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Circular economy: How to transform your manufacturing firm

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Is your manufacturing business is putting enough focus on sustainability? And are you transforming your processes to ensure your company is ready for future environmental demands?

Sage has worked with research company IDG to create a new report, Discrete manufacturing in a changing world: Leaping hurdles and identifying opportunities.

It reveals that UK manufacturers understand the circular economy is the way forward and are putting processes in place to ensure we replace today’s wasteful linear economies – which research and advisory firm Gartner says will happen entirely in 2029.

It also finds that 96% of UK businesses impacted by green manufacturing trends (79%) said they had adopted a circular economy strategy.

What is the circular economy?

As opposed to a linear economy in which you make, consume, and throw away, the circular economy is all about creating a circle where you design out waste and pollution by keeping products and materials in use for as long as possible and finding ways to create new resources from what is discarded.

Removing inefficiencies from your processes

As a discrete manufacturer, you might want to follow the path of well-known companies that are already incorporating circular economy strategies, which include BMW, Daimler and several major pharmaceutical companies.

Inefficiencies in your process may be causing your business to have a bigger carbon footprint than you have intended.

According to manufacturing expert Frank Piller, industrial manufacturing is one of the largest emitters of CO2, along with transport and energy, with an average operational equipment efficiency of roughly 60%.

Piller says: “Manufacturers can achieve significant climate change impact by making their industrial systems a little more efficient. It would be much faster than changing consumer behaviour, which is much more difficult to do.”

If you’re working in a UK manufacturing business, you may place a higher focus on lowering carbon footprint-related costs than your international counterparts – 40% of UK firms say this is the case as opposed to 24% of North American firms, 35% of EMEA companies and 38% of Australian businesses.

Business benefits of the circular economy

While you might want to join the circular economy to fulfil your sustainability goals, there are other proven business benefits to be aware of too. They include:

The ability to increase revenues and reduce costs

Using circular solutions could allow you to adopt new business models such as product-as-a-service.

You could extend the life of your products through initiatives such as refurbishment and remanufacturing (the industrial processing of used parts to bring them up to the same standards as new parts).

More energy-efficient practices

The circular economy is already inspiring innovation and insights into how discrete manufacturers can increase resource efficiency.

You should find ways to reduce the materials you need for production and to meet your customer needs, therefore reducing your exposure to volatile and rising resource prices.

Advances in productivity, efficiency and resilience

You’ll probably have designed products to be as easy to manufacture as possible, which doesn’t necessarily lend to disassembly or repair.

What you might want to think about in your product development process is the circular economy.

Instead of only thinking about functionality and cost, you will think about the whole lifecycle of the product, maximising its value and materials.

Enhancing your firm’s brand image

Businesses and customers are more aware than ever of the environmental impact that products can cause.

By being sustainable and adopting circular economy strategies, you can reduce the ecological footprint of your products, differentiating your company from other brands.

Where are we now?

Our Sage research says the vast majority of UK respondents see the circular economy as having a net benefit to their organisation, and will have a positive impact on their business over the next two years.

There is little downside to becoming part of the circular economy, but like 65% of the companies we surveyed, you may face undertaking substantial transformation to take advantage of it.

Piller says: “Often people might see it as more of an obstacle, as they have to build more resilience into their supply chain.”

But you feel that moving to a circular economy model is a price worth paying.

Almost every UK manufacturer we surveyed, and nearly every business across the globe, has begun transforming its operations to ensure they are fit for the circular economy.

Of the UK firms we polled, three quarters said they were in the middle of changing, while almost 16% had done. A small proportion (2%) said they have already completely transformed.

Transforming your business for the circular economy

Transforming your manufacturing operations for the circular economy can be difficult – the main challenge comes from adapting supply chain practices and sustainability with the bottom line.

And you may experience a lack of customer or market understanding of the value the circular economy provides.

To help you, here are three things you can do as you bid to transform your firm for the circular economy.

1. Understand customer demand

Piller says manufacturers still produce too many unwanted goods because they can’t predict what the market wants.

If you’re going to make your circular economy strategy effective and drive down product wastage, you should look to understand and predict customer demand better by analysing data.

You can also use traceability.

Technology enabling traceability would allow you to measure, track, and locate products and other materials with more precision allowing better management and allocation of resources.

Traceability provides you with:

  • Real-time visibility into the status of all processes
  • Automatic notifications that allow your business to be more informed, allowing you to react to events such as non-compliance or demand triggers
  • The ability to report and share product and materials data with your suppliers and customers, allowing them to understand where materials came and where they went.

Through the visibility afforded by traceability, you can have an operation ready for the circular economy.

It’s evident that to take advantage of the circular economy fully, you need effective ways to track and trace materials, components, and products through a system – from manufacture to end of life.

