Circular Business Whitepaper Part2
Good Ventures Ltd
We seize opportunities unlocked by the green transition to build sustainable businesses
1. Introduction
The issue of environmental degradation and resource scarcity has led to an increased sense of urgency by businesses around the globe to rethink traditional, linear economic models. As discussed in the first part of this whitepaper, the circular economy offers an alternative paradigm for growth that simultaneously tackles companies’ contribution to climate crisis and biodiversity loss. This second part tries to move from theoretical knowledge to practical application, illustrating through real examples how companies are implementing circular principles in practice.
Part 1 detailed the benefits of circular business practices: sustainable growth, reduced reliance on finite resources, operational efficiency, minimized waste, and value creation across the product lifecycle. Circular business models are built on key principles of designing out waste and pollution, keeping products and materials in use, and regenerating natural systems. Additionally, the Good Ventures Circular Business Opportunity Flywheel was introduced as a strategic framework for identifying and capitalizing on circular economy opportunities.
Examples from the real-world show that businesses are already integrating circular economy models into their operations. The primary goal of Part 2 is to showcase these use cases with the help of the Good Ventures Circular Business Opportunity Flywheel. By focusing on tangible examples and industry case studies, we demonstrate how circular practices can be seamlessly integrated into business operations so that they create profitable growth in the short-term and build CE readiness in the long-term.
The urgency for adopting circular economy practices is crucial for addressing climate change and resource depletion, alongside growing consumer demands for sustainability. Quick-acting businesses can access new sources of revenue and competitive advantage in an environment where both buyers and policymakers are pressuring companies to implement more sustainable practices. The scope is large for businesses using this model of a circular economy. In the EU, for instance, circular economy programs could provide a net economic benefit amounting to €1.8 trillion by 2030(1).?
We encourage businesses to view the transition from linear to circular economy as not just a compliance requirement but as a strategic opportunity to build sustainable business and differentiate from competitors. The examples and strategies in this whitepaper should inspire and guide companies on their circular journey to sustainable profitability and resilience. By taking actionable steps and learning from industry leaders, businesses can position themselves at the forefront of sustainable innovation, driving both economic and environmental benefits.?
2. The Circular Business Opportunity Flywheel Revisited
The Good Ventures Circular Business Opportunity Flywheel provides a comprehensive framework for businesses to understand and assess their opportunities of implementing circular economy practices into their core operations. This chapter reviews the key elements of the flywheel.?
Circular design and production envision the complete lifespan of products, focusing on durability, repairability, and recyclability as well as efficient and sustainable use of raw materials. These practices help companies reduce virgin material usage and create products that can be easily disassembled and repaired for reuse. Designing products that are built to last and are easily updated or refurbished allows companies to offer lifecycle services and create recommerce business, generating ongoing revenue. When focusing on sustainable production practices, companies can find opportunities to utilize or monetize side streams from own production or benefiting from other companies’ side streams.
Extending the lifecycle of products through maintenance, repairs, and upgrades is a core aspect of the circular economy. Lifetime guarantees and predictive maintenance optimize operations, reduce downtime, and enhance customer satisfaction. Remanufacturing services further extend product lifetimes by restoring used products to like-new condition. These capabilities enable the next steps along the flywheel.
To capture the value of longer lifespan, companies need to develop new business models. For example, shifting from ownership to a service-based model where customers pay for performance, or the use of a product maximizes value throughout the product's lifecycle. This model incentivizes companies to design durable, high-quality products and fosters ongoing customer interaction, increasing loyalty and cross-selling opportunities. In addition, PaaS business models eliminate the need for large upfront investments from customers, creating new growth opportunities for sellers. These models require a new approach to and structure of business, which we will illustrate with examples later in this white paper.
Collaborative consumption, or sharing models significantly reduce material inefficiencies by promoting sharing of resources and peer-to-peer exchanges. Platform, sharing and rental business models increase asset utilization, reduce the need for new resources, and create new revenue streams and business opportunities.
The use of data to optimize operations and create new revenue streams is a powerful tool in the circular economy. By leveraging IoT and advanced analytics, companies can gain insights into product usage and condition. This insight can then be turned into new or improved services. Data-driven approaches enable businesses to optimize their operations and those of their customers, enhancing the overall customer experience and creating new revenue opportunities – or even new business areas.?
