For manufacturers, entering the circular economy may be daunting, but there are some key benefits that managers and executives should consider.
In 2022, manufacturers have the responsibility to not only produce goods and raw materials that make the world go round, but to do so in a way that minimally impacts the environment. Establishing an efficient circular economy is a crucial step to making your business as sustainable as possible. In a truly circular economy, companies will leverage innovative technologies to extend product lifetimes, turn used goods into new treasures, and do their part in healing the planet.
A circular economy is a sustainable “closed loop” system in which high quality products are used and recollected for redistribution and reuse. To extend the lifetime of our products, manufacturers will play a key role in reforming production processes. In Europe, the transition to a circular economy is one of the six environmental objectives laid out by the EU taxonomy for sustainable activities.
The environmental benefits of a circular economy are obvious, but here are some additional benefits that manufacturers should consider:
Reduced long-term costs.
Converting to a circular economy will take sizable efforts and investments, but it will save the manufacturing sector huge amounts of money over the next few decades (potentially $630B per year towards 2025). Most of these savings will come from a reduced need for raw materials, which are estimated to account for 40-60% of manufacturing costs. By relying on reusable components, manufacturers will be able to reduce their dependence on destructive processes like mineral extraction and meet the needs of the moment without compromising future generations’ ability to do the same. These savings will translate into cheaper products for consumers, with estimations that circular economy activities could contribute around $700M in annual cost savings.
"Converting to a circular economy will take sizable efforts and investments, but it will save the manufacturing sector huge amounts of money over the next few decades (potentially $630B per year towards 2025)."
Higher bargaining power with suppliers.
By reducing their dependence on raw materials through recycling and reuse, manufacturers will see an increase in bargaining with suppliers. This shifting dynamic will potentially grant companies the ability to hold out for better prices without compromising their production lines, which until now has risked jeopardizing the company’s bottom line. This will be a historic transformation for manufacturers who will no longer have to rely on expedient replenishments of raw materials and can instead plan further ahead and take their time choosing the right deal for the firm and the planet. For business development teams in the manufacturing sector, rethinking procurement and negotiations will be key to a successful and sustainable business.
It’s no secret that some of the biggest companies in the world participate in planned obsolescence, which strategically limits a product’s lifetime to induce future sales. In a sustainable and circular economy, this sort of behavior will not fly. Consumers are increasingly concerned about their purchasing patterns’ impacts on the environment, and manufacturers would benefit from taking consumer attitudes into account when devising a business plan. Creating high-quality, long lasting products will be key to a firm’s survival in the circular economy as wasteful practices become more out of style and out of business. This will require collective efforts within companies from top to bottom, they will be worth it: consumers will reward companies for their sustainable efforts and are willing to divest from particularly destructive companies: 55% of consumers are willing to spend extra money for environmentally-conscious products and nearly 40% said they are willing to boycott destructive companies. For manufacturing companies and their leadership, considering the long-term consumer perception of their production processes is vital.
"Сonsumers will reward companies for their sustainable efforts and are willing to divest from particularly destructive companies: 55% of consumers are willing to spend extra money for environmentally-conscious products and nearly 40% said they are willing to boycott destructive companies."
For manufacturers, leading the transition to the circular economy will come with gains like lower production costs, higher bargaining power, and increased consumer satisfaction. In the circular economy, manufacturers can be more dynamic and independent by relying less on traditionally extractive processes.
For factory managers and manufacturing executives in the region, reaching a circular economy will require collaboration across industries and competitive lanes, as well as substantial investments and collective efforts, but the results will be worth the trouble.
Open innovation can help pave the way towards a circular economy by serving as a platform for information sharing and collective action. Though it may seem distant and difficult to fathom, the benefits to circular manufacturing will be crucial for the continued prosperity of the next generations.