Design for a Circular Business
Meet the Authors
⇨ Business processes must be transformed to effectively reshape material flows and become circular.
⇨ With product design, sourced materials, usage, collection, and reuse, there are many steps that companies can take to rethink their product lifecycles.
⇨ Businesses should incorporate circularity into their supply chains and create corporate sustainability models.
Creating Sustainable Business Value with Circular Business Models
Organizations are caught in the throes of a climate crisis and a waste crisis. These are connected issues that require us to dramatically reduce carbon emissions and accelerate a circular economy.
Reshaping the flows of materials around the world is at the center of a circular economy. Material shortages are pushing costs higher, and disruptions in one corner of the world cause massive impacts elsewhere. At the same time, given increasing regulations, manufacturers must calculate whether the energy consumption for one-time-use goods is profitable. Remanufacturing can help companies reduce the Greenhouse Gas Protocol Scope 1, 2, and especially 3 emissions that make up a significant percentage of carbon debt in their products.
According to McKinsey, a circular economy could reduce annual global CO2 emissions from key industry materials by 40 percent, or 3.7 billion tons, by 2050 (November 2021). This, along with the reduction of use of single-use plastics and packaging in the supply chain, is a game-changer.
Business processes must be transformed to effectively reshape material flows and become circular. Doing so relies heavily on emerging technologies that enable the path to sustainable profitability. To put sustainability at the core, businesses must have sustainability insights on the end-to-end, industry-specific business processes that extend into the business network. These must be tied to the growth drivers and create efficiency alongside sustainability and social responsibility, while responding to compliance and regulatory mandates.
From Disposable to Reusable
Why toss money away and create waste when valuable materials can be returned to you and used in your next product? Transitioning from a linear to a circular business model can be lucrative, as each step in the process contributes to the next. This involves reimagining product design and creating items that can be easily deconstructed and returned, which can take advantage of recaptured materials and reduce reliance on single-use materials and packaging.
With product design, sourced materials, usage, collection, and reuse, there are many steps that companies can take to rethink their product lifecycles. This is driving one of the biggest technical transformations of our time. Companies undergoing this digital transformation must rethink every aspect of their business: future vision, strategy, value chain, operations, pricing models, sales channels, and customer engagement. This presents a unique opportunity to use data and digital technology more efficiently for circular innovation.
To profit from circularity, companies need to do the following:
- Design for circularity. Engage designers to develop products that limit single-use material. This ensures that the product can be deconstructed at the end of its lifespan and be reused. This requires insights on downstream material to support the product and service design process.
- Use materials that comply with regulations and reduce expenses. This requires enabling sustainable commerce/re-commerce by extending sourcing solutions to help connect to end markets.
- Know what to use and when to comply with Extended Producer Responsibility obligations while meeting margins. This requires insights on material impact to support decision-making.
- Sell, deliver, and service products in a sustainable way. This ensures each step in the process contributes to a sustainable outcome. Innovate and create new business models that rethink how to deliver products, including rental, reuse, and products as a service.
- Track, collect, reuse, and recycle by using digital technology and logistics providers to lower costs.
- Eliminate waste and maintain value by repurposing materials. This requires insights into downstream material flows to plan for recapturing materials and to manage the infrastructure required to grow.
The Problem with Plastic
Plastic, especially single-use plastic, is widely seen as one of the biggest waste and pollution problem areas. Solving for plastic pollution and circular business models are inexorably linked. As examples of solving for this challenge emerge, other material flows can adopt the success and can more easily be adapted to circularity.
Global trade in plastics tops $1 trillion a year, or 5 percent of total merchandise trade. This is 40 percent higher than previous estimates and involves virtually all nations. Increasing demand for plastic hastens the creation of hundreds of millions of tonnes of waste. As the impact of waste creation becomes more evident in our oceans and on our land, consumers want action and governments are responding with regulation. Currently, 170 nations have pledged to “significantly reduce” the use of plastics by 2030. There are more than 400 Extended Producer Responsibility schemes and plastic taxes in place or planned.
By placing accountability for the impact of products on producers, EPR policies create an incentive to prevent waste at the source. Additionally, voluntary agreements between companies and NGOs such as the Ellen MacArthur Foundation, WRAP, and WWF guide how to produce, use, and reuse and recycle plastic with specific targets. Incentives from NGOs and governments drive businesses to use recycled material in the production of plastic packaging. But still, the responsibility to authenticate the source of the materials and provide the processes to track, trace, return, and reuse packaging in a global supply chain can be daunting.
