5 things we've learnt about the circular economy

3 March 2014

The concept of a ‘circular economy’ is starting to help companies create more value while reducing their dependence on scarce resources. Find out five things we’ve learnt about the circular economy in a great new article in McKinsey Quarterly.

The traditional linear approach to the economy (make, use, dispose) is coming under strain as pressure comes on the world’s resources and population. The era of largely ignoring resource costs is over, states a new report by McKinsey & Company. This article puts forward the case for a new economic model – the circular economy – where the maximum value can be derived from resources and ‘waste’ is recycled and reused.

Here are five things we’ve learned from the article:

1.     The circular economy replaces disposability with restoration.

It moves away from the ‘take, make and dispose’ system by designing and optimising products for multiple cycles of disassembly and reuse. The circular economy aims to eradicate waste, not just from manufacturing processes, but throughout the various life cycles and uses of products and their components.


2.     The role of consumer is replaced by that of user.

For companies, this change requires a different way of thinking about their contract with customers. For example in a buy-and-consume economy, the goal is to sell the product, whereas in a circular economy the aim might be to rent it out to ensure that its materials were returned for reuse.


3.     Companies are starting to pull four levers to convert theory into practice.

These include reusing materials internally, maximising the number of product cycles or time spent in each, diversifying reuse across the value chain, and designing products and components so they are easier to separate into elements later on.


4.     There are three barriers to the circular economy taking off.

Barriers that are slowing the potential of the circular economy are: geographic dispersion, complex materials, and ‘the curse of the status quo’ – the difficulty of breaking ingrained habits.


5.     Pay off will come when multiple players come together.

When the business and research communities, policy makers and investors come together to reconceive key manufacturing processes and flows of materials and products, the benefits will be huge.

SBN is working on projects that will help New Zealand transition towards a circular economy. If you’d like to be part of this transition, please get in touch.