More and more manufacturing companies are talking about what’s often called the circular economy—in which businesses can create supply chains that recover or recycle the resources used to create their products. Shrinking their environmental footprint, trimming operational waste, and using expensive resources more efficiently are certainly appealing to CEOs. But creating a circular business model is challenging—and taking the wrong approach can be expensive.
The authors argue that success depends on many factors, but perhaps the most important is choosing a strategy that aligns with the company’s capabilities and resources—and addresses the constraints on its operations. In this article they identify the three basic strategies to achieve circularity and offer a tool to help manufacturers identify which is most likely to be economically sustainable. Their recommendations draw on decades of research and consulting with dozens of manufacturers across the world.
Buy CopiesManufacturing companies attracted by the promise of circular business models—in which used products can be recovered and reused or recycled—may struggle to make them sustainable.
Managers all too often select circularity strategies that don’t align with their resources, capabilities, and constraints.
The three basic strategies for creating a circular business model are retaining product ownership, product life extension, and design for recycling. In determining what combination of these to adopt, managers should consider the ease of gaining access to used products and the ease of recycling materials, components, or the complete product. These factors, together with how much value is locked up in the product, determine how much value can be recovered from a given pathway to circularity.
It’s easy to see why more and more manufacturing companies are talking about what’s often called the circular economy—in which businesses create supply chains that recover or recycle the resources used to create their products. Shrinking their environmental footprint, trimming operational waste, and using expensive resources more efficiently are certainly appealing to CEOs.
