Last reviewed 15 February 2016

In a circular model, resources are cycled back into the economy rather than being lost through disposal. In this article, Caroline Hand looks specifically at new ways in which businesses can interact with their suppliers and customers in order to enable the circling of resources.

The wealth of articles, guidance and case studies now available on the circular economy reflects the growing interest among the business community in “closing the circle”. Momentum is picking up: the EU has just published its new action plan on the circular economy, and more and more companies are signing up to initiatives such as the Ellen MacArthur Foundation’s CE 100. But if we are to succeed in moving away from the traditional “take, make and dispose” economy, there will have to be some fairly fundamental changes in how businesses operate.

The good news is that both large and small companies, in a variety of sectors, have already been able to demonstrate that new sustainable business models can be commercially viable.

What is a business model?

A company’s business model can be defined as:

“the way it strategically positions itself in a particular market. It can include every aspect of a firm’s logistical operations, financing and strategic vision, describing both what a particular firm does and, more importantly, how it does it.” (Triple Win — A report by The All-Party Sustainable Resource Group and All-Party Parliamentary Manufacturing Group)

Different businesses will be more suited to particular models, eg waste management companies could also offer collection services for reusable items, while internet retailers might choose to establish an exchange platform.

Managing the supply chain

The Ellen MacArthur Foundation, in its seminal reports on the circular economy, identified the need for pure material streams. If we are to achieve widespread remanufacturing and recycling of products, there needs to be a consistency in the materials used. For example, closed-loop recycling of plastics has been facilitated by the widespread adoption of PET (polyethlene terephthalate). Materials also need to be free of hazardous contaminants (otherwise reprocessors might find themselves subject to the REACH regulations (which concern the registration, evaluation, authorisation and restriction of chemicals) or waste management controls).

Products made from poor quality or unspecified raw materials are unlikely to make it to a second life. Manufacturers are therefore faced with the challenge of investigating their supply chains, tracing back the components of their products to their original raw materials. Tools are available to help with this (see, for example, the new British Standard on supply chain management) and as more and more items are linked up to the “internet of things”, it becomes possible to track them through the supply chain.

Retaining ownership

There are two main advantages to suppliers retaining ownership of a product, and instead selling a service or experience (servitisation).

  1. This model favours the use of high-quality, durable products rather than cheap disposable items.

  2. The consumer cannot dispose of the item; instead, at end of life the manufacturer will replace it and send it for remanufacture or recycling.

The servitisation model has been taken up by companies in a wide variety of sectors.

  • Philips offers a street lighting service rather than selling the lamps.

  • Interface provides a complete carpeting service where the carpet tiles are cleaned, maintained and replaced.

  • • Rolls Royce provides “power by the hour” (see our feature Remanufacturing pioneers.

There is scope for this model to take off in the clothing sector: internet suppliers could offer customers a wardrobe of good quality outfits which are returned and exchanged once the wearer tires of them. The clothes would get much more wear, from a succession of users, and at end of life could be sent for recycling.

As an alternative to these new servitisation models, businesses can offer the more familiar services of leasing or hiring. One major DIY retailer hired out toolkits for specific jobs rather than selling the tools — a sensible move as tools are on average used only for 2% of their lifetime.

Offering additional services

Clothing company Patagonia sells high-quality outdoor wear which is designed to last, but it also offers a repair service. Customers can either consult an online I-fixit guide to repair the garment themselves, take it back to the store where retail staff have been trained to do simple repairs, or return it to the company’s repair centre. Its facility in North America carries out about 30,000 repairs per year.

Services like this can be a unique selling point (USP): not only do they appeal to environmentally conscious customers, they also increase customer loyalty as the consumer is assured a long-lasting, high-quality garment.

Improving collection infrastructure

It is not always feasible for the supplier to retain ownership of a product, particularly for small, lower-value items. Therefore, there is a need for better collection systems to ensure that end-of-life products are returned by the user. Large companies like Coca-Cola can set up a reverse logistics network to collect, eg, used bottles for closed-loop recycling. The deposit and return system for soft drinks bottles, which some of us still remember, is a concept that can be more widely applied — this is how Caterpillar collects used components from its customers (see Remanufacturing pioneers.

There is also a role here for logistics specialists: In the USA, the reverse logistics company Optoro takes back slightly damaged, unsold stock from retailers and sells it on through its online platform.

As with supply chain management, the ability to track products and monitor their status during use and at end of life will be an invaluable asset in ensuring their recovery. Radio frequency ID (RFID) chips are now being used to track products for this purpose.

Waste companies are well placed to extend their collection services to reusable and repairable items; indeed it has been suggested that they will need to do this to survive in a future circular economy.

Much has been said about the waste of resources in old mobile phones: UK residents own more than 76.8 million unused handsets worth £9.4 billion, according to research from Argos will exchange old gadgets for a gift voucher and send the phones for recycling.

In the future, we could see phones fitted with apps which prompt the user to return the phone once, eg software upgrades are no longer available for that model. More sophisticated apps could report on any damage to the phone during its life and thus give the owner an accurate estimate of its resale value.

The sharing economy

Perhaps the most innovative and “disruptive” innovations have come from the new consumer-led, internet-based sharing platforms. Airbnb is now well established, despite a few problems with revellers over the New Year period! Other successful platforms include:

  • Lyft for lift sharing

  • TaskRabbit for domestic chores

  • Yerdle — a “swap shop”

  • Zipcar for short term car hire.

These services prevent waste by bringing underutilised resources — whether cars, rooms or spare time — into productive use.

Online exchanges are also proving successful for vintage clothing — for example, the platform which supplements the clothing retailer’s more conventional internet sales business. Even materials classified as waste can be exchanged online through materials exchanges. Sadly, the UK’s National Industrial Symbiosis Programme (NISP) has recently had to stop offering its waste exchange service, despite its demonstrable success.

A risk worth taking?

While large companies like Coca-Cola and Interface can afford to experiment with new sustainable business models, smaller companies may be reticent to move away from a tried and tested linear model. However, some of the key innovators of new business models have been smaller companies who have benefited from an enhanced reputation for sustainability, product quality and customer service.

The Ellen MacArthur Foundation’s CE 100 includes small and medium sized enterprises (SMEs), small innovative businesses and public sector organisations, as well as the high street names and major manufacturers. Its website is a good first port of call for any organisation seeking to adopt circular principles in the year ahead.