The Pressing Need for a Circular Economy

Stephen DeAngelis

January 25, 2018

There can be little argument over the fact humans are a wasteful species. Kadir van Lohuizen (@mediakadir) reports, “The world generates at least 3.5 million tons of solid waste a day, 10 times the amount a century ago, according to World Bank researchers. If nothing is done, that figure will grow to 11 million tons by the end of the century, the researchers estimate.”[1] You might be asking, “So what?” There are a lot of reasons to care about the growing garbage problem from its effect on society’s health to its global economic costs. One strategy to address this growing problem is to move towards a circular economy.

What is a Circular Economy?

According to the Ellen MacArthur Foundation, a leading proponent of the circular economy, “The circular economy refers to an industrial economy that is restorative by intention; aims to rely on renewable energy; minimizes, tracks, and hopefully eliminates the use of toxic chemicals; and eradicates waste through careful design.” Former McKinsey analyst Markus Zils adds, “The circular economy aims to eradicate waste — not just from manufacturing processes, as lean management aspires to do, but systematically, throughout the life cycles and uses of products and their components. Indeed, tight component and product cycles of use and reuse, aided by product design, help define the concept of a circular economy and distinguish it from the linear take–make­–dispose economy, which wastes large amounts of embedded materials, energy, and labor.”[2]

Susan Graff, Principal and Vice President at Resource Recycling Systems, explains, “Practically speaking, the goals of the circular economy are to shift the take-make-waste linear industrial system in big and meaningful ways to create closed loop systems. The result is a net positive or restorative impact measurable at the scale of an economy, creating shared value with environmental, economic and social benefits.”[3]

The Supply Chain and the Circular Economy

In its simplest form, the circular economy means new products go out and old products are returned. In other words, the economy can only be circular if the supply chain functions smoothly. The staff at Material Handling & Logistics (MH&L) bluntly states, “Logistics plays a critical role in implementing a successful and sustainable circular strategy.”[4] One oft-discussed logistics topic is the “last mile” challenge. Tamara Barker, UPS Chief Sustainability Officer and Vice President of Environmental Affairs, insists companies are going to have to pay a lot more attention to the “first mile” challenge if they are going to implement a successful circular strategy.[5] She explains, “Companies trying to implement circular strategies face a ‘first-mile’ challenge with re-using products and resources for future consumption. Each product in a company’s supply chain must be analyzed based on its unique characteristics from raw material to end-of-life. Circular planning must then be used to determine whether reclaimed products and resources should be transported back to a central hub facility or dealt with on a local level.”

Accenture Strategy managing directors, Sudipta Ghosh and Harry Morrison, report most companies have a long road to travel before they have a true circular supply chain in place. “According to a recent set of insights from Accenture Strategy,” they write, “too often programs remain ‘skin deep.’ Too few companies are embracing the ‘full circle’ approach to waste elimination in their supply chains, resulting in a missed opportunity to capture the full potential value of the circular economy. The report from Accenture Strategy found that although most supply chains are prioritizing recycling, few companies are reusing materials they recapture at the end-of-life.”[6] Chances are most companies aren’t going to be able to recapture and re-use materials they use in their products. That’s why recycling is so important.

Making a Business Case for a Circular Economy

Stacie Sherman and Elise Young discuss how one recycler, Tom Szaky, founder of TerraCycle, a New Jersey-based garbage startup, is trying to make money and keep garbage out of landfills.[7] They report, “He’s seeking millions to help fund a bigger mission: making trash the star of a circular economy, where re-use is the norm.” To accomplish that goal, Szaky is aware he has to make a business case for recycling. He plans on revealing plan at the next World Economic Forum in Davos, Switzerland. To date, his success has been modest. “Last year [2016],” Sherman and Young report, “of $19.4 million in revenue, about $500,000 was profit, according to Szaky. [In 2017] it’s expecting $24 million in revenue, with just under $1 million profit. To boost those numbers, Szaky is looking toward acquisitions and Loop, his new durable packaging platform.”

What are the chances that a circular economic strategy will actually emerge? We are likely to see specific industries adopt such strategies; but, unlikely to see a general circular strategy implemented. Like any other strategy, a business case needs to be made or the chances of sustained success are limited. As the MH&L staff writes, “While there is great promise in the fundamental principles of a circular economy and keeping resources and materials in play endlessly, this alone won’t bring the circular economy to market or scale. … Businesses will need to address existing challenges and identify a better business case, and generate market demand through incentives focused on cost and convenience.” Several years ago, a report published by the World Economic Forum (WEF) entitled “Towards the Circular Economy: Accelerating the scale-up across global supply chains,” stated, “Linear consumption is reaching its limits. A circular economy has benefits that are operational as well as strategic, on both a micro- and macroeconomic level. This is a trillion-dollar opportunity, with huge potential for innovation, job creation and economic growth.” Kris Timmermans (@KrisTimmer), Senior Managing Director at Accenture Strategy, explains, “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. … 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.”[8]

Summary

Barker concludes, “Beyond the cost, there is increasing awareness of the impact of the linear model on the well-being of the planet and a growing sense of urgency as we see the ultimate ramifications on society and the environment. … This is why it is important to invest in creating lasting solutions that will help revolutionize the global economy and allow businesses to move toward building more sustainable, circular supply chains.” Van Lohuizen adds, “If the world is not prepared to think about waste reduction and actually treat garbage as a resource, future generations will drown in their own waste.” As Barker pointed out, the challenge begins with design. If done correctly, note Sherman and Young, the circular lifestyle can become broad and reflexive. They add, “It starts with an evaluation of cost during a product’s complete life cycle, said Kevin Lyons, a professor of supply-chain management at Rutgers Business School. A consumer pays twice: to buy and to dispose. A manufacturer can reduce, or even eliminate that second spend, and reap its own savings with thoughtful early design.” I’m not sanguine the business world will embrace circular strategies in the near-term; however, any movement in that direction is a good thing.

Footnotes
[1] Kadir van Lohuizen, “Drowning in Garbage,” The Washington Post, 21 November 2017.
[2] Markus Zils, “Moving toward a circular economy,” McKinsey & Company, February 2014.
[3] Susan Graff, “The circular economy moves from theory to practice,” GreenBiz, 19 February 2016.
[4] Staff, “Logistics Critical to Circular Economy Strategy,” Material Handling & Logistics, 23 March 2016.
[5] Tamara Barker, “The Essential Role of Logistics in a Growing Circular Economy,” Longitudes, 24 October 2016.
[6] Sudipta Ghosh and Harry Morrison, “Embracing the Circular Economy in the Supply Chain,” Inbound Logistics, 4 May 2017.
[7] Stacie Sherman and Elise Young, “This Guy Makes Money Off Your Cigarette Butts and Flip-Flops,” Bloomberg, 27 November 2017.
[8] Kris Timmermans, “Gaining a Competitive Edge through Today’s Circular Economy,” Industry Week, 15 July 2016.