Building second cycle operations and capabilities allows products to re-enter the market multiple times. Additional cycles involve refurbishing and reselling used products, providing customers with high-quality, affordable options and extending the product's lifecycle. Take-back programs allow customers to return used products for incentives. These items can be refurbished or repaired and resold at lower prices, reducing waste, raw material demand, and offering affordable, environmentally friendly products to existing or new markets.
Recovery schemes for end-of-life products capture significant value by presenting the opportunity to utilize valuable components and raw material further. Remanufacturing restores used products to like-new condition, while repurposing finds new uses for old products, components or materials. Recycling and upcycling ensure continuous re-entry of materials into the value chain, transforming waste into new products and reducing landfill use. With scarce materials, there is a significant potential in monetizing end-of-life value. These practices reduce waste, conserve energy and resources, and lead to cost savings for both companies and customers.
Sounds easy? We know it isn’t. Many times, it seems easier to continue with the linear business models. However, the business opportunities presented above are not just future opportunities, they might be solutions to the pressing problems of today. To further illustrate this, the next chapter will present real-world case studies, focusing on high price-point product business, showcasing how industry leaders are implementing circular practices. By examining these examples, decision-makers can gain valuable insights into the practical application of circular economy principles and how to apply similar principles into their own businesses.?
3. Case Studies?
This chapter presents concrete examples of companies that are applying circular economy concepts into their daily business operations. The examples are based on public data and are aimed to highlight the practical steps that companies in various industries have taken and, where applicable, discuss potential challenges of tapping into circular business opportunities.?
3.1 Case Volkswagen - Circular Design & Production, closing the loops
The automotive industry is a forerunner in circular economy practices. This is partly due to regulation of the industry, but more so due to the high aftermarket value of cars and components, which presents great business opportunities not only to the car manufacturers but to the larger value network. Volkswagen’ business is not just selling cars in the linear model; They are doing everything from product life extensions services to 2nd cycle business, and now they are making significant strides in closing the loops (2). The company designs vehicles for easier recycling and longer life spans, ensuring that materials can be easily separated and recycled at the end of a vehicle's life. They are integrating circular economy principles into their manufacturing processes and have committed to increasing the use of secondary materials (3). With these practices, the company reduces its reliance on virgin materials, thereby lowering the environmental impact of production as well as the risks associated with the business.
Volkswagen is increasing the use of recycled materials, such as metals and plastics, and incorporating renewable raw materials into its vehicle production. Natural fibers such as flax, cotton, wood, and cellulose are used wherever they meet technical requirements. The company is also exploring the use of non-animal leather alternatives made from biological materials. Recycling high-voltage batteries is another critical aspect of Volkswagen’s circular strategy. The company has established facilities, such as the pilot plant in Salzgitter, specifically for recycling vehicle batteries (3). These facilities recover valuable materials like lithium, nickel, manganese, and cobalt, which can be reused in new battery production, thus closing the loop on battery materials and reducing the need for mining new resources.
The "Zero Impact Factory" initiative is a cornerstone of Volkswagen’s sustainable production strategy (3). This initiative aims to produce vehicles in a climate-, resource-, and environmentally friendly manner, minimizing waste and emissions during production. Consequently, the company is actively working towards establishing closed material loops in its production processes. By buying back end-of-life vehicles and recycling their components, Volkswagen ensures that valuable materials are reused in new production cycles.?
In summary, Volkswagen's integration of circular economy principles into its operations is a strategic business move that offers multiple advantages. By focusing on circular design and production, the company achieves significant cost reductions through improved resource efficiency and decreased raw material expenses. The emphasis on circular practices also improves supply chain resilience by reducing dependence on virgin materials. Volkswagen's sustainability efforts enhance its brand image, appealing to environmentally conscious consumers and investors. Moreover, this proactive stance helps the company stay ahead of environmental regulations, reducing future compliance costs. Ultimately, this comprehensive strategy not only reduces environmental impact but also positions Volkswagen for long-term profitability and growth in an increasingly eco-conscious and regulated global market.
3.2 Case W?rtsil? – Performance as a Service, climbing up the service value ladder
W?rtsil?, a Finnish equipment manufacturer in the marine and energy sectors, is moving up the service value ladder to maximize customer value and create new business opportunities (4). The company has systematically extended its service portfolio from transactional spare parts and field services to optimized maintenance, retrofits, upgrades and long-term service agreements. The highest level of the service value ladder is Performance-as-a-service, i.e. performance-based agreements where W?rtsil? shares the operational risk and guarantees the agreed performance by leveraging connectivity, big data, and analytics.
