In a circular economy, the main aim for durable elements, such as plastics and metals is to upgrade and reuse them for other productive applications via as many cycles as possible. This specific approach can be compared with the linear economy in most of the operations with regards to industrial. The first part of the report will discuss the main characteristics, concepts of circular economy and the vital drivers of the circular economy. The second part of the report will discuss the practical perspectives for that a specific company has been taken into account named McKinsey who has used the concept of circular economy quite well in their supply chain and operations. Furthermore, the benefits will also be pointed out with regards to the environmental, economic and social terms.
Concepts and characteristics of the circular economy
The main concept of the circular economy revolves around rebuilding and building with regards to the overall health system. Furthermore, the concept of the circular economy also identifies the importance of an economy that is required to perform efficiently at each and every scale: Individuals and organizations, small business and large businesses and also locally as well as globally. On the other hand, throwing light on the above-mentioned discussion it can be also said that the main aim of a circular economy not necessarily revolves around reducing the negative consequences but it highlights a systematic shift that constructs long-term flexibility, generating economic and business opportunities and also providing huge amount of societal and environmental benefits (Geissdoerfer and et al, 2017).
Figure 1: Circular economy activities
(Source: Prendeville and et al, 2014).
However, it has been observed that the model of the circular economy distinguishes between the biological and the technical cycles. It has been also noticed that the consumption only takes place in the biological cycles, where the biologically-based components and foods are designed to feed back into the entire system via the processes like anaerobic digestion and composting. The above-mentioned cycles tend to reconstruct living systems, for instance, the soil that provides a basic renewable resource with regards to an economy (Geissdoerfer and et al, 2017). In the recent times, it has been also witnessed that the advancement in the digital segment has the immense power for supporting the transition to a circular economy by completely increasing the de-materialization, feedback-driven intelligence and also transparency to a great extent. Moreover, the circular economy is completely based on the below-mentioned three elements: Keeping materials and products in use, designing out the pollution and waste and to reconstruct natural systems (Haas and et al, 2015).
Figure 2: Circular Economy
(Source: Preston, 2012)
There are a lot of characteristics with regards to the circular economy some of them are highlighted in the below segment:
Firstly, modularity, durability with the repair services: One of the main characteristics of the circular economy is to extend the life of the products across the entire product lifecycle. It can be accomplished by improving and maintaining the products via refurbishment, remarketing, repairs and upgrades. Secondly, the process models with regards to the circular economy entirely focus on the consumption and production systems in which everything that was regarded as waste is now retained for uses via recovering and tracing products at the end of their life cycle. The recycling processes both the down-cycling and up-cycling methods in it (Ghisellini, Cialani and Ulgiati, 2016).
Figure 3: The Waste Hierarchy
(Source: Murray, Skene and Haynes, 2017)
The main drivers of the circular economy: why it is important economic, social and environmental benefits
The main drivers of the circular economy are as follows:
Firstly, innovation is regarded as one of the most important drivers of the circular economy to a great extent. There are a lot of companies across the globe that has seen that environmental progression from the innovation with regards to the circular economy is taking place. Without innovation, no company can survive in the marketplace at the recent times. Secondly, recycling: It has been observed closely that innovation is regarded as one of the key elements in the recycling technology The recycling technology is rapidly enabling and evolving the production of the products which are of high-quality with superb sustainability performance. Throwing light on the above-mentioned statement an example of a prominent brand can be given that is known as Starbucks (Rizos and et al, 2015). The company is completely focusing to turn a lot of its waste food and coffee grounds into the products that can be used in an everyday basis. It can be done by using the bacteria for producing the succinic acid that can be further used in a large variety of products from detergents to medicines and bioplastics. Thirdly, product transformation: It can be said that not all of the products can be reconditioned but most of the products have some of the elements that are generally of high value (Zink and Geyer, 2017). If right remanufacturing capabilities and design are imparted with regards to the circular economics model then they can be put together as the new products. It is the method known as the product transformation that is also one of the key drivers of the circular economy.
The environmental, social and economic benefits that are received from the circular economy
Firstly, in Europe, it has been observed that the circular economy has provided a lot of benefits as it has reduced a large amount of the environmental pressures in Europe and the circular economy was also quite successful in minimizing Europe's increasing and high dependence on the imports. It has been noticed that increasing level of the global competition with regards to the natural resources has resulted in the increasing volatility and the price levels. In this scenario the strategies of the circular economy can be used for receiving cost savings, increasing the sense of competitiveness while distributing the net benefits in terms of the job opportunities.
