The Shift From Linear To Circular Economy Is The Road To Sustainable Digitalization

The road to digitalization is more than just making any organization a technology-empowered, evolving digital force that shall outlast the unpredictable changes to come in the next few years.

We’ve been living with technology for so long that we’ve stopped pondering its benefits beneath the surface. A digital backbone besides ramping up business operations, connecting devices, churning out big data, interconnecting the world, and increasing innovation and profits, is a vital step toward the implementation of a circular economy strategy.

The world is changing fast. As we progress with exciting innovations and novel technologies into the future, the climate, on the other hand, continues to deteriorate with the increasing carbon footprint from factories.

A circular economy is fundamentally a strategy aimed at optimizing resources used within industries so that sustainability can be achieved. It involves a model of production and consumption in which recycling, sharing, leasing, and refurbishing of existing materials are performed for as long as possible.

There lies an intertwining thread between the concepts of digitalization and circular economy that I’d like to explore in today’s article. By moving from linear to circular economy theory while adopting digitalization, we can optimize our society, economy, and the environment.

Going Circular from Linear Economy: Why Now Is A High Time To Do It

In a linear economy, put simply, we use raw materials that are processed and thrown away after use. The cycle in a linear economy, therefore, is open-ended. All materials of input, processing, or output are left to go “out” of the cycle since the loop isn’t closed.

A circular economy theory, in essence, is about closing the cycle so that all materials used in input or processing remain within the circle. Essentially, a circular economy differs from a linear economy in the way that value is created or maintained.

The linear economy follows the traditional “take-make-dispose” step-by-step plan. When industries use raw materials to create a product, they discard them after using them through and through. That means the value is created in a linear economic system by producing and selling as many products as possible.

A circular economy, on the other hand, uses the 3R approach:

1: Reduce

2: Reuse

3: Recycle.

In such a system, value is created by focusing on preservation. The resources used are minimized or reduced. The reuse of parts and products is maximized, and the raw materials are reused to a higher standard.

Fortunately, there are plenty of companies that have integrated a circular economy model into their businesses; some have products that can be converted into services, and others have transformed their company-wide operations into a circular model.

A circular business model articulates the logic of how an organization creates, delivers, and captures value for its broader range of stakeholders while minimizing ecological and social costs.

It is wrong to say that in a linear economy, we don’t focus on sustainability. The real difference is in the perspective of it.

Sustainability within a linear economy is focused on eco-efficiency; that is, the maximum ecological impact of the environment is reduced to get the same output.

In a circular economy, however, sustainability is about increasing the eco-effectiveness of the entire system. In such a model, not only the ecological impact is minimized but additionally, the economic and social impact is also minimized.

By the 2030s, All Economies Will Be Circular ????????????????????????????????????????????????????????????????

Gartner optimistically predicts that by 2029, supply chains will not be allowed to produce waste, as customers and many governments will find it unacceptable. However, it is realistic to expect that during the 2030s the circular economy will not only be the mainstream economy but will also be the only economy.

By then, we would have achieved the net-zero emissions target as per the Paris Agreement with multiple initiatives being launched to drive action. From reducing emissions by 30% to using technology to creating opportunities that reduce waste, there would be a global circular economy that has become ‘intentionally transparent.’

More ethical and sustainable circular supply chains would be the new mantra. People would be having renewed trust in sustainability to encourage higher visibility and greater control over responsible sourcing.

The Key Elements of Circular Economy

There are certain key elements of a circular economy that explains why this particular business model, in conjunction with digitalization, is an excellent route toward complete sustainability.

1.?????It ends our reliance on finite natural resources

The global circular economy ensures that the concept of waste is going to be obsolete. Before the industrial revolution, waste almost didn’t exist. Materials were reused, recycled, repaired, and regenerated.

The circular economy bars the consumption of finite natural resources by deploying principles and strategies to achieve climate goals and increase profitability.

2.?????It is ecosystem-centric

Companies that use the circular economy’s competitive advantages collaborate with their ecosystem partners to create, capture, and deliver sustainable value.

