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The circular economy

Enabling the transformation to circular business

The circular economy could unlock $4.5trn in economic growth. To capture this growth, transparency and collaboration within business are crucial

By Maggie Buggie, Chief Business Officer at SAP Services | Tuesday, August 18th, 2020

Today, the world faces an unprecedented resource crisis. Due to rapid population growth and an ‘onwards and upwards’ economic model, we are consuming resources at almost twice the speed that the planet can replenish them. Every year, more than 100 billion tonnes of raw materials enter the global economy.

We’re not just over-consuming resources; we’re also wasting them. Far from improving, our wasteful processes seem to be getting worse. Two years ago, 9.1 percent of waste generated across business was reused. Today it is just 8.6 percent. The remaining waste leaks into our environment, with 8 million metric tonnes of it entering our oceans every year. In fact, it’s estimated that the level of plastics in the ocean may be a million times higher than previously thought.

But COVID-19 presents us with a unique opportunity to start again. As we rebuild from the damage of the pandemic, we can instate an economic model focused on sustainability and equality. We must now move away from traditional economic paradigms based on endless, upwards growth and towards a circular model based on creating value for everyone on the planet.

Going full circle

To some, the circular economy may sound like a utopian concept or an unachievable alternative economic model. But it’s actually much more feasible than one might think.

In the past, the foundation for a healthy economy has been growth and profitability. However, this model has created huge inequality around the world. A circular economy would help us address this. When processes are circular, everything has value and nothing is wasted. Products are designed and made to last. Producers promote reuse, repair and remanufacture – enabling materials to remain in use at their highest value for as long as possible.

This model would bring huge benefits. According to Accenture, a circular economy has the potential to unlock $4.5trn in economic growth. It could also play a crucial role in mitigating climate change, the biggest threat we face today.

To achieve this huge transformation, businesses must start small. Circularity needs to be embedded in every part of production, from design through to execution.

COVID-19 presents us with a unique opportunity to start again

The only successful circular approaches seem to rely on clear resource ownership – in many cases within one company – throughout the entire value chain. Crucially, moving classical linear value chains toward circularity also requires trustworthy collaboration between participating industries. Trust is based on transparency around resources, but also around financial flows. This therefore requires accurate data that can be delivered by innovative technologies like blockchain or artificial intelligence.

Nevertheless, two major obstacles stand in the way of achieving full circularity. Firstly, businesses need to look beyond their individualistic measurements of value and consider more broadly the holistic impact of a resource or product along the entire lifecycle. Secondly, we need to incorporate this thinking around resource ownership into the education of the next generation of business leaders. Both of these changes require a huge shift in mind-set around what it means to create value in business.


Building circular businesses

SAP is focused on five key areas that together are key to the transformation to circular business. These are responsible design, responsible sourcing and marketplace, responsible production, responsible consumption and, lastly, resource recovery and reuse.

The first of these – responsible design – focuses on designing out waste and pollution. Through model-based systems engineering, designers can challenge the standards of packaging and material use so they can unlock the value of secondary materials and ultimately reduce waste.

The second – responsible sourcing and marketplace is all about creating value around secondary materials. With sustainable sourcing solutions, producers can identify new sources of recycled materials to use in their processes. This will help increase the value of residual waste and enable the growth and viability of waste-picker communities.

When processes are circular, everything has value and nothing is wasted

Next is responsible production. This means we can keep products and materials in use at their highest value, by harnessing real-time tracking technologies to trace their progression through the value chain.

Meanwhile, responsible consumption requires creating greater transparency around products and processes. For the circular economy to work, individuals need to make more informed purchasing decisions. But they can only do this if brands trace and share product lineage. Traceability apps can help companies achieve this. At the same time, experience management solutions can provide producers with deep insights into consumer sentiment around the value of circularity.

Finallyresource recovery and reuse helps us track waste flows, supply and valuation. Recyclers need granular, high-quality data on sources of recyclable materials to support investment decisions around new collection and processing capacity.

Looking at these five areas, we can see how the core principle behind the circular economy – zero waste – can minimise costs, increase customer satisfaction, mitigate risk, grow profits and enable resilience. This new model will help companies become smarter and more responsible, while also balancing the Earth’s finite resources.


The power of collaboration

A full transition to a circular economic model requires participation from all sectors. SAP is enabling this transformation by leveraging nearly 50 years of supply chain and industry expertise and collaborating with our global purpose network, including start-ups working on sustainability solutions.

One of our key partnerships is with the Ellen MacArthur Foundation. Here, we work with businesses, innovators, governments, universities and thought leaders to accelerate the adoption of circular economy practices and processes that maximise the use of resources.

In addition, through the Climate 21 programme, SAP supports and enables organisations globally — upstream, downstream and across sectors — to run as intelligent enterprises, providing insights to assemble, assess and act on their CO2 footprint. We create new customer value by providing solutions that are predictive, intelligent and agile, as well as analytics for holistic steering and reporting.

The pandemic has revealed that no one person or entity can tackle the world’s challenges alone. Now is the time for a collective vision around our future and focused action in order to achieve it. Powering the circular economy will be, by nature, a collaborative and inclusive global ‘project’ that we all need to subscribe to and deliver. It will have to go hand-in-hand with action on climate and creating a more inclusive society. It will take collaboration, trust, innovation and unity. The circular economy is well within our grasp. But it requires all of us to reach out and take it.