Secondly, in terms of the social benefits it has been noticed that not only the environment or the business get benefit from the circular economy but a good policy that makes the products quite easier as well as well as long lasting with incentives for taking the old products back can save a lot of money of the people and also can be successful in reducing the unemployment. The circular economy has created a lot of jobs because it can address the regional unemployment and the skill gaps of the labor market. The benefits can be enjoyed by every country by bringing back the individuals into employment. The circular economy is also quite lucrative in nature as it has the ability to recover the values from the products that would be otherwise placed in the waste category. The circular economy improves the competitiveness and the resource productivity. It has been already told that a good policy has the ability to guarantee a better quality of products that will survive for a long period of time.
Figure 4: Advantages from circular economy
Thirdly, one of the main targets of the circular economy is to have a positive effect on the ecosystem and also to exploit and overload with regards to the environment. The circular economy has also got the immense potential for reducing the emissions and uses the raw materials that are primary in nature. The greenhouse emissions can be reduced if certain principles of the circular economy are followed: The residues including the solid, water and gas form are observed as beneficial and are absorbed so that it can be reused in the process. Then the circular economy also helps in using the renewable energy rather than the fossil fuels (Antikainen and Valkokari, 2016).
The role of circular supply chains in supporting restorative processes
The circular modes of production are generally known as the circular economy. It is generally welcome by the business as well as the political circles for overcoming the shortcomings that are created by the traditional linear models. Furthermore, it has been observed by everyone that the academic literature with regards to the circular economy has always been quite developing so there has been always a little attention given towards the implications of the supply chain management regardless the fact that the supply chain innovation has been phenomenal towards a more effective and efficient and circular economy (Wijkman and Skånberg, 2017). However, it can be also concluded and said that the role of the circular supply chains in supporting the restorative process by the circular economy has been quite great. The circular supply chain is regarded as the transition from the raw material to the manufacturing place to distribution place to the customer to trash method. It has been witnessed that the consumers are one of the main driving forces of the circular supply chain (Gregson and et al, 2015). On the contrary, the supply chain entities also face a lot of problems and opportunities at the same time.
Application of the concepts
Business model of McKinsey (operations and supply chain) in terms of circular economy aspects
McKinsey have greatly installed the principles of circular economy in their operations. It has been noticed that the company has also started to manage their three main resources namely: Plastic, water, and milk as the cycles rather than the common linear supply chains. Furthermore, it can be also said that one of the examples can be taken into consideration is what exactly they are doing with the yogurt. It has been noticed that the strained technology is used for making the Grey yogurt with regards to the membrane by collecting a lot of acid whey. McKinsey is testing the technology solutions in more than 6 countries and they are also working with various partners to discover ways to use whey as an important resource (Sauvé, Bernard, and Sloan, 2016).
It has been observed that the McKinsey have stated that the present model of the linear economy that is basically the produce-use-throw towards the circular economy in which each and every elements are used for completing the cycle would save approximately 600 billion annually. From a long time it has been observed that the linear economy has affected the economy to a great extent. It completely means that the raw material was used to make a final product. The intrinsic mechanics with regards to the linear economy suggests that relying completely upon wastes cannot supply the growing population of the world with the essential services and it completely leads to the profitability that is quite strained in nature.
Figure 5: Circular economy
(Source: McKinsey & Company)
Economic, social and environmental benefits
There are some of the benefits that the company can achieve by following the circular economy and implementing its principles:
Firstly, it has been projected by the company that circular economy can itself produce a net gain of $1.8 trillion per year in Europe by 2030. It has been also estimated that the industrial, construction costs will also be reduced in the building sector. On the other hand, the cost of the driving can also be reduced by the electric vehicles, car sharing, and autonomous driving by 75% (Planing, 2015). Secondly, the company also highlighted the fact that their product quality can be better by using the circular economy and the CO2 emissions will also be reduced. Thirdly, the innovation models for the waste management in the market that is emerging also explain efficient ways of changing the waste materials into the materials that can be valued. Lastly, McKinsey also thinks that they can be benefitted from the circular economy if the develops products for it so that waste can be eliminated and value can be generated. However, making the long lasting is not at all easy but it can be achieved when the design teams of the company work with the other departments of the firm (Ghisellini, Cialani and Ulgiati, 2016).
Figure 6: Infrastructure investment
(Source: McKinsey & Company)
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