When businesses recognise the new market opportunities created by circular practices, they will see the commercial incentive to drive meaningful change. Ask any business leader about the circular economy, and they’ll likely provide a knowledgeable answer. Yet in practice, most efforts to adopt circular initiatives remain small-scale pilots rather than widespread transformations.The evidence is clear: estimates suggest the world discards over two billion tons of waste annually. One measure finds humanity is using resources gleaned from the earth 1.7 times faster than the planet can produce them.
Businesses have spent centuries implementing the linear economy’s practices of resource exploitation. Moving away from these deeply ingrained practices requires a fundamental mindset shift. The key incentive lies in recognising the commercial potential of circular models. Once businesses see the market opportunities that circular practices unlock, they will find the economic justification to make meaningful changes.
The path to scalable circular business models
Today, we are in the early stages of exploring circularity as a business model, not unlike where Netflix was in the 1990s—well before streaming services grew to a $600-plus billion market. However, companies both large and small are establishing significant proof points.
To deliver circularity at scale, businesses must adopt four systems of change into their operations:
1. Design for Sustainability: The principles of Design for Manufacturability/Reliability (DFM/DFR) are traditionally driven by product economics. Design for Sustainability (DFS) complements many of these established practices but also contradicts some. Serviceability, extensibility and recyclability become important principles to retain and recapture value throughout a product’s lifecycle and beyond. AI-driven models can help simulate and optimise the lifecycle value of a product, making it more valuable to maintain or upgrade, including through software-driven lifecycle extensions.
DFS also drives changes to product structure and material supply chains to enhance environmental efficiency in transport, by reducing material consumption promoting recyclability and draw down on raw material consumption. For instance, materials like plastics and hazardous materials, such as the PFAS commonly used in textiles, should be minimized. Automaker Volvo intends to be a fully circular business by 2040, in part through material reduction and sourcing more durable materials that can be reused and recycled into new cars. Its EX30 model, for example, is made of 17% recycled materials, and Volvo hopes to increase that to 25% recycled or bio-based materials in its new car models.
2. Supply chain traceability: Data which enables traceability in the supply chain is critical to re-engineer carbon-intensive, one-way supply chains and create more economic opportunity across communities, including the ones in which the products are used. Rather than exploiting the environment or labour for raw materials, the idea is to extract parts, components and materials and reintroduce them into the supply chain or use them in new applications.
3. Manufacturing, remanufacturing and reverse logistics: Businesses must establish strategies for the reintroduction of recovered material. The reduction of single-use and intermediate materials in the manufacturing process, such as packaging, is also important. Data models, such as Digital Product Passports and Lifecycle analysis (LCA) are critical in enabling the design of the extended supply chain, contract manufacturing arrangements and logistics processes. For example, when GE Healthcare’s older medical equipment is not suitable for refurbishment, desirable components are redeployed as reusable parts or recycled. According to GE, 82% to 100% of a system may be recyclable.
4. Lifecycle revenue models: Finally, circularity requires a rethink of the product itself, the market in which it’s sold, the ecosystem that supports that market, and the value delivered to customers. Manufacturers of large assets, such as turbines and earthmoving equipment, have had to think beyond being a manufacturer to being an owner of a fleet of assets which deliver revenue ‘by the hour’. It is also critical to consider an integrative view of lifecycle costs to maximise value beyond manufacturing. Remote asset management, digital field services and enhanced aftermarket service models become significant levers for reducing Scope III emissions and improving sustainability.
In summary, establishing a scalable, circular business model requires transforming many operating processes. Generative AI (Gen-AI), IoT and a whole spectrum of technology levers play a critical role in designing, simulating and ultimately scaling circular transformations across organisational stakeholders and supply chains.
Powering the circular economy with AI and tech
Circularising operations will require a combination of incremental and holistic change. Businesses can jumpstart their circular efforts by focusing on four key principles.
1. Tweak and transform: It's important to engineer a system of change – this will allow companies to capitalise on near-term value opportunities to prove the concept, then work toward a more fundamentally transformative opportunity. AI-driven system design also helps deliver a flexible enterprise technology framework to support this evolution
2. Integrate downstream visibility: Whether through takeback programs, subscription services or reverse logistics processes, businesses need to track what happens to their
products and the materials they contain throughout their entire lifecycle. While much of this information exists within enterprise systems of record, Gen-AI and other technologies can consolidate this data to identify opportunities which lead to circularity.
3. Use technology to drive collaboration and empowerment: Gen-AI, machine learning and IoT enabled operations all help solve a crucial transformation challenge. However, there simply isn’t enough engineering expertise within many companies to effectively design changes in how various roles will transform and processes should evolve.
Establish correlation between business and customer goals: Circular business models must benefit both businesses and customers. Today, ESG reporting largely informs investors and industry watch groups. Re-interpreting ESG data for business performance and creating more authentic, material value propositions for customers will accelerate this transformation.
The circular economy provides a profitable alternative to exploitative business practices that no longer have a place in the modern world. By bending the linear trajectory of business into a regenerative cycle, the circular economy offers global benefits—reducing environmental impact, creating economic opportunities and ensuring long-term profitability.
