Circular trailblazers: Mapping the journey to a closed-loop business model
As waste and resource scarcity issues have an increasing impact on supply chains across the world, edie explores how two circular economy leaders - HP and Philips - are continuing to navigate a complex minefield of challenges in their mission to drive a global resource revolution.
A North American coastal voyage in 1533 concluded that California was in fact an island. This myth was put onto world maps and the State was continuously referred to as such until 1747 – just years before the Industrial Revolution swept across Britain.
While geographical mapping has evolved with technology to become far more accurate, global economic systems continue to operate under an out-dated model, with the predominantly linear process of 'take, make and dispose' still seen as the de facto business model of the 21st Century.
The circular economy offers a much-needed system upgrade; one that focuses on careful management of material flows through product design, reverse logistics, business model innovation and cross-sector collaboration.
The Ellen MacArthur Foundation has been championing this closed-loop approach to business since its formation in 2010. But, as the organisation’s digital architect Joe Iles points out, some organisations that are striving to lead the circular economy transition are mapping its routes in a similar fashion to 16th Century explorers.
“Sometimes, people interpret the circular economy as a nirvana where nothing new is ever made, and all material is recycled – potentially to the end of time," Iles says. "We constantly remind ourselves that we're at a very early stage with this. We think of our understanding of the circular economy as akin to the early 16th Century map of the world – we know where there might be some bodies of opportunity, we know roughly the direction we might go to get there, but it does lack precision.
“No one is under the illusion that we've got this all sorted, there are distractions, and it isn't clear cut. Our view at the Foundation is that it is a journey of exploration and an appealing vision. We just don't have all the precise science yet.”
One of the primary appeals of the circular economy for business is the potential revenue benefits it offers. The Foundation estimates that the EU manufacturing sector alone could realise net materials cost savings worth £390bn a year by 2025 by adopting a circular economic model. The savings rise to €1.8trn when taking into account all industries across the continent.
Widening the circle
For some companies, a circular economy vision is slowly becoming a reality. Iles from the Ellen MacArthur Foundation was speaking at the recent HP Sustainability Summit – an event which saw the printing company unveil new ink cartridge prototypes made from recycled plastic bottles from Haiti. As we enter the Fourth Industrial Revolution, HP stands out as an example of a business that is accelerating the transition to a circular economy by switching from a transactional business model to a contractual one with consumers.
HP has also been one of the main benefactors and drivers of servitisation, considered to be the 'posterchild' of the circular economy. Through the HP Planet Partners print cartridge return and recycling programme, HP manufactured more than 3.4 billion ink and toner cartridges using more than 88,900 tonnes of recycled material in 2016. This included 3.7 billion plastic bottles. In total, more than 80% of HP ink cartridges contain 45-70% recycled content and all toner cartridges contain at least 10% recycled content. The service-based aspect of the platform means that consumer aren't involved in returning used assets, as HP manages the entire service ahead of time.
But, as HP's global head of sustainability and product compliance Judy Glazer points out, while products are being tailored to capture the benefits of the circular economy through a transactional service that benefits customers, the concept is still struggling to become embedded across all areas of the business.
“The challenge we have is putting together the whole and end picture for the company, so that people can see how the cost and benefits are changing,” Glazer says. “Unless you can show people the overall picture, and how the concept gets better, they won't be interested.
“You're changing internal metrics, to help people see the bigger picture. The benefits of circular economy might not always show up in the cost, but in other buckets, and one of the big innovation steps is being able to widen the circle and see the bigger picture to define and create value inside a company and for the customers. Thinking differently is why the circular economy is important, but not easy.”
HP is a member of Ellen MacArthur's Circular Economy 100 project to accelerate the transition to a circular economy. Embracing closed-loop systems has changed HP's approach to sourcing materials, which is in turn transforming the way that HP's procurement department works with its suppliers.
HP’s use of its own products to create recycled content gives the firm greater control over quality and price of its procurement process. But, as the company’s director of global sustainability operations Kirstie McIntyre recently told edie, square pegs are still forming in these circular systems – mainly in other departments. McIntyre noted that areas such as the procurement department are “incentivised in a very particular type of way” that is often quite contrary to the aims of the circular economy.
Lighting the way
As with many of the issues facing the private sector in relation to corporate responsibility, the solution to accelerating uptake and understanding of the circular economy is collaboration.
Dame Ellen MacArthur recently told edie that the biggest step to strengthening the case for closed-loop products and services is to create a dialogue mechanism that gets rival companies “sitting around the same table”. And the Foundation’s Circular Economy 100 project is aiming to do just that. Both Coca-Cola and PepsiCo are supporting a new global action plan to recycle and re-use 70% of the world's plastic packaging, which is costing between $80-120bn in material value lost to the economy.
Dutch firm Philips is another member of the Circular Economy 100, and stands out as an example of how collaboration can deliver streamlined benefits as systems transition away from a linear model. The company has partnered with HP since 2011 on all IT infrastructure for employees. Up until 2014, Philips was charged with informing HP on when an IT asset needed to be disposed or upgraded. However, HP is now responsible for the collection, maintenance and handling of the 80,000 assets used by Philips across 50 countries.
Philip’s project manager for circular economy Markus Laubscher was also at the HP summit, and revealed that “circular revenues” – revenue generated from sales of products and services that consist of circular economy principles – accounted for 9% of total revenue in 2015. Laubscher admits that the relatively low percentage was an “indication of how we are still in the make, take and dispose mode of working”, but nevertheless Philips sees big opportunities to accelerate these sales; provided they can rid themselves of internal, behaviour change barriers.
“We haven't overcome this yet,” Laubscher says. “It is a transition and a difficult one. If you have colleagues who are used to a certain way of business for 20 to 30 years, the metrics become ingrained.
“We're restructuring all processes as there might be some hidden KPIs that work against you if you look from end to end in the company, and we're still mapping these. We've seen that we hire outside of our traditional industry, people who have a service background to bring the mindset into other areas of the company."
Philips started introducing Cradle-to-Cradle (C2C) design specifications for its products five years ago. C2C maps product design against biological and technical cycles that produce no waste streams, but Laubscher notes that this isn't necessarily a design aspect that should be 'sold' to the end-user.
“Very few customers at this point actually look for circular economy propositions,” he says. “It’s not the way to promote it. It's all about benefits to the customer – it's in the interests of a company to make things in a circular way because it helps them to manage their costs and reduce their risks, but it’s not necessarily something that you shout out to the customer.”
Looking ahead, both Glazer from HP and Laubscher from Philips agreed that collaboration and technological advancements will provide the keys for other businesses to begin unlocking the benefits of the circular economy transition and navigating their way to a closed-loop future.
Philips Lighting, for example, has become an advocate for smart solutions and big data acting as the “backbone” of the circular economy, making it easier for companies to track products and waste streams. Elsewhere, companies in extremely competitive markets such as BMW – a closed-loop champion in its own right – have suggest that “opening Pandora’s box” to share best practices, innovations and patented systems would create a platform that allows the circular economy to extend amongst businesses and consumers.