Moving towards a Circular Economy
This article is part of our Binoculars-series. Download the entire paper here.
Let’s start with a bold statement: the circular economy will be dominant by the 2030s. Circular entrepreneurship is backed by attractive business models, political support, and a strong demand from society as a whole.
In our current economy, we take materials from the Earth, make products from them, and eventually discard them as waste – the process is linear. In a circular economy, by contrast, we prevent waste from being produced in the first place.
The circular economy is a model of production and consumption that involves sharing, leasing, reusing, repairing, refurbishing, and recycling existing materials and products for as long as possible. In this way, the life cycle of products is extended and waste is reduced to a minimum.
The transition to a completely circular economy is being fueled by widespread concerns about climate change. A company that wants to succeed must start adopting circular economy business models in order to remain relevant and competitive in the future.
Buyers, both consumers and businesses alike, are making more deliberate choices. They demand access to product information, such as where a product was sourced, how the product can be recycled, and other insights into its lifecycle.
Sustainability is increasingly becoming a more important factor in purchase decisions. We want our cars to be emission free, our food free from environmental harm, and luxury purchases traced back to its origins. But we see more than just evolving demand. The circular economy has strong political support. For example, the European Union aims to transform its economy to a circular one in order to make Europe cleaner and more competitive.
Quite notably, the circular transition encounters very little resistance, which is often the case with other major transitions. Companies are under increasing societal pressure to become climate neutral or at least sustainable.
Product-as-a-Service (PaaS) is a catalyst towards a circular company. In nature, there is no waste, it’s simply food for another species: everything is a resource. Product-as-a-Service (PaaS) is a circular economy business model focused on using a product on a subscription basis rather than selling the product itself. In most PaaS models, companies retain ownership over the actual product and lease it to customers who pay a time or use-based subscription fee. When the subscription period is over, the physical product is returned to the company and then recycled into newer iterations.
PaaS retains the value of products and saves resources by putting them back into the product cycle after use. Besides the actual recycling of the used product or parts, one of the biggest advantages of recycling is the ability to save energy otherwise used for waste management, incineration or any other alteration.
Many reports show that the circular economy offers an incredible $4.5 trillion economic opportunity by reducing waste, jumpstarting innovation, and creating employment. New business models focused on reuse, repair, PaaS, remanufacturing, and sharing offer significant innovation opportunities. For both existing and new companies.
Consider the rise of SwapFiets. First of all, who would have thought that Dutchies would pay a subscription fee for a bicycle? Something that we have plenty of, right? Yes, we do. But quite a few of them are broken or rusting away tied to a lamppost. They’re often discarded, stolen, or lost. SwapFiets exchanges your bike when it’s broken and repairs it at their HQ. This means very little waste and a great user experience for the end user.
What we see here is a shift from volume to performance, thus maximizing the usage factor and lifetime of the product. And because SwapFiets retains control of their products and materials, it saves costs.
What we have seen
With the help of INFO, Growy created the world’s first fully robotized, zero-waste vertical farm. We combined our expertise in human-centered design, robotics, IoT sensors, and data science to co-create a fully automated Farming-as-a-Service (FaaS) solution. FaaS is a promising business model in which Growy builds vertical farms and manages them as a service for their customers. Together, we embarked on an extensive journey to shape the vision for FaaS and to provide actionable evidence to properly build, test, and scale towards a fully automated Plant Manager.
To better understand the interaction between plants, humans, and robots, we conducted research to map out the essential processes involved in a plant’s life cycle. Through in-depth sessions with stakeholders and interviews with growers, we gained a deep understanding of the Growy ecosystem. This allowed us to define a reliable and feasible starting point and to determine the steps needed to realize the FaaS solution, including a data strategy, an implementation roadmap, and a fully circular business case.
The circular economy is here to stay. So if you’re in the business of producing and selling physical products, it’s time to step up your game. Let’s discuss how you can do more than just reduce waste, and how you can use digital innovation to become fully circular. We’ll focus on what you can do today, tomorrow and the day after.
Advice on how to get started
Today: Create transparency and traceability
The first step in becoming more circular is enhancing your understanding of the materials and resources necessary for creating your product throughout the supply chain and its overall life cycle. This is vital in identifying opportunities for reuse and upcycling. Besides, it taps into the growing needs of customers to receive clarity about where the resources in their product comes from. To achieve this, you can make use of solutions that might seem exotic, but are ready to be implemented in the short term. Among these short-term solutions, we’re excited about the Digital Twins. Various companies (like Growy) are using this kind of technology to enhance their understanding of a product’s life cycle. Creating a digital representation of the physical world opens up ways to manage your assets throughout their supply chain and usage. This will help you to understand how to improve the sustainability of your company.
Tomorrow: Shift towards the Product-as-a-Service model
A great way to both transition towards the circular economy and increase your revenue is to offer your products as a service. Ownership is making way for subscriptions, fast, especially in B2B. With PaaS subscriptions, your company is more sustainable, while still boosting its profitability and generating recurring revenue. As more companies and customers adopt the PaaS business model, it will become more mainstream, which will cause large, established enterprises to follow suit. However, in order to make sure you’re not late to the party, you need to invest in changing up your operations and incorporate a business unit for reuse and repair.
Recently, we helped VanMoof achieve just that. Now, they can repair their bikes faster, which instantly makes them more circular. Using our service platform, their process of repairing bikes and reusing old parts and components is more streamlined and less cluttered. Service platforms like this are vital to powering PaaS models. Especially when combined with a Digital Twin that allows you to oversee the entire product life cycle throughout the supply chain. This doesn’t only provide value for you, but also for your main suppliers.
Day after tomorrow: Embracing Artificial Intelligence
Artificial Intelligence (AI) plays a pivotal role in enabling the shift towards a circular economy/company. The benefits of AI are clear from the major boost it gives your existing processes. It allows your organization to learn from feedback faster and make more sense out of complex, abundant data. Combining it with circular business models really strengthens a company’s competitive advantages. Take PaaS, for example. By using both real-time and historical data from sensors and users, AI can predict demand or maintenance, track circular indicators, and automate sustainable workflows. This helps increase product lifetime and contributes to a circular infrastructure. Besides, having your Digital Twin in place during the early stages makes it easier for AI to be trained and work for you in closing the loop.