The performance-based service agreements are structured around mutually agreed performance targets like uptime, reliability, fuel consumption, emissions, and overhaul duration.? W?rtsil? guarantees that these targets will be achieved and maintained, sharing both risk and reward with its customers. This performance-based partnership model fosters collaboration and ensures that both parties benefit from the arrangement.?
One notable example of performance-based agreements is the 12-year maintenance agreement with Carnival Corporation. This agreement covers engine maintenance and monitoring for 79 vessels and their 434 engines, valued at approximately €900 million (5). The green transition is expected to offer further growth opportunities for retrofits and conversions of W?rtsil?’s engine fleet, potentially doubling by 2030. A key enabler of this kind of service business is the modular architecture of W?rtsil?’s engine designs. This increases part commonality and backward compatibility, reducing product development and maintenance costs, while speeding up time-to-market. The modular design also supports material and component reuse, enabling upgrades to worn-out parts.?
W?rtsil? estimates that service agreements generate 2-5 times more customer spending compared to transactional models like sales of spare parts sales or field services (4). This focus on long-term partnerships supports circular economy principles by emphasizing long product lifecycles and optimal usage. With a 90% renewal rate of existing service contracts, W?rtsil?’s services are highly valued by customers.?
Digitalization is a key enabler in providing services to create optimal performance. Sometimes these digital capabilities result in additional business opportunities and new ways to monetize the data and insight. The software company Eniram, a subsidiary of W?rtsil?, specializes in energy management and analytics solutions for the maritime industry (5). Eniram helps ship owners and operators optimize their fleet performance, reduce fuel consumption, and minimize emissions through advanced data analytics and modeling.?
Eniram’s digital platform collects data from maritime operations, including fuel consumption, engine performance and weather conditions. This data is analyzed using advanced algorithms to provide actionable insights that help ship operators optimize their routes, reduce fuel consumption, and minimize emissions. An example of Eniram’s offering is SkyLight, a fleet performance monitoring service that collects data about a ship’s movements every five minutes and sends it via satellite to Eniram’s data center. Customers subscribe to the service to gain insights into their fleet’s performance, enabling data-driven decisions that enhance efficiency and reduce costs.?
By integrating Eniram's advanced data analytics and optimization solutions, W?rtsil? can offer more comprehensive and effective lifecycle solutions to its maritime customers. This integration helps W?rtsil? extend the operational life of equipment, improve fuel efficiency, and reduce emissions, thereby strengthening its market position and driving sustainability goals. Eniram’s data-driven insights enable W?rtsil? to deliver enhanced performance-based agreements, ensuring that customers achieve quantifiable improvements in efficiency and cost savings.
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3.3 Case Lindstr?m - Product as a Service, a born-circular business model
Lindstr?m, a Finnish company specializing in textile services, has been a pioneer in the textile-as-a-service business for a century (6). Instead of selling textiles, Lindstr?m rents them out to businesses. The business model is rooted in circular economy principles and involves designing textiles to be as durable as possible and reusing or recycling them at the end of their lifecycle. The standard product models can be used for many different types of customers; if one customer relationship ends, the company reconditions the textiles and uses them for the next one.
Lindstr?m offers a wide range of products for rent such as workwear, mats, linens, towels, industrial wipers, and washroom textiles. The service includes regular laundering, repairs, and replacements as needed, ensuring that textiles remain in excellent condition throughout their use. Customers benefit from having access to high-quality textiles without the need for ownership, reducing their operational burdens and costs.
Digitization plays an important role in the textiles-as-a-service model. Textiles are equipped with microchips that allow for real-time monitoring of usage, ensuring that customers have the right number of textiles and enabling the redistribution of textiles as necessary (7). On-demand manufacturing is another key aspect of Lindstr?m’s operations. New garments are only manufactured as needed, based on customer demand. This practice minimizes overproduction and reduces waste. Lindstr?m has developed digital tools that help customers optimize their order quantities, ensuring that they receive exactly what they need, when they need it.?
