Manufacturers are increasingly considering the circular economy model as a way to advance sustainability goals by making products that last longer and can be easily reused.
Several factors are driving the uptick in interest, including internal organizational motivation, consumer pressure and regulations such as New York's Digital Fair Repair Act, which was passed in June. The bill mandates that digital electronics manufacturers make documentation, parts and tools available to third-party repair providers in a fair and reasonable time. A similar bill, the Fair Repair Act, has been introduced in the U.S. Senate and House.
Change, however, takes time. For the most part, manufacturers make products in a linear model, where they are designed to be used and disposed of, according to Cindy Jaudon, regional president for the Americas at IFS, an ERP vendor. Now, data shows that manufacturers are using resources at almost double the rate of what can be regenerated.
Regulations like the Fair Repair Act or New York's right-to-repair bill can spur companies to think about moving away from a linear model.
Cindy JaudonRegional president for the Americas, IFS
"We need to think about how we're going to get into the circular model, where you can reduce, reuse, repair and recycle," she said. "The Fair Repair Act is one element of how we can do that."
The environmental costs of linear manufacturing and a disposable culture are significant. The Repair Association, a nonprofit organization that advocates for the repair industry, estimates that more than 20 million tons of end-of-life electronic products are produced each year, with America alone accounting for at least 3.4 million tons.
Regulations like the Fair Repair Act won't solve the waste problems, and manufacturers are beginning to see that it can be profitable to make longer-lasting products that can be refurbished to some extent rather than being disposed of, Jaudon said.
"Whether or not the government legislates it, as a manufacturer, for your business, you want to make sure that you can make things that are not just thrown away and end up in landfills," she said. "You can repair them or at least prepare for reuse by taking back some of the pieces so they can be reused."
Circularity is not new
The Fair Repair Act and other regulations are part of a push toward a circular economy model, according to Susan Middleton, research director at IDC. But the concept of circularity is not new, particularly within IT, where there has always been a market for refurbished devices.
The difference now is that IT departments have a way to include the reuse of equipment in an organization's overall sustainability goals, she said, and almost every OEM has some type of refurbishment or recycling initiative.
"Demand for used equipment has always existed," Middleton said. "But now, because people are very interested in the sustainability aspect, incorporating used equipment has definitely become an easy way to help your metrics if you have sustainability goals."
IT departments are being charged with taking a prominent role in an organization's sustainability goals, such as carbon reduction, which reinforces the demand for more circularity in data center equipment, she said.
"There's more pressure on IT teams now, because within an organization, there's a lot that's tied in now in terms of what they're doing to try to offset their usage costs, power costs and transportation costs," Middleton said.
Different approaches for circular economy
The Fair Repair Act is part of a wider array of regulations in both the U.S. and Europe that are helping to drive more awareness of circular economy issues, said Stephen Jamieson, global head of circular economy solutions at SAP. The regulations highlight different elements and propose different implementation mechanisms, but they are heading in a similar direction beyond recycling and toward circularity.
"There's a bit of an arm wrestle between manufacturers and regulators as to what the right approach is and where to draw the line on things like diagnostic data connectivity, but there's a tapestry of different scenarios," Jamieson said.
However, there are reasons why some complex technology systems should not be open to more accessible repairs, he said.
"It could be very easy to create a situation that makes an unsafe situation, particularly with vehicles, so there's a massive tradeoff consideration there," Jamieson said.
The move to the circular economy will open opportunities for new business models, such as servitization, where products are sold as a service, and the provider handles maintenance and end of life. For example, CloudBlue provides a platform that enables companies such as telecom service providers to build and manage digital marketplaces for devices, according to Jess Warrington, general manager for North America at CloudBlue.
If Dell ships thousands of devices to a customer, the service provider can include a set of applications that adds value to the devices so that they are essentially sold as a service, he said. The applications can be upgraded as needed, keeping the devices in operation as long as possible.
"There's less replacement and less waste, so it's an aggregation of incremental gains," Warrington said. "One thing doesn't change the world, but even a 1% gain at the scale that the major service providers work at means you can have significant impacts."
The shift to an outcomes-based servitization model is new and will not happen overnight, he said. But it is a conversation happening at the executive level.
"There are big names that are going through this strategy of how to lay a usage-based software model on top of a traditional hardware company in order to create a sustainable financial model that can support this type of economy in the long term," Warrington said.
Circular economy model starts with design
Companies are beginning to think more seriously about circularity and how to include services like repairs and reuse from the start of product design, IFS' Jaudon said. As more companies add service to their business models, they can learn a lot about how their products are being used and incorporate those learnings into the product design.
"Whether it's their own service technicians or a third party, they can use that to design more efficiently and design it in a way that [it can be repaired more easily]," she said. "Analytics are going to be really important to manufacturers to help them understand how people are using their products, and then taking that information back into the design phase."
Manufacturers are thinking about sustainability and circularity throughout a product's lifecycle, including design, packaging, shipment and end of life, according to IDC's Middleton. This includes how customers can upgrade rather than replace devices.
Customers are driving OEMs to design, build and ship more sustainable products, she said.
"[Customers] want [manufacturers] to reduce the amount of toxic chemicals that are used at the end, but also do anything they can to swap out components and have that component used in something else," Middleton said.
However, while customers care more about the sustainability of products, they first and foremost want a reliable product, she said. For the OEMs, the motivation to move to more sustainability and the circular economy is tied to brand reputation.
"This is a huge driver, and if [you're] looked at as someone that's not adopting sustainability principles, that's going to hurt in attracting talent and revenue," Middleton said. "If you can incorporate any type of circular economy, it helps, because organizations are selecting vendors and partners based on their sustainability story. They want to understand not only what you're doing, but what everyone in your supply chain is doing."
Jim O'Donnell is a TechTarget senior news writer who covers ERP and other enterprise applications for SearchSAP and SearchERP.