automobiles and reserve resources, all while tapping into growing demand for personal, on-demand mobility services. In so doing, the company is paving the way for a smarter, more efficient supply chain as well as strong market share in a booming new marketplace. Car sharing revenues are likely to expand to $6.5 billion by 2024.
Beyond maximizing product use, the circular economy also presents a valuable opportunity for companies to enhance business strategy, as they re-examine everything from what they sell and what goes into making it, to the operations that underpin products and services. Take a leading beverage company that finds a creative way to dry used grain from the production process and feed it into the manufacturing of other products, spanning pharmaceuticals and cosmetics. By finding new ways to repurpose the grain, this company has since been able to turn something that would otherwise go to waste into an important revenue stream and driver of growth.
Fueling Circular Supply Chains via the Internet of Things
Companies can strategically mine and deliver information to inform their supply chains in nearly real-time thanks to intelligence collected by the Internet of Things (IoT), thereby supporting circular models. By offering a direct line into the performance of key materials and products, sensor technologies and predictive analytics can empower companies to keep processes operating at their optimal potential. In addition, by flagging maintenance issues as they arise or sending out early signals that the product needs attention, data sensors enable manufacturers to restore products that would otherwise go to waste. Supply chains must reimagine themselves as fully digital networks to tap into IoT’s vast potential.
By joining Philips’ LED light system with Vodafone’s machine-to-machine SIM card network, the companies have created a disruptive new infrastructure that enables personnel and engineers to monitor lighting remotely, and make fixes whenever needed.
—Kris Timmermans, Senior Managing Director, Accenture Strategy
Automobile companies that are pursuing car-sharing service platforms, like Maven, use IoT sensors that can provide real-time information about the condition and functionality of their cars, no matter where they’re located. This positions the company to be agile and strategic in today’s growing service economy.
As digital technologies enable unseen levels of analysis, automation and coordination, they give life to new, as of yet unconsidered, disruptive business models. Vodafone and Philips’ recent introduction of wirelessly-connected street lighting demonstrates the powerful intersection between strategic enterprise growth and large-scale sustainability. By joining Philips’ LED light system with Vodafone’s machine-to-machine SIM card network, the companies have created a disruptive new infrastructure that enables personnel and engineers to monitor lighting remotely, and make fixes whenever needed. Philips estimates that its system delivers an additional 30 to 40% energy savings above those achieved by LED lighting, as lighting can be adjusted as needed.
Circular models powered by digital technology also deliver unprecedented transparency into key supply chain processes – which can inform future business decisions. Sensor technologies carry deep intelligence into how products operate and can be improved, arming manufacturers to develop more efficient and durable goods in the next phase of production. Businesses can use this intelligence to cut costs in poor-functioning areas, reinvest in strategic initiatives, or shift strategy the moment they recognize a dip or spike in demand.
Achieving a Circular Model
Creating circular operations to participate in this new economy can be a daunting prospect. Still, steps can be taken to transform linear supply chains into digital supply networks that facilitate circularity, boost competitiveness and improve business outcomes.
- Define what circular model will be adopted. Companies can cash in on the circular economy in various ways, whether they tap into the product-as-a-service model, create products from recyclable materials or loop materials back into their sourcing. Selecting the model that is right for a specific company requires a deep evaluation of its production portfolio and customer base.
- Leverage the power of data. Thanks to the disruptive potential of predictive analytics and the IoT, companies that adopt digital systems have a massive amount of data at their fingertips. It’s important to use this intelligence to its full strategic potential.
- Expand ecosystems of suppliers, distributors and other companies. Businesses should seek out organizations that share their values and bring the complimentary expertise they need to implement new models and create efficiencies. As Philips and Vodafone demonstrate, companies outside traditional industry sets can be crucial sources of talent, resources and digital technology, enabling unified infrastructures for new disruptive services founded on innovation and sustainability.
Supply chains can play a crucial role, but they need to become circular to drive smarter strategies, eliminate waste and enable companies to maximize the value of their products. As linear processes are replaced by digitally-driven networks, supply chain managers can take on an increasingly strategic role to help companies achieve efficiencies and gain a competitive edge.
The result? New revenue streams, and more intelligent, efficient and sustainable industries that will fuel circular economies.
Kris Timmermans is senior managing director of Accenture Strategy, Operations. His role focuses on assisting clients to develop dynamic supply chain and service operations capabilities to more rapidly respond to changing customer demands and market opportunities across North and South America, Europe, Africa and Asia Pacific.