Exploring Different Circular Business Models
A business’ circular journey hinges on three primary principles - waste minimization, resource optimization, and material circulation. The Ellen MacArthur Foundation suggests strategies such as maintenance, reuse, refurbishment, remanufacture, recycling, and composting to achieve a circular economy. Some of these could form part of your circular business model. Singly or in combination, these strategies can be leveraged to not only reduce your environmental footprint but also cut costs, generate revenue and enhance customer value.?
In this article, we will explore different circular business models that have proven to be successful.?
Product-as-a-Service (PaaS) model
Product-as-a-Service (PaaS) is in a way similar to renting a service, where the customers don’t own the product. The provider maintains ownership of the product and offers additional benefits to customers in the form of maintenance and upgradation and gets incentivized for the same. With PaaS, the focus is no longer on the product, but on the experience. OTT (over-the-top) platforms are a great example of circularity in action. Subscribers log onto any device to watch programming without being a consumer of physical DVDs.? OTTs have done away with the production and shipping of DVDs, thereby reducing carbon emissions, waste generation, and resource utilization. Businesses also leverage user data to gain deeper insights into their customers, enabling them to create innovative revenue streams tailored to meet their customers' specific needs. It’s a win-win for both the businesses and customers. Everything—from gym equipment, and fashion products to wind turbines—is now available as a service, with customers paying per usage. (How can businesses benefit financially? We recommend you to read this example of ‘Cooling as a service (CaaS) model)
Product Life Expansion model
In the last few decades, we have witnessed producers that operate on the basis of planned obsolescence, deliberately designing their products in such a way that they develop a fault or parts giveaway - forcing consumers to discard and purchase a new one. This has led to the proliferation of end-of-life electronic devices for instance.??
The Product Life Extension business model seeks to change this approach. The focus here is to maximize the lifespan and utilization of a product. This means fewer purchases over time - which in turn translates into fewer extraction of raw materials, fewer CO2 emissions, and a reduction in waste generation.?
According to a report (The Hidden Face of Digital) by a French government advisory body called ADEME, “The manufacture of a 2 kg computer requires 600 kg of raw materials. Out of a total of 156 kg of CO2 emitted over its entire life cycle, 103 kg are generated by placing it on the market, and only 53 kg, one-third, are emitted during its use.”? Fast Fashion is another example that underlines the importance of extending the lifespan of manufactured products. Durability stands as a key distinguishing factor in the competitive landscape and offers a compelling justification for commanding premium prices.?
Repair, maintenance, and refurbishments should be normalized. For computers or digital products, sometimes a simple software update can significantly prolong a product's lifespan at a more economical expense, negating the need for a complete replacement.?
Sharing model
Sharing is among the first lessons we learned as children. How about turning that into a circular business model? From car sharing to co-working spaces, the Sharing model reduces the environmental impact of ownership. Ridesharing has the potential to decrease the volume of vehicles on our roads, consequently leading to a reduction in pollution, waste, and, of course, the depletion of resources. By creating a marketplace for sharing products, companies can enable people to access them only when needed and return them when not in use. Airbnb and WeWork have enabled people to share their homes and offices with others. While facility owners benefit from monetary compensation for allowing others to use their spaces; the sharing platform receives a service fee from the parties.?
Circular Supplies model?
The key goal of the Circular Supplies model is to reduce an organization’s dependence on new resources and keep resources in circulation for as long as possible. When products reach the end of their functional life, useful elements are extracted to be used again. This approach begins right from the designing phase itself. Automotive companies could use recycled aluminum (extracted from their end-of-life vehicles) as secondary raw material in the production of their new vehicles.?
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Vodafone’s Trade-in Tool allows customers to return their old devices in exchange for a discount on a new gadget or store credit. The returned items are refurbished and resold or the components are stripped and recycled. H&M’s take-back program enables customers to drop off their unwanted clothes in its stores and its partners sort them according to their condition. Garments that can be worn again are sold as second-hand clothes, while others are repurposed or recycled into new products and fibers.?
Resource recovery
Resource recovery focuses on utilizing waste from a discarded product as the primary resource for developing or producing a different product. McDonald’s partners with recyclers to convert its used cooking oil into renewable biodiesel oil, which is then utilized to power its delivery trucks. In the UK, its food waste is converted into gas and electricity, some of which is supplied to the neighboring dairy from where the company procures milk. And the circle continues.?
In their circular journey, FMCG brands, restaurants, and hotels find a reliable partner in Ehfaaz. Our breakthrough technology converts food waste into 100 % premium-grade organic fertilizer, which can be used by farmers, landscaping companies, and soil conditioner companies. We also work with hotels to help them recover resources from used shampoos.? Our innovative process repurposes discarded consumer shampoos into car wash products.? We not only help reduce waste but also create valuable materials for various industries, driving sustainable practices and inspiring positive change.?
Not without challenges?
Adopting circular business models is not without challenges. A white paper published by the? World Economic Forum says, “Without a holistic approach across multiple supply chains, the circularity movement has hit a fundamental barrier: the added cost and complexity of becoming circular outweighs the added benefits.”??
Any change in the business model should go hand in hand with a change in the corporate strategy. A study of 400 leading organizations by Bain & Company found that while 55% had made commitments to circularity, more than half of the initiatives were confined to recycling or waste management. Bain & Company recommends analyzing how and where the industry’s profit pools are likely to evolve and make future investments based on these signs. “Companies that aim to reduce virgin resource consumption may find growth opportunities in reverse logistics and infrastructure businesses or supplying circular feedstock,” it says. In the figure below it suggests additional focus areas. The most effective approach is to view circularity as the foundation of long-term value creation as well as a short-term business goal, it recommends.?
Getting started…
How can companies start to incorporate circularity into their business model??
Ernst & Young proposes the following points:?
How did your circular journey start and how is it going? Share with us in the comment section.
Interesting insights on the circular models!