Lindstr?m is an example of a company in a traditional industry operating with an innovative business model. Renting textiles instead of selling them keeps the assets with Lindstr?m. While most companies in asset heavy industries try to avoid this, Lindstr?m reaps the benefits of recurring revenues, extended lifecycles and lower environmental impact.?
3.4 Case Combi Works - Sharing Platform, bringing sharing economy to production environment?
Combi Works is revolutionizing traditional manufacturing models with its factory-as-a-service (FaaS) concept (8). This approach allows businesses to outsource their manufacturing and logistics needs, leveraging underused factory capacity to optimize resource use.?
Traditional manufacturing requires significant investments in factory infrastructure, leading to inefficiencies when factory remains idle. Rigid supply chains also hinder adaptability to market changes, resulting in stranded assets. Combi Works addresses these challenges by offering comprehensive manufacturing services, including procurement, purchasing, auditing governance, and quality control. This allows companies to access factories on demand, scaling production efficiently without heavy infrastructure investments, reducing operational costs and increasing efficiency.?
A key component of the FaaS model is the AirFaas platform, which allows Combi Works to manage manufacturing for various clients across multiple factories (9). It ensures that all critical information, such as drawings and specifications, is accurately stored and easily accessible. Customers can log in to visualize their projects, offers, orders, shipments, and performance, improving management and oversight. For factory partners, AirFaas facilitates collaboration by matching requests for quotations (RFQs) to suppliers' capabilities, improving project identification and production planning.?
By facilitating the sharing of production facilities among multiple businesses, AirFaas optimizes resource use and reduces waste. Resource sharing philosophy is central to the circular economy, and as proven by Combi Works, it entails new business opportunities.
3.5 Case Caterpillar – Remanufacturing, over five decades of circular economy?
Caterpillar is one of the world’s remanufacturing leaders, a strategy that focuses on extending a product’s lifetime to its maximum capacity and, consequently, use its resources in a more effective way (10). Caterpillar products are built to be rebuilt. Cat opened its first remanufacturing plant in 1973, when they noticed that customers and dealers were remanufacturing its products locally through independent builders already. Cat Reman program offers Caterpillar’s customers and dealers top-quality remanufactured parts with warranty, that they could purchase for less than 2/3rds the price of new products (11).
When a customer buys a remanufactured Cat product, a deposit on the core (for e.g. the engine) is charged during sale. When the core is returned at the end of its life, the deposit is refunded (11). This lowers total transaction costs for the customer, creates a high-likelihood of return, and ensures that Cat can create a closed-loop system. The cores are disassembled down to their smallest parts. This thorough disassembly allows for detailed cleaning and inspection to determine which parts can be salvaged and reused. Advanced salvage techniques such as machining, laser cladding, and metal deposition are employed to restore these components to like-new condition. This rigorous process ensures that remanufactured parts meet the latest performance specifications and are backed by warranties equivalent to new components.?
By using significantly fewer resources than manufacturing new parts, the Cat Reman process conserves raw materials, energy, and water; Remanufacturing consumes 85% less raw materials and energy, 80% less water, and emits 61% fewer greenhouse gasses compared to new manufacturing (12). By keeping components in circulation and out of landfills, the program also significantly reduces waste. In 2021 alone, Cat Reman collected 127 million pounds of used equipment parts through end-of-life returns. This substantial reduction in resource consumption highlights the environmental benefits of Caterpillar’s remanufacturing efforts.
Caterpillar has systematically built the components of a fully circular business. In 1981, Cat Financial, a captive finance company, was introduced to help dealers and customers purchase, lease or finance new or used equipment and secure extended protection (13). A solid financing solution enables PaaS and rental businesses, which in turn feed the second cycle business. In 2017, Rental and Used businesses were elevated to a focus of the corporate strategy because of the evident opportunity in the global industry: “We’re seeing a clear shift to more and more customers choosing renting over owning,” said Global Rental and Used Equipment Services Director Kurt Norris. “They want flexibility and convenient solutions, so our ability to deliver what they need in Rental is becoming a stand-alone requirement rather than a supplement to retail” (14).?
The economic benefits of Caterpillar’s approach are significant. The annual growth of both rental and remanufacturing businesses has been around 20 % for several years now, and the trend is upwards. The company is able to make 50 % higher gross profits from remanufactured products. When you combine these results with the earlier mentioned environmental benefits, the case for circular business is strong.?
