circular economy - a new paradigm in manufacutring

ITS TIME TO CHANGE FOR A BETTER FUTURE

CIRCULAR ECONOMY

The Story So Far!The last 150 years of industrial evolution have been dominated

by a one-way or linear model of production and consumption in which goods are manufactured from raw materials, sold, used

and then discarded or incinerated as waste.

Under Linear Model of Production, goods can be broadly classified into two types namely,

1. Biological2. Technical

Life cycle of Biological products where products are produced, used & discarded

Life Cycle of the technical products where products are produced, used & discarded

What is happening at macro level?

ResourcesWaste

Depleting Natural Resources!Prices bouncing faster than Economies

• Success: Between 1900 and 2000, global GDP

grew twenty times and created hitherto unknown levels of material prosperity

This model has been exceptionally successful in providing affordable products to consumers and material prosperity to billions.

The biggest economic downturn since the Great Depression briefly dampened demand, but since 2009, resource prices have rebounded faster than global economic output.

Within this linear model, resources are extracted from the earth for

production and consumption on a one-way track with no plans for reuse

or active regeneration of the natural systems from which they have been

taken

In a world of soon to be 9 billion consumers who are actively buying

manufactured goods, this approach will hamper companies and

undermine economies.

Some three billion consumers from the developing world will enter the

middle class by 2030.

Limitation/ Threats of Linear Consumption

CIRC

ULAR

ECONOM

Y

What is Circular Economy?

The circular economy refers to an industrial economy that is

restorative by intention;

aims to rely on renewable energy;

minimises, tracks, and hopefully eliminates the use of toxic

chemicals; and

eradicates waste through careful design.

Take Make Dispose Waste Circular Model

Take

Make

Use

Return

Linear Model of consumption

Circular Economy

Founding principles of circular economy

Design out wasteWaste does not exist when the biological and technical components of a product are designed by intention to fit within a biological or technical materials cycle designed for remarketing, remanufacture, disassembly or repurposing.

Build resilience through diversity

Modularity, versatility and adaptivity are prized features that need to be prioritised in an uncertain and fast-evolving world. Production systems should be flexible—able to use many different inputs.

Work towards using energy from renewable sources

Systems should ultimately aim to run on renewable energy—enabled by the reduced threshold energy levels required by a restorative, circular economy.

Think in ‘systems’ The ability to understand how

parts influence one another within a whole, and the relationship of the whole to the parts, is crucial. Elements are considered in relation to their environmental and social contexts.

Think in cascades For biological materials, the

essence of value creation lies in the opportunity to extract additional value from products and materials by cascading them through other applications.

Technical Cycle

How does a Circular Economy Works ?

How Circular Economy is framed?

Biomimicry by Janine Benyus : “a new discipline that studies the nature’s best ideas and then imitates these designs and process to solve human problems.

Industrial Ecology: “ Science of Sustainability”-Study of material and energy flows through industrial systems.

Cradle to Cradle : Created by Michael Braungart and American architect Bill Mc Donough

It considers that all material involved in industrial and commercial processes can be seen as nutrients, of which there are two main categories: technical and biological.

Technical Nutrients should include only materials that do not have a negative impact on the environment.

Biological nutrients are organic and can be returned to the soil without specific treatment to decompose and eventually become food for the ecosystem

Blue Economy Initiated by Former Ecover CEO and Belgian businessman Gunter Pauli, states “using the resources available in cascading systems, the waste of one product becomes the input to create a new cash flow”.

The report, commissioned by the Ellen Mac Arthur Foundation and developed by Mc Kinsey & Company was the first kind to consider the economic and business opportunity for the transition to a restorative, circular model in January 2012

Benefits of Circular economy

Net materials savingsOn a global scale, the net savings from

materials could reach $1 trillion a year. In the

European Union alone, the annual savings for

durable products with moderate life spans could

reach $630 billion.

