Circular Economy taking off
Today’s world is only 9,1% circular while regulators, consumers and investors are pushing towards or preparing for step changes in the coming decade. Finding an ideal combination of business model, product design and value loop eco-system is challenging for many products and services but is key to transform today’s linear value chains into profitable Circular Economy solutions.
Loop Logistics – the critical puzzle piece
“Loop Logistics” is the combination of traditional logistics and reverse logistics. It plays a key role in bringing Circular solutions to live, making them profitable and ideally free of carbon emissions. Looking at today’s material streams from a macro perspective unveils a complex, highly specialized & frequently globalized upstream system – while the downstream or “waste” logistics are comparably simple and have 2-3 streams in developing countries up to 20 distinct routes (e.g., plastic, glass, metals, paper, organic, electronics, white goods, clothes, batteries, chemicals, oil, tires, cars, inorganic, foams, wood, ….) in areas with a mature collection and recycling infrastructure. Yet, not even the most differentiated recycling infrastructures will cover more than a fraction of what is needed in a true circular economy model: they mainly serve the “last loop”, feeding materials into re- or downcycling and thermal recycling processes. The technical and economical limitations are evident: with today’s compound materials and wide material mixes in complex products, technically advanced separation technologies are required.
Circular logistics will replace volumes from most of today’s waste collection streams and a good proportion of upstream logistics based on the volume shift from “new” production material flows to R-Loops – and become increasingly localized. Last mile delivery will be complemented by last mile pick-up processes (for products, but potentially also for packaging), thus reducing the volumes of traditional waste collection streams significantly. In some cases, we will see specialized multi-use packaging that is both used to deliver the “new” product and to return the “used” one to the next loop. Additional services will emerge that can be coordinated and partially executed by logistics providers, expanding their offering portfolio and reduce interfaces in the increasingly complex tasks and transactions (Picture A).
Once products are redesigned to fit Circular Economy principles, logistics will start to play a key role in several dimensions:
Close relevant R-Loops (Reuse, Repair, Refurbish, Remanufacture, Repurpose, Renature)
Act as service step to determine asset condition and thus appropriate next loop
Client interface when delivering or replacing products
Distribution of products according to the needs in shared business models
Technosphere vs. Biosphere Logistics
The difference between logistics needed to serve the Biosphere vs. the Technosphere is limited to certain products, most logistical processes will be identical. Perishable goods including food redistribution need appropriate transport and storage infrastructure (e.g., with controlled temperature or atmosphere) while the controlled downcycling loops (wood fibers, bioplastics, etc.) can be based on either Technosphere infrastructure or the current distinct recycling streams if available. A general area of development are the different composting routes and technologies that apply for traditional bio-waste vs. technical composting, e.g., of bioplastics. Depending on local collection streams there may be a need of additional sorting and separation steps at the interface of logistics and waste treatment facilities.
Joining the puzzle pieces
Designing specific circular solutions including “loop logistics” is best accomplished by an integrated view on product design, business models and associated services. Unlocking the true value of circular business models will thus require a structured and comprehensive approach, involving all key contributors. For most products and services this needs to include all necessary upstream-, loop- and downstream related logistic operations.
The ideal tool to structure these multi-disciplinary and multi-stakeholder discussions is the new Circular Design Canvas, a business model canvas that reflects specific additional aspects of Circular Economy solutions even for complex consumer and industrial products (Picture B. Circular Design Canvas).
Besides using a structured approach, today’s liner value chain participants need to enter a transparent, open & trustful dialog to avoid getting stuck in suboptimal solutions driven by narrow viewpoints and interests.
The transformation roadmap includes many complex aspects that need to be designed comprehensively. Once product design and business models have shifted into circular ones, new eco-system infrastructures will emerge. Some focus areas include.
• Repurpose or build new localized infrastructure for integrating.
> service / maintenance
• Build I 4.0 solutions to drive automation of localized disassembly, repair, refurbish, upgrade, and remanufacture of products and assets.
• Enable sharing business models by creating lean, low-cost distribution & collection models that combine logistics providers, retail infrastructure and consumers themselves.
• Create a technology infrastructure that allows automated and secure management of smart contracts between several eco-system partners with minimized administrational effort.
- Repurpose or build new localized infrastructure for integrating.