3.6 Case IKEA – Taking control of the whole product lifecycle?
IKEA is actively integrating circular economy principles across its operations, aiming to become 100% circular by 2030 (15). This ambitious goal involves rethinking the entire lifecycle of its products, from design and production to end-of-life management. By integrating circular economy principles into its operations, IKEA aims to minimize waste, maximize resource efficiency, and reduce its environmental footprint. At the same time, IKEA is taking control of the whole product lifecycle and all the business opportunities along the way.
At the core of IKEA's circular strategy is the concept of designing for circularity. All products are developed to be reused, refurbished, remanufactured, and eventually recycled. This approach is evident in the use of standardized parts and modular designs, which make it easier to repair and upgrade products. In addition to innovative design, IKEA aims to use only renewable or recycled materials in its products by 2030. This involves responsibly sourcing materials and developing new ones, such as laminated veneer lumber, which reduces wood usage. This shift not only conserves natural resources but also supports a more sustainable supply chain.
IKEA is also pioneering product take-back and resale programs. These initiatives, currently being tested in various markets, allow customers to return old furniture to IKEA, which then refurbishes and resells it. This process keeps products in circulation longer and reduces waste, aligning with circular economy principles. To further prolong the life of its products, IKEA is developing circular services and solutions. These include repair services and secondhand sales, helping customers maintain and pass on their products. Such services ensure that materials are used efficiently, and waste is minimized.?
IKEA is also exploring new business models and testing furniture leasing programs, allowing customers to rent furniture for a set period, promoting product reuse and reducing the demand for new production. This not only supports sustainability but also offers flexible solutions for customers.?
To support its circular ambitions, IKEA invests in initiatives and collaborations that promote the circular economy. For example, IKEA has partnered with RetourMatras to advance circular mattress solutions (16). The company also engages in advocacy and partnerships to drive circular economy practices across the industry. Customer engagement and education are crucial aspects of IKEA’s strategy. The company has developed a Circular Product Assessment Tool, an online resource to help designers and consumers assess the circular capabilities of products (17). This tool promotes awareness and encourages circular practices, supporting IKEA’s mission to make sustainable living accessible to all.
These initiatives reflect IKEA's comprehensive approach to circularity, aiming to reduce its environmental footprint and promote sustainable living. By transforming its business model and engaging customers, IKEA is setting a benchmark for circular economy practices in the retail industry.
4. Conclusion
The case studies presented in this whitepaper demonstrate the tangible benefits and practical applications of circular economy principles especially for high price-point product businesses. From automotive and maritime sectors to textiles and machinery, companies are increasingly recognizing the strategic importance of integrating circularity into their core operations. The case studies presented demonstrate that the transition to a circular economy is not only feasible but also beneficial. By learning from these examples and applying similar principles, businesses can drive innovation, achieve sustainable growth, and contribute to a more resilient and sustainable global economy.
Adopting circular economy practices allows businesses to reduce reliance on finite resources, minimize waste, and create value throughout the product lifecycle. By designing products for longevity, ease of disassembly, and recyclability, companies can extend the life of their products, reduce environmental impact, and meet growing consumer demand for sustainable goods. Companies that embrace circular practices can unlock new revenue streams, reduce operational costs, and enhance customer loyalty through innovative service models such as leasing, take-back programs, and remanufacturing. These models not only provide economic value but also align with broader sustainability goals by promoting the efficient use of resources and reducing waste.
In conclusion, the circular economy offers a transformative pathway for businesses to achieve long-term sustainability and profitability. The principles and strategies discussed in this whitepaper provide a roadmap for companies to follow, enabling them to create value while addressing environmental challenges. The journey towards a circular economy is an opportunity to redefine success in business, ensuring that economic growth is achieved in harmony with the planet's ecological boundaries.?
The Good Ventures Circular Business Opportunity Flywheel can be applied across sectors from small to large companies. By methodically analyzing these opportunities, companies can build and integrate circular practices into their operations, achieving business growth while addressing environmental problems.?
For businesses and decision-makers seeking to learn more about implementing circular economy practices, our team at Good Ventures is here to help you embark on your circular journey. Visit our website or reach out to our team to continue the conversation.?
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Senior Leader | CEO | Strategist | Empowering People | Adopting Tech | Driving Market Leading Growth | There is no Planet B
3 个月Very good whitepaper! Thanks Good Ventures Ltd