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Reinventing manufacturing for circularity can increase profits

Business executives’ fear of shareholders’ fear prevents them from initiating major changes, argues Professor Steve Evans. Yet adjusting business models and production processes towards circularity can increase efficiency and profits.

Industrial manufacturing needs to adapt to planetary boundaries and push greenhouse gas emissions to zero, says Steve Evans, Research Director at the University of Cambridge’s Centre for Industrial Sustainability.

To achieve this, companies have to learn to produce goods and materials in a new way, and they have to work for both long- and short-term goals simultaneously.

"Business executives are fixed on a mental model that sustainability will mean short-term loss in gains. This is not true."

The way to get started?

First, increase efficiency. Second, learn to see value in a new way.

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Companies must learn to see where resources are wasted

Making manufacturing processes more sustainable requires many actions, but according to Evans, one practice is universal: people must learn to see where resources are wasted.

"Our research has shown that material efficiency can be increased a lot, but it requires reassessing ways of doing things. We are trained to see labor waste and capital waste, but not water waste and energy waste," explains Evans.

During his research Evans has seen how focus on reducing water or energy waste can result in remarkable savings.

"For example, a clothing factory in Vietnam was able to decrease the use of water in making a pair of jeans from 800 liters to one liter by experimenting stubbornly. If someone had set the goal to one liter, nobody would have thought it possible."

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Mapping value helps in reinventing business models

For most manufacturers, a transformation from the linear economy to circularity will require a reinvention of their business model.

"Changing your company’s business model means changing the system of value exchange from which your company profits. Here, it’s essential to learn to see where you create, deliver and capture value and where you lose or even actively destroy it," Evans points out.

"Investing some time and effort into value mapping will help you get the full benefit of the value you create for your different stakeholders."

A CIS research team led by Evans has developed the Cambridge Value Mapping Tool to help manufacturers in business model innovation. It uses a structured and visual approach to identify “value uncaptured” in the form of failed value exchanges: value missed, destroyed, surplus, and absence. The exchange of value is analysed from the viewpoint of the company’s each stakeholder, including the environment and society.

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Success in circularity requires a new mental model

Evans sees the transition to a circular economy as a psychological and philosophical issue rather than a technological one.

"Big companies are desperate to continue business as usual even when the system is completely broken. Business executives’ fear of shareholders’ fear prevents them from initiating major changes. They are fixed on a mental model that sustainability will mean short-term loss in gains, which is not true."

For example, a change in business model that would halve the company’s turnover but double the profit—such as a clothes shop turning into a clothes rental service—may feel intimidating because share price and the top management’s view of itself depend on the growth of turnover, Evans suggests.

However, renting clothes would be a far more sustainable business as it would save water and energy, decrease textile waste and cut down credit card debt for many customers.

"Turnover or GDP as a measure of success has to go. The value that needs to grow is the wellbeing of people."

 

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