David Atkinson, UK Head of Manufacturing SME & Mid Corporates, Lloyds Bank, considers why the circular economy represents such an important opportunity for manufacturers to create more efficient and competitive companies.
The circular economy is all about keeping resources in use as long as possible to extract maximum value, minimise waste and optimise efficiency. It’s the opposite of a linear economy model, whereby raw materials are extracted to make new products, using fossil fuel energy, then thrown away.
For manufacturers, transitioning to a more circular business model that enables reuse, remanufacture, refurbishment or recycling will be fundamental to a long-term Net Zero strategy.
Many of you are already on that journey; our research has found that 65% of SMEs are familiar with the concept of the circular economy and 47% have set a target for Net Zero.
That’s well-advised; small and large businesses are already shifting their business models towards circularity. There have been some high-profile examples, like Ikea buying back and reselling used furniture, and even renting furniture.
And for SMEs in supply chains that want to differentiate themselves from the competition and establish a reputation for innovation, the circular economy represents a massive opportunity.
Larger firms are increasingly concerned with Scope 3 emissions reporting, which isn’t yet mandatory like Scope 1 and 2 reporting. But it is considered best practice and will surely become compulsory in time; it’s already in place in Europe, for example.
And smaller companies are already finding that to remain within certain supply chains or tender for new work, larger clients are imposing Scope 3 reporting requirements upon them. It is also likely that mandatory reporting requirements will, over the coming years, apply to smaller companies too.
A point of difference
In this environment, suppliers that are able to demonstrate their circular thinking can make themselves more relevant and competitive. Equally, it’s a point of difference that can open up new doors in global markets, particularly where Scope 3 reporting is already legislated.
Sustainability is an increasingly important driver for consumers too. Manufacturers that can demonstrate they use recycled materials, that their products can be repaired and then, at the end of their lives, repurposed, will obviously appeal.
While this may mean that you ultimately sell fewer units, it presents the opportunity to create new revenue streams such as repairing or refurbishing and reselling used products. And it can enable alternatives to traditional ownership like renting.
The circular economy can also enable significant cost savings; reused and recycled materials reduce your reliance on virgin raw materials and mean lower waste disposal costs.
Perhaps more importantly, engaging in the circular economy stimulates innovation; challenging yourself to think differently can deliver new and sustainable solutions to longstanding problems.
Fresh thinking
The benefits of being part of the circular economy should now be clear. However, for some this may mean going right back to square one and fundamentally redesigning your products, which can require significant investment in terms of both time and resources.
There are some basic principles that should inform your thinking, which must consider the entire lifecycle of a product:
Birth: This starts by incorporating as many sustainable, recycled or reused materials as possible in the manufacturing process.
Life: Products should be made as durable as can be to extend their lifespan, possibly incorporating modular designs to support reparability and enable upgrades.
Rebirth: As much of the product as possible must be able to be recycled, refurbished or reused when it reaches the end of its life.
While the circular economy is not a new concept, there is still a job to do to embed the principle throughout supply chains.
By engaging with suppliers, manufacturers can source the sustainable materials that will enable them to create truly recyclable or reusable products. And by raising awareness of the positive impact of responsible consumption, we can bring customers and consumers on this journey with us.
So, if circularity isn’t already on your agenda, then it should be.
If you aren’t sure where to start, Lloyds Bank’s partner, the Manufacturing Technology Centre employs a team of sustainability experts who can offer support. After an initial virtual assessment, they can visit your premises to carry out a free line walk, reviewing how you work and identifying opportunities to take a more sustainable approach.
Because circularity is more than just another buzzword; it represents a new model for the global economy that works for the benefit of the planet and its people.
For more information on the MTC’s Sustainability Line Walk, visit lloydsbank.com/mtc/sustainability
Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under Registration Number 119278.
