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In a world that's overwhelmed with waste, circular manufacturing is one way for companies to make products that...
use raw materials more efficiently and longer lasting.
One company that has embraced circular manufacturing is Hilti Group, a maker of tools, products and software primarily for the construction industry.
Based in Liechtenstein and with operations around the globe, Hilti has set a goal to become net zero by 2050. It reached the first step in this goal by reaching CO2 neutrality in its own operations by the end of 2023, according to the company.
Circular manufacturing -- an aspect of the broader circular economy -- means that companies design and produce products to be used as long as possible and to reuse or transform products or their components when they have reached the end of usability. The goal is to reduce the amount of material used to make products and the amount of waste discarded at the end of a product's life.
The move toward circular manufacturing is a pillar in the company's sustainability strategy, according to Caroline Stern, head of circular economy at Hilti Group. In addition to helping Hilti meet sustainability targets, the move to circular manufacturing makes good business sense, she said.
Hilti revamped its sustainability strategy four years ago, and circular manufacturing became an important part of that. Circularity fits well with Hilti's historical strengths, including the production of long-lasting tools, an extensive repair network and ownership of the whole value chain, including customer contact, Stern said.
"From design to production, the logistics, repair, customer contact and end-of-life was a value chain that we already owned, and we see circularity working strongly with that," she said.
Another important part of the company's circular strategy is a fleet management program, where customers don't buy the tools but, rather, pay a monthly fee for access to certain tools or batteries.
Circular manufacturing foundation
Hilti has always had the foundation to build a circular manufacturing model. But regulatory requirements; the demand from customers, partners and employees to be more sustainable; and the value-add to customers helped the company take this to the next level, according to Stern.
However, the desire to become more circular and the ability to execute on this desire are different matters. For example, the company found out quickly into the process that, unlike CO2, there's no standard measurement for the circular economy.
In 2020, Hilti partnered with Boston Consulting Group (BCG) to better understand how to devise such metrics. This eventually led to the development and use of Circelligence, a tool that lets Hilti assess the qualitative and quantitative aspects of circularity. The qualitative side measures organizational views on circularity, which assess how ready the company is to adopt and execute circular strategies. The quantitative side measures the material flow and how much material is recycled, reused or used for longer life, Stern said. These measurements were the basis for a sustainability report that the company has published annually for the last four years.
Because this was an unprecedented undertaking, the process to create the Circelligence methodology was complex and painstaking, she said.
The first step was to create a database for all the materials in production. Materials have traditionally been measured by how much they cost, but the goal for the circular manufacturing report was to break down the specific and total weight.
"Most companies are able to tell you with some certainty how much money they've spent on a particular material group -- steel or plastics. But it's very difficult to say how much weight was behind that and even more so to say how much of that was recycled content," Stern explained.
Working with BCG, Hilti mapped 250,000 tons of material it produces, categorized them into material groups -- steel, aluminum, plastics, copper -- and determined the amount of recycled content for each group.
"Having that transparency and that data allows us to now quantify the impact of our initiatives," Stern said. "For example, we have a big remanufacturing program and now we can track how exactly remanufacturing is driving our reuse and savings."
The materials database also helped Hilti quantify its Scope 3 CO2 emissions and provide a base line for emissions reduction targets. Scope 3 emissions are generated across an organization's entire value chain, including its suppliers and their suppliers. This was harder to do before the materials database was established, Stern said.
"When a lot of companies calculate their CO2, they usually use spend-based CO2, which can be very imprecise," she said. "Having this database that we built from a circularity perspective allows us to calculate our CO2 footprint more easily than if we hadn't. We're seeing increasing use cases of this data, such as requests from customers to provide them with detailed CO2 data for their products."
The qualitative side was a more straightforward methodology, consisting of detailed questionnaires that were sent to all parts of the organization to assess the organizational maturity for circularity.
SAP enables process automation
The circular manufacturing efforts were underway, but the project struggled with the complicated, manual process of getting data through the system, according to Stern. Hilti is a long-time SAP customer. In early 2023, the vendor was brought into the partnership to help overcome the data hurdle.
This included integrating S/4HANA via SAP Business Technology Platform, an integration and development platform, into Circelligence. Doing so helped Hilti bring all the sustainability data from the SAP systems into Circelligence and create the dashboard-based UI to visualize the data.
Hilti then automated the processes for updating the Circelligence materials database, which made it easy to see and track changes as materials moved through the circular system from product design to end-of-life, she said. This also helped users know the costs of manufacturing a tool. A future hope is for Circelligence to provide access to environmental data for the tool manufacturing.
"We want to able to query information on the CO2 of a particular product or a particular material in the same way that we do today with financial information," Stern said. "We're by no means there yet. But this project was the first step in laying the groundwork for that future automation."
Moving to circularity has challenges
Some aspects of implementing a circular manufacturing environment were relatively easy, while others presented challenges, Stern said.
For example, Hilti was able to transform its 70 tool service centers around the globe -- where tools are already being collected and repaired -- into circularity centers that focus on reuse.
Hilti was also able to integrate circular processes into IT, but this was more challenging, Stern said.
"We had to make substantial investments in the process setup and IT setup -- not so much from an SAP perspective but from the technical setup," she said. "For example, the equipment that allows the technician to assess whether something is reusable involves algorithms, testing machinery and physical setup."
Caroline SternHead of circular economy, Hilti Group
SAP S/4HANA presented another challenge. The system was designed to track products only once from sourcing to sale. In circular manufacturing, items must go through the system again. But because they weren't sourced or produced, they have no identity in the system, so they appear to come from nothing, Stern said.
"We wanted those items to be related for certain topics. For quality, we want to know that this item came from that parent tool, and we want to separate the new electronics from the reused electronics to make sure [users] have full transparency on the tracking," Stern said. "But from a stocking and forecasting perspective, we want those items to be counted together so we don't buy twice as much stock because [users are] accounting for when there are effectively two items but they're really one item together."
Hilti needed to redevelop processes to not only include these items but also to help companies track them as they move through the circular manufacturing process.
"That was something that we had to invent using a lot of additions to the SAP landscape, because it's not how the system was built to work," Stern said. "That's a big challenge going forward for companies that are looking to advance in reuse and remanufacturing. They will need to adjust systems to account for products moving multiple times through the circle."
The business case for circularity
Environmental responsibility is a benefit of circular manufacturing, but the business case is clear as well, according to Stern.
For example, there's a strong ROI for the tool reuse program because the company doesn't need to continually source, manufacture and transport new components or tools, she said. This has a financial savings impact, but it also makes some components available during a time of frequent supply chain issues.
From an environmental aspect, there's a relationship between the parts that make the most financial sense to reuse and those that save the most CO2, Stern said. For example, electronics are about 70 times more CO2 intensive than steel on a per weight basis. Reusing electronics is much more environmentally effective than reusing steel parts.
"We make that analysis as well, and with the data transparency of knowing what material is behind each product, we can do those tradeoffs and focus on reusing the parts of the tools that have the highest value," Stern said. "There is almost without exception a strong correlation between the highest cost savings and the highest environmental savings."
Jim O'Donnell is a senior news writer who covers ERP and other enterprise applications for TechTarget Editorial.