2. Make your products more durable

You’ll probably have designed products with a view of making manufacturing as easy as possible, which doesn’t necessarily lend to disassembly or repair.

You need to design products that are reusable, repairable and recyclable, as well as have the systems in place to support your customers when it’s time to change.

It calls on you to consider the value of the materials and the energy you spend making your products.

Through the Internet of Things (IoT), for example, you can now connect products you develop to the cloud, analyse performance, and collect usage data.

You can monitor and analyse products at a distance – this helps you develop products that are long-lasting and durable, which can reduce waste.

3. Adapt the supply chain

You may need to adapt the supply chain so you can offer new business models such as:

Refurbishment and remanufacturing

Refurbishment and remanufacturing can help you compete at a lower price with cheaper or lower-quality competitors, without reducing quality, due to the resource savings realised.

Consider electronic equipment such as mobile phones and laptops.

It’s relatively common for manufacturers to offer refurbished equipment – simply collecting, fixing and installing new software in models for markets that don’t need or can’t afford the latest premium devices.

Recycling

It’s cost-efficient to recycle your product components, ensuring you reuse these in new products instead of using raw materials. You’ll want to look at finding ways to create products that are durable, easy to use, or recyclable while retaining profitability.

You need to design products that are reusable, repairable and recyclable, as well as having the systems in place to support your customers as you make this change.

Hire and leasing

Leasing is when you offer products for rent, providing the option for the customer to buy them at the end of the contract for a fixed price that you agreed on at the beginning.

Services based on performance

This business model is where you retain ownership of a product and only provide a service based on its performance outputs.

An example could be a washing machine – instead of the customer needing to own it, they would pay for the benefits that come from using it (the act of washing clothes).

Incentivised return

A business would offer an incentive (usually financial) for the return of ‘used’ products. These products could then be refurbished and re-sold.

Asset management

You could maximise the life of products and minimise the need for new purchases by tracking your assets, allowing you to decide what can be reused, repaired or redeployed.

You could reuse your assets as part of an asset-sharing platform, where you contact other firms to share assets you can’t justify the expense of buying.

Collaborative consumption

The rental or sharing of products between members of the public or businesses, often through peer-to-peer networks, is a way to reduce waste. One example is making a car-sharing service available for people who don’t need to spend money on a vehicle.

Making the circular economy argument

Think about where you can see business opportunities that will ultimately help the planet – the technology is now there for you to change your business models, so it seems a real waste to ignore it.

Although you may already be looking to implement circular economy principles, it may still be a challenge to educate the wider company about the business benefits.

Many leaders in the Sage research felt there was a lack of customer or market understanding of the value the circular economy provides.

With the need to adapt supply chain practices, as well as balance sustainability aims with the bottom line, you may struggle to get the circular economy business message across.

To help, here are some three tips to effectively communicate and present ideas around adopting the circular economy.

1. Understand who you need to influence

Work out who you need to educate and influence about the circular economy. Getting your manager (or fellow board members) onboard first is a good start. Then you’ll need to do some detective work to target other people in the business.

Make a list of the names and explore their objectives, priorities and motivations. What’s their agenda, and what challenges are they facing? What do they need to be successful, and how can the circular economy help?

People in other departments will be likely to have different priorities – you’ll need insight into the different understandings of the circular economy that senior management, operations, procurement, innovation, and marketing functions may have.

2. What does the circular economy mean for your business internally and externally?

The circular economy has become mainstream and many positive messages are coming out from businesses, governments and trade/professional bodies.

You need to ensure the relevant people understand this.

Your business may already have corporate purposes, strategy, values, and commitments that the circular economy can support.

For example, you may have environment and social targets you need to meet or values you want to protect, such as designing out waste and pollution.

3. Understand what circular economy strategy you need to implement

The circular economy can bring significant benefits to your business by bringing in new customers, increasing profits and cutting costs. You can also beat the competition when it comes to innovation, brand reputation and sustainability.

With the circular economy, look for practical solutions to problems that already exist, and new opportunities that you wouldn’t get via a linear economy.

Make sure you understand what ideas could help with your existing challenges and opportunities – highlight the benefits of new approaches and the downsides of current ones.

Final thoughts on adopting the circular economy

Learn from the success of others.

Many businesses, both large and small, across many industries, have adopted circular economy principles and strategies. Look at case studies and take the information and insight you need.

Build a circular economy story – the shortcomings of a linear economy and the value you can create. Create an argument on why your manufacturing firm need to change. And address any misconceptions people may have.

When it comes to activating your circular economy strategy, start small – come up with trials and pilots to prove the benefits – and move quickly.

Discrete manufacturing in a changing world

Discover how economic, environmental and regulatory changes are changing the face of manufacturing, and learn about strategies that can help your firm remain productive.

Download the report