Tracking plastic commitments, reporting compliance to regulations, measuring and managing impact of the tradeoffs, providing transparency to global Extended Producer Responsibility schemes, and accurately calculating and paying plastic taxes are only some of the processes that businesses must implement in the coming years. Transforming business operations is a necessity to becoming more resilient and agile in the face of these changes. It is essential for continued success.
Plastic Management Regulations Push Businesses to Change—SAP Enables Them to Transform
Plastic pollution is a multidimensional problem that requires cooperation from governments, businesses, and individuals. While there is still a demand for cheap plastics, governments around the world are implementing regulations, EPR schemes, and plastic taxes. Countries like the UK, Portugal, and Spain have plastic taxes. The US has more than 100 state-level EPR laws. There are 10 Asia-Pacific economies with active EPR schemes. By 2030, the EU aims to make all packaging reusable or recyclable. More urgently, by 2024, the United Nations Treaty on plastic pollution will forge a legally binding international agreement. Companies worldwide need to be prepared.
Business and Technology Combine Forces to Innovate Together to Create a Sustainable World
Businesses face increasing urgency to design products sustainably, offer more sustainable products, and transition packaging to eliminate waste. Transforming business models to be circular and sustainable requires more than passion and vision. It requires skill, experience, and connections to data across the supply chain to execute.
It is only possible to implement the directives for sustainability, circularity, and the use of plastics when there is sustainable business data transparency through the core processes and systems that run across the value chain.
Businesses are seen as the most trusted organizations from both an ethical and competency perspective to help solve these problems according to Edelman Trust Barometer. Data-rich technologies form the backbone of how sustainable businesses run and provide the strongest lever to help solve these difficult challenges at scope, speed, and scale.
The Technology for Circularity
Since 1950, only about nine percent of plastic produced has been recycled and returned to the economy. This represents a huge opportunity for visionary leaders who see the value of turning used plastic back into usable products. Yet this requires a business transformation of the scale that is only possible with the process and technology expertise of SAP.
Across each industry, everyone from the CFO to R&D are tackling the financial, design, and production challenges to meet regulations, consumer demand, and regulatory requirements. To ensure this, organizations need solutions to provide insights and expertise to design circularity into a product to reduce and reuse plastics in their businesses.
To make this happen, businesses need to step through each process and transform for circularity:
- Data collation on production, recipes, batches, logistics, materials used, and sales.
- Volume checks of types of materials, assess impact KPIs.
- Measure and manage EPR reporting forms, fees, payments, PROs, and plastic taxes.
- Assign benchmarks and success measures for meeting sustainability targets (corporate, local, and global regulations).
- Create reports for finance, sustainability, investors, auditors, etc.
- Design and redesign products and packaging to be more sustainable and align to reporting and measurements.
- Assess impact and tradeoffs and adjust business with agility to become more resilient.
Together We Can Transform
Businesses should incorporate circularity into their supply chains and create corporate sustainability models. With SAP’s Responsible Design and Production, companies can differentiate from their competition by enabling them to:
- Holistically manage packaging and regulatory risk across global markets and support transition to a sustainable portfolio.
- Reduce costs by calculating fees and taxes accurately, and implementing measures to reduce regulatory exposure.
- Deliver on commitments by identifying the right tradeoffs and enable the strategic portfolio decision-making process.
- Transition to a circular product portfolio and increase consumer engagement through authentic delivery of zero-waste commitments.
- Redesign products and packaging to be more sustainable and assess impact of changes in design using new materials.
Building a Sustainable World Together
No individual company or person can set about to building a more sustainable world. This is something we must do together. SAP’s Global Sustainability Ecosystem includes strategic service partners and alliances with Accenture, EY, Deloitte, IBM, Capgemini, and PwC. SAP has more then 2,600 innovators on PartnerEdge. Our thought leadership partners and impact network includes the Ellen MacArthur foundation, Global Plastic Action Partnership, WEF, WBCSD, and the UNGC. SAP and its partners have the skill, expertise, and passion to support companies from around the world to rethink and redesign how business is done. This will not only meet regulatory requirements, grow the company, and keep employees satisfied, but also to ensure that the next generations have a better world.