Compared to the traditional company-centric linear model, an ecosystem-centric business model focuses on up-front product sales. Thus, by extending the lifespan of products and parts, companies effectively improve resource efficiency, resilience, and customer intimacy to create new income sources.

A circular economy keeps the ecosystem at the focal point to capture and create value.

3.?????It allows teaming up to create joint value

The final key element of a circular economy is the space to team up to create joint value, not only internally within an organization but with the public too.

Beyond other methods, it is here that digitalization comes in. An efficient business ecosystem, one that has a circular loop when it comes to materials, processing, and output, is operable only by digitalization.

Let’s now discuss how digitalization makes business models more sustainable.

3 Reasons Why Digitalization Is Critical To A Global Circular Economy

I’ve been meaning to come to this point because many organizations still do not understand the significance of digitalization in driving action towards a global circular economy. There’s no doubt that by 2030, we won’t be labeling the circular economy with that title; it would just be the economy because we would have gone wholeheartedly digital in our business operations.

There are a few major reasons why digitalization is critical to a circular economy. Let’s learn more about them.

1.?????It can close the loop

Of course, the primary benefit of digitalization of any organization is closing the loop by giving correct and accurate data on specific product availability, location, as well as condition.

Digitalization fundamentally sparks circular solutions such as from design building to material sourcing, construction processes, demolition to building lifecycle.

2.?????It kindles circular innovations

Digitalization provides a platform where visions and ideas can be shared amongst all members involved in a production process.

As we use digital platforms, it connects multiple industrial stakeholders across different sectors to initiate circular innovations. In this way, by convenient and rapid sharing of insights and ideas, new potential business models and innovation can be unlocked through networking activities.

To make things clearer, an example of a digital platform facilitating circular economy innovation is the FiberEUse of the textile industry. The company integrated a holistic approach to improve composite recycling and reuse profitability in value-added products.

3.?????It makes way for intelligent assets to optimize efficiency

Intelligent assets such as artificial intelligence, machine learning, the internet of things, big data, data visualization, blockchain, and the similar can greatly optimize the efficiency of processes. These include:

1. Tracking products through their use cycle
2. Fleet efficiency through satellite technology
3. Efficiency of delivery routes where real-time data facilitates faster routing, reduced fuel, and minimal damages and asset loss
4. Avoiding waste by using data for waste operations of how to continually improve the system as well as design out waste
5. Sorting out recycled materials that are ready for reuse and regeneration using predictive analysis
6. And importantly, an efficient reverse logistics system where data allows asset owners to quantify the cost and benefits

While these are 3 major and primary reasons that digitalization brings in the circular economy, we certainly have more to the benefits and advantages than mentioned.

The Time of Transition Is NOW

A simple and straightforward recipe for circular economy transformation goes as follows:

●???????Building an understanding of resource, wastage, materials flows, and inefficiencies.

●???????Focusing on hotspots of circular economy to align them with business strategy.

●???????Rethinking operations by breaking down silos, enabling connectivity, and optimizing the use of resources.

●???????Connecting data, devices, and partners using digital platforms.

●???????Creating and selling an experience using circular economy by selling ‘value’ instead of materials.

●???????Communicating with the customers by storytelling, or creating a circular product system and community around the core product, thereby empowering the customers.

●???????Learning continuously and ensuring a smart, feedback loop for better eco-design.

The transition might be tough for some, but we are about to face the generation of “born-circulars” as the new industry leaders during the 2030s. In definition, born-circulars maximize how idle assets are used across a community while providing customers with affordable and convenient access to products and services.

Conclusively, it’s high time executives must start steering their organizations to gain experience in the circular economy model, and migrate to a digital core to provide the layer for this transition. In essence, the key benefit of a global digital backbone supporting a circular economy is to provide a line of sight across the supply chain, enabling the path to increased profitability and competitiveness while minimizing environmental harms on the side.

The only question that remains is; are you ready for it??