What a circular economy means for the industrial products industry

By | 4 minute read | December 12, 2018

In today’s economy, we take resources from the ground, make products, and, more often than not, dispose of them. That’s got to change, says Jad Oseyran, the Circular Economy Global Centre of Competence leader within IBM Global Business Services. The solution, he says, is to transition to a circular economy, one that decouples economic growth from the use of virgin resources.

In a circular economy, products, components and materials are reused across various industries, with the ultimate goal of producing zero waste while at the same time unlocking significant social and business value. The latest comprehensive study by McKinsey and the Ellen MacArthur foundation estimated the business opportunity to be worth $1.8 trillion globally by 2030.

We spoke with Oseyran about this idea and what it means for the industrial products industry.

Industrious: Why should we shift to a circular economy?

Oseyran: There is now clear evidence that a linear economy model of “take-make-dispose” is not viable moving forward towards a planet with an additional billion people by 2025. We are destroying our planet at breathtaking speed and scope, and the gravity of the risk is now being further recognized by the scientific community but also by business and governments. It is simply a serious economic threat besides being a well-being threat to humanity. We need to transform our industrial operating principles towards designing waste out from the beginning.

Are businesses already testing—and benefiting from—a circular economy?

Yes, various companies are benefiting from circular business models. As an example, a manufacturing plant of a leading automotive company became the most profitable for the manufacturer globally through its circular economy operating model. Gearboxes, injector heads, and cylinder heads are re-manufactured and re-introduced in the supply chain. This resulted in 80 percent less energy, 88 percent less water, 92 percent less chemical products, and 70 percent less waste production. Another great example is our own IBM GARS (Global Asset Recovery Services), where we successfully generate business value from reusing a large portion of our IT assets.

What kinds of solutions does IBM offer to create a circular economy?

If you think about it, waste is simply material without data or without identity. We are working on a digital platform solution for the built environment where the relevant “identity” of buildings and their content is created, leading ultimately to a professional marketplace whereby demand and supply for construction supplies is matched. It is effectively leading to the creation of an alternative supply network, transforming building to supply sources and unlocking various business models such as urban mining. The platform will further allow a variety of insights that enhance real estate valuation, enable the monitoring of CO2 and circular economy targets, improve building occupancy, and boost energy performance.

How can blockchain and AI play a role in all this?

Blockchain could play a role because trust will be a key success factor for adopting products in the newly created ecosystem. Think about trusting an unconventional supplier, such as an urban miner, that products have been tested and certified. As for AI, we’re looking into visual recognition to facilitate the recognition of products and materials in buildings and training the system to recognize and collect the relevant information. That will facilitate the process in existing buildings where digital information is not readily available. We’re hoping to launch the first reuse platform with our partner and hope it sets the compass for other industries toward waste-free and much more productive business models.

At IBM the circular economy is part of the Industrial Products industry. What other industries does it apply to and why is it important to them as well?

The short answer is all of them! Any industry or company that’s asset-intensive, where they use materials, components, and/or products, is a good candidate to tackle. For example, there’s enormous waste in the consumer products industry if you look at plastics. By 2050, it’s estimated there will be more plastics than fish in the ocean by weight. Or think of the fashion industry where it is estimated that more than half of fast fashion production is disposed of in under a year, and one garbage truck full of textiles is landfilled or burned every second.

Some business leaders see sustainability as a hindrance to growth. What would you say to those people?

This is not about “Sustainability 2.0.” It’s not about doing the same things “less bad.” As an industrial engineer and supply chain professional, I was trained and focused on squeezing that last bit of efficiency from the existing processes. But what about being more effective in the right process  instead of just being efficient in the wrong operating model? What drew me to the circular economy is that it fosters innovation and new product introduction without further straining our resources. We could finally achieve two agendas: growth and sustainability.