When talking about productivity, most focus on labour productivity and seemingly ignore how well other costly input resources are used – hence the following article by Rémy Le Moigne, MD of Gate C, and published by Greenbiz, is most welcome
As businesses reopen, they face potential shortages of their own as well as an unprecedented economic meltdown. The European Union is expecting the deepest recession in its history while, in the United States, roughly one in four people who had jobs in February are now unemployed.
To rebuild the global economy, businesses need to rethink models and operational processes.
By keeping materials and products in use, and by designing out waste and pollution, a circular economy could help address both the short-term economic crisis and a persisting climate and ecological crisis. Using circular economy principles, businesses will be able to build more resilient supply chains, to reduce materials costs and create new customer value propositions while reducing their environmental impacts.
Build resilient supply chains
Over the years, to avoid environmental standards or save labor costs, global companies have moved their manufacturing facilities to emerging economies, creating extended and dispersed supply chains. Materials, components and products travel all over the world, sometimes senselessly – for example, codfish caught off Norway and traveling to China, from France, solely to be turned into fillets before returning to France to be sold.
Leveraging a sustained trade liberalization, a continued technological progress in transport and communication, and a massive vertical industrial specialisation, these global supply chains are very efficient – or were, until now – the COVID-19 pandemic has disrupted manufacturing in China, increased trade restrictions and grounded commercial flights, creating major shortages in the face of soaring demand.
To face this crisis and those to come, businesses will need to build more resilient supply chains – they will have to design supply chains that are probably shorter and more distributed, that reuse materials and components – they will need to move away from an intensive consumption of virgin materials and remotely manufactured components – they probably will have to establish, in the long run, new partnerships and non-traditional collaborations.
Reduce materials costs
Businesses have long focused on improving labour rather than material productivity.
In Germany, for instance, labour productivity increased 3.5 times between 1960 and 2000, while material productivity only doubled. Yet, material resources are finite and sometimes scarce.
Businesses have many opportunities to improve resource productivity and reduce their costs:
- In Europe, for instance, the average office was at least 40% unoccupied during office hours and this percentage is likely to increase with the fast growth of teleworking/ WFH.
- Chemicals used in industrial processes, such as solvents, often have a chemical yield of less than 50% – that is, half of the chemical becomes waste without being used once.
To develop resource-productive operations, many manufacturers have long used lean manufacturing methodology, mostly to minimise waste, but few have leveraged circular economy strategies such as managing industrial waste as a resource, using recycled materials or refurbishing industrial equipment.
That’s changing.By using refurbished and upgraded medical equipment rather than new ones, hospitals are reducing costs and improving services – for example:
- Philips has established a healthcare imaging systems refurbishment facility in the Netherlands. The facility takes back old CT scanners that hospitals have been using for nine to 10 years, gives the system a hardware and software update so the scanners work like new, and then sends them back to the hospital.
- During the pandemic, hospitals used CT scanners that allow doctors to quickly take pictures of people’s lungs to help determine whether they have coronavirus. Leveraging a short supply chain, Philips has been able to refurbish customer scanners in only two weeks.
Improving material productivity will be especially critical for manufacturing firms that spend on average about 40 percent on materials. For them, closed-loop models could increase their profitability, while sheltering them from resource price fluctuations.
Design for durability to create new customer value propositions
Today, most producers make products that break down too quickly, cannot be easily reused, repaired or recycled, and many are made for single use only. They often have little incentive not to do so. But dramatic shifts in industry structure, customer expectations and demand patterns will change these incentives.
For customers, durable goods often offer a lower total cost of ownership as well as a lower environmental impact. For businesses, durable goods can help increase revenue from rental, repair and refurbishment as well as reduce costs of raw materials and energy.
Global supply chains are a major source of pollution, including air pollution, which accounts for 7 million deaths around the world every year. Air pollution can be caused by resource extraction (20 percent of health impacts from air pollution), shipping (400,000 deaths a year) or production of goods in China for Western countries (100,000 premature deaths). Therefore, after having shut down economies to save lives, returning to business-as-usual cannot be an option anymore.
Businesses should leverage a circular economy to not only create economic value, but also preserve resources, reduce carbon emissions and cut pollution.
Because today, resilience, sustainability and health matter.