The benefits would be highest in the

automotive sector ($200 billion a year),

followed by machinery and equipment

Mitigated supply risks

If applied to steel consumption in the

automotive, machining, and transport

sectors, a circular transformation could

achieve global net materials savings

equivalent to between 110 million and

170 million metric tons of iron ore a year

in 2025. Such a shift could reduce

demand driven volatility in these

industries.

Innovation potentialRedesigning materials, systems, and products for circular use is a fundamental requirement of a circular economy and therefore represents a giant opportunity for companies, even in product categories that aren’t normally considered innovative, such as the carpet industry .

Job creation. By some estimates, the remanufacturing and

recycling industries already account for about

one million jobs in Europe and the United

States.

Yet we see signs that a circular economy

would—under the right circumstances—

increase local employment, especially in entry-

level and semiskilled jobs, thus addressing a

serious issue facing many developed countries.

Ricoh’s remanufacturing plant, for instance,

employs more than 300 people.

Circular Economy at World wide

• At the 44th World Economic Forum Annual Meeting at Davos- Klosters, Switzerland Ellen Mac Arthur said: “ The Circular Economy opens up ways to reconcile the outlook for growth and economic participation with that of environmental prudence and equity”.

• “We need to Shift our thinking away from the idea of consumption and eliminate the whole idea of waste. This means thinking about meeting people’s needs through services rather than consumption”-William Mc Donough, Consulting professor of civil and engineering, Stanford university, USA

• The Netherlands, which has half its surface area under sea level and a population that is aware of the importance of respecting the nature has embraced the approach

• China, too is a leader and has adopted the circular approach in its latest five year plan.

• This “Circular” approach effectively decouples growth from rising resource constraints in a world that will add 3 billion middle class consumers over the next 15 years

CIRCULAR ECONOMY

Renault’s factory in Choisy-le-Roi, in the Paris area, specialises in the remanufacture and recycling of automotive parts, allowing substantial savings to be made in terms of raw materials. It thus offers clients remanufactured parts at very low prices; almost 6,000 tonnes of metal are also recycled there each year

A Successful Company specializing in circular economy

The plant’s remanufacturing operations use 80 percent less energy and almost 90 percent less water (as well as generate about 70 percent less oil and detergent waste) than comparable new production does. And the plant delivers higher operating margins than Renault as a whole can boast.More broadly, the company redesigns certain components to make them easier to disassemble and use again. It also targets components for closed-loop reuse, essentially converting materials and components from worn-out vehicles into inputs for new ones. To support these efforts, Renault formed joint ventures with a steel recycler and a waste-management company to bring end-of-use expertise into product design. Together, these moves help Renault save money by maintaining tighter control of its raw materials throughout its vehicles’ life cycles—or use cycles.

Renault also works with suppliers to identify “circular benefits” that distribute value across its supply chain. For example, the company helped its provider of cutting fluids (a coolant and lubricant used in machining) to shift from a sales to a performance-based model. By changing the relationship’s nature and terms, Renault motivated the supplier to redesign the fluid and surrounding processes for greater efficiency . The result was a 90 percent reduction in the volume of waste discharge. This new arrangement benefits both companies: the supplier is moving up the value chain so that it can be more profitable, while Renault’s total cost of ownership for cutting fluids fell by about 20 percent.Renault’s experience is just one data point in a growing body of evidence suggesting that the business opportunities in a circular economy are real—and large

Biological Cycle

Technical Cycle

Let us Commit to improve the state of the World

Sources & References

“Remaking the industrial economy”- McKinsey & Company

http://www.mckinsey.com/insights/manufacturing/remaking_the_industrial_economy

“Towards the Circular Economy reports”- Ellen MacArthur Foundation

http://www.ellenmacarthurfoundation.org/business/reports

“Circular Economy”- Wikipedia the free encyclopedia

http://en.wikipedia.org/wiki/Circular_economy

Prepared byRanjani.j

Audit Executive

R. Venkatakrishnan & Associates

assurance@rvkassociates.com

With Guidance of R. Venkatakrishnan FCA DISA(ICAI)Partner

R. Venkatakrishnan & Associates

No.1/4 “Rangas”

Fourth Main Road,

R.A.Puram,

Chennai-600028