- service / maintenance
- Build I 4.0 solutions to drive automation of localized disassembly, repair, refurbish, upgrade, and remanufacture of products and assets.
- Enable sharing business models by creating lean, low-cost distribution & collection models that combine logistics providers, retail infrastructure and consumers themselves.
- Create a technology infrastructure that allows automated and secure management of smart contracts between several eco-system partners with minimized administrational effort.
Whether it is the OEM, Tier 1-n, waste collector, logistics provider or completely new entrants to take the lead remains to be seen. We can assume though, that collaboration, mergers, and Private Equity driven portfolios will emerge to combine the required competencies, technology, and local footprints. Given the overarching nature of optimal solution scenarios, organizations must start with a thorough understanding of Circular Economy principles, proven models, and regulators requirements. The transformation will include most functions and partially disrupt them; thus, organizations need to rely on the collective creativity of their entire organization and beyond. Training needs cannot be overestimated, a collective deep understanding of the topic and motivation to question the status quo is more important than ever.
Regulators, consumers, investors – the multi-stakeholder challenge
Given the high efforts to circularize today’s business models, organizations should take advantage of push and pull factors enabling the transformation. Especially for logistics, it may not always be evident how regulators activities and investor & consumer preferences can be leveraged to smoothen the efforts. The following topics should be understood to avoid missing relevant opportunities:
• Understanding regulatory developments.
> Regulatory pressure drives new market needs.
> Significant public funding (direct, tax incentives etc.) is available to develop and implement circular infrastructure.
> Ranges from EU down to municipal level.
• Investors are shifting capital into sustainable business models.
> Assess option for private funding for Loop Logistics solutions development.
> Currently more capital than good investment opportunities.
> Possible platform to create strategic alliances and eco-systems.
• Consumer mindset shift.
> Consumers are jumping S-curves in many sectors, e.g.,
» Sharing models vs. ownership: Transport, Lodging, Micro-Mobility.
» Re-Use: 2nd hand fashion, luxury goods.
> General willingness to spend more for sustainable solutions.
Decarbonization and labor conditions in Circular Economy logistics
When closing loops in Circular Economy business models, there is a special attention to Sustainability parameters in the services provided. GHG emissions resulting from transport, storage and service processes need to be transparent and ideally as low as technically feasible. Making an overall assessment can be very complex, yet it can be seen as an imperative to provide carbon neutral or negative services by activating all available decarbonization levers – from efficiency and compensation to use of green energy.
Labor conditions is a second key aspect besides decarbonization. Circular Economy will create more local jobs by shifting resources from “new production” into the loop services. A proportion of this new effort will fall into simple tasks including transport, sorting and simple material handling activities. Given the general attention on labor conditions in today’s value chains, the new localized structures need to be built with fair, safe, and healthy working conditions from the start. Given the potential additional cost that arise, automated and ergonomically ideal workplaces need to be considered at the early stage of defining and designing circular services & logistics.
Loop logistics will reinvent the sector
Summarizing the various aspects of making advanced Circular Economy solutions work both technically and financially, logistics will play a central role. The sector can be radically reinvented keeping in mind the massive opportunities to integrate new service steps, repurposing current infrastructure and acting as future “face to the consumer”. Despite the complexity we will face in detail, there is a healthy foundation to build upon, such as the continuing integration of services from logistics providers and the advancing implementation of I 4.0 solutions and technology backbones.
Some key aspects to be considered include
• Leveraging public and private funding to develop the required solutions.
• Actively shaping the future service portfolio together with all key stakeholders.
• Sharing Circular Economy knowledge within the organization and the entire future eco-system.
• Developing a bold ambition both for future value creation and the transformation scope.
• Building technology backed solutions right from the start.
Finally, switching the own mindset from “reducing negative impacts” towards offering services with “positive impacts” is a guiding principle which allows to decouple economic growth from resource consumption – and a “no regrets” consumer promise.
About the Author
Leader Supply Chain & Operations Europe West
Martin Neuhold started his career with Unilever after completing his studies in Chemical Engineering. Between 2000 and 2007 he implemented international Lean Six Sigma Programs at Celerant Consulting and took over the Service Line Process Excellence in Kienbaum Consultants International until end of 2017. He currently leads Supply Chain and Operations in Europe West and is part of EY’s global Circular Economy team. Contact: Martin.Neuhold@de.ey.com