The role of manufacturing in a circular economy

Considered the biggest shift in the economy in 250 years, the circular economy is fast replacing the linear version. It is predicted that in a resource-constrained global scenario, manufacturers would be the first to veer away from the take-make-dispose current model.

Recent economic factors such as increasing input costs and volatility of resource availability had driven this shift towards a circular approach. As the narrative regarding industrial sustainability continues, more manufacturers are embracing reactive change. At CZ Electronics, adaptation of processes and products had always been part of its manufacturing loop, proving that for visionary leadership, such as at CZ Electronics, reactive is not always best and that the surprise quotient could be circumvented pro-actively.

The circular business model shows how manufacturing companies can achieve stronger value chain relationships and yield long tail revenues. But to reap these rewards requires change. Manufacturers will need to re-examine and re-configure operations and explore adaptation of existing Enterprise Resource Planning (ESP) solutions.

According to Colin Elkins, Vice President of a multinational manufacturing organisation in Sweden, there are four key areas where the impact of the circular economy in manufacturing is clear to see.

The creation of ‘like new’ products with reverse logistics, is a concept of remanufacturing. As opposed to reconditioning, this technique involves converting a component to its original specification, allowing products to be sold at the same quality and performance of a brand new resource. Global industries such as electronic manufacturers which rely on process, had already reported economic and environmental benefits.

To operationalise the circular economy, remanufacturing requires various situation-dependent repair and refit processes. Depending on the unit’s condition, units can be released for a standard remanufacturing process or may require a triage before being repaired desk. Matters could become increasingly complicated when it comes to returning units. Certain customers may require exact units to be returned, while some may be covered by warranty or service contract. At each stage, it is crucial that manufacturers ensure agreement terms are met.

Up-scaling requires a circular overhaul with the assistance of original manufacturers to overhaul and rebuild their assets. As opposed to the case of repairing and remanufacturing individual components, larger assets can be rejuvenated and upgraded with new electronics or even substantially reconfigured to deliver entirely new products. These aftermarket services allow companies owning and operating these assets to retain much of the value added to the raw materials.

As rebuilding and overhauling is more environmentally responsible than recycling, it provides an opportunity for the Original Electronic Manufacturer (OEM) to add new, greener technology to remanufactured equipment. Certain automotive outlets are already telematics-based services to increase machine productivity, simultaneously lowering a machine’s carbon footprint.

The move towards circular product value chains is still in its infancy stage, but considerable progress has already been made. According to a worldwide Re-usable Packaging Association study, 80% of manufacturers would be requiring re-usable packaging within the next 12 months.

With more governments introducing strict packaging regulations, the importance of circular economy is being recognised worldwide and drafting regulation to secure the future of circular economy.

Elkins maintains that “it all comes back to ERP and calls for designated software to assist manufacturers in managing the entire lifecycle of their products—from manufacturing to reconditioning, recycling and supporting the product over an extended lifecycle. Contract or warranty management software functionality will be essential to enable manufacturers to recoup costs of repairs or refurbishment and respecting warranties and maintenance agreements.

Reverse logistics

Regardless of whether a manufacturer’s packaging is returned to be re-used or for products and/or components to be refitted, reverse logistics is probably the single most significant functionality facilitating the circular economy model. Reverse logistics is associated with new return considerations such as managing various methods of return inventory to keeping track of material returning from field service reverse logistics channels.

As more and more manufacturers opt into a circular economy, it is clear how the new approach can benefit the sector.


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