Discover the circular business model and learn about the transformative power it holds to build a sustainable future.
The traditional linear business model that has been prevalent for centuries is based on the concept of take-make-use-dispose. This model, however, has led to a significant depletion of natural resources and has resulted in large quantities of waste that are polluting our planet. The circular business model, on the other hand, aims to address these issues by prioritizing resource efficiency and sustainability.
What is a Circular Business Model?
The circular business model is based on the principles of the circular economy, which aims to create a closed-loop system in which waste is minimized and resources are used efficiently. It is widely adopted by manufacturing companies seeking to achieve sustainability. To attain this objective, businesses may adopt different approaches, such as waste reduction, material reuse, transitioning from sales to leasing, and reorganizing supply chains. For this circular business model to be viable, companies must balance sustainability with profitability, making it an attractive option for firms that manufacture high-value and durable goods.
Types of Circular Business Models
Depending on their initial setup and goals, companies can adopt various types of circular business models. Typically, businesses employ a blend of the following strategies to establish a circular business model.
Retain product ownership (RPO)
This strategy entails leasing products to clients instead of selling them, and it can be an effective means of conserving resources and curbing waste while sustaining business revenue. The RPO model is particularly suitable for long-lasting, high-value products such as office and home equipment, specialized machinery, furniture, and certain electronics. However, implementing the RPO model may necessitate investment in repair and refurbishment services, and the revenue from each transaction may be lower than that obtained from a sales model.
Design for recycling (DFR)
Design for recycling (DFR) is a circular business model approach that companies often employ in conjunction with other strategies. With DFR, companies create products that can be easily reused or disassembled for their reusable components in the future. By doing so, companies can decrease their dependence on raw materials, minimize waste in their operations, and enhance efficiency. Some businesses encourage customers to return old products for refurbishment or transformation into new goods, while others establish partnerships that promote recycling.
There was a collaboration between Adidas and Parley for six years to lessen the drastic pollution of our oceans. Parley transformed discarded plastic into a textile thread, which Adidas used to manufacture shoes and apparel. Through this remarkable partnership, they helped to reduce plastic waste in the world’s oceans.
Product life extension (PLE)
A prevalent circular business model is the product life extension (PLE) strategy, which involves developing long-lasting, high-quality products that can endure for extended periods. PLE models can decrease a company’s dependence on raw materials, decrease energy consumption, minimize development and production costs, and foster a culture of sustainability. Additionally, PLE models can create opportunities for a secondary market of used and refurbished goods. Another advantage of the PLE approach is the enhancement of the relationship between a business and its customers.
Benefits of a circular business model
By adopting a circular business model, companies can reap several environmental, social, and operational benefits. Here are some of the key advantages that businesses can achieve by implementing a circular business model.
The principal social goal of a circular business model is to establish a more sustainable way of conducting business. Several circular business models promote the adoption of renewable energy and material recycling to reduce emissions. Recycling can prevent the dumping of used goods in landfills and decrease the demand for fresh material extraction, thus curbing environmental impact. Moreover, circular business models often emphasize sourcing from local suppliers, which has the dual benefit of reducing the necessity for long supply chains and curtailing transportation-related emissions, thereby benefiting the environment.
Adopting circular business model principles frequently necessitates a complete rethinking of a company’s commercial approach. This provides businesses with more prospects for innovation and can spur new ideas within the corporate leadership. Implementing a circular business model offers companies the possibility to revamp their operations, which can not only lead to sustainability improvements but can also help them identify methods to reduce costs, streamline workflows, and attain strategic objectives.
Circular business models offer another significant advantage, which is increased efficiency or generating higher revenue at lower costs. By reusing materials and recycling used products, companies can obtain raw materials for production while minimizing their procurement expenses. By sourcing materials locally, businesses can further reduce costs, and avoid import expenses, tariffs, high-inventory supply chain costs, and transportation expenses. This can help them gain additional savings while making their operations more efficient.
Resilience and resource security
A crucial advantage that circular business models can provide is enhanced stability and resilience within a corporate structure. By reducing their dependence on raw materials and increasing the use of recycled materials, companies can develop a dependable procurement system that mitigates fluctuations in the cost of raw materials due to conflicts, economic factors, or natural disasters. This way, circular models help companies build a more robust and stable supply chain that can withstand unexpected disruptions, providing them with greater long-term stability and sustainability.
Improved customer relations
As customers become more conscious of companies’ sustainability practices, they often prefer to purchase from businesses that align with their values. Implementing a circular business model can provide a fresh marketing approach and strengthen customer relationships. Practices such as recycling used products, offering rental services, adopting sustainable practices, and providing repair services can showcase a company’s shared values with customers, potentially leading to higher sales and increased customer loyalty.
The Bottom Line
The circular business model is a sustainable and efficient way of doing business that prioritizes resource efficiency and environmental sustainability. By designing out waste and pollution, keeping products and materials in use, and regenerating natural systems, businesses can reduce their environmental impact and improve their resource efficiency. The circular model has been successfully implemented in various industries and has numerous benefits, including reducing production costs and improving customer loyalty.
With its pioneering climate action initiatives, The Disposal Company is leading the charge towards a sustainable future in India, enabling brands to go plastic-neutral and carbon-neutral with ease. Discover more here.