It is often said that Cash is King in a time of crisis. Even though we are in a high-inflation crisis this is to some extent sound advice for many companies (both from a risk and opportunity perspective). For a manufacturing company, there is a direct link between an efficient- and effective use of resources and money in the bank. If you don’t have a resource-efficient business, you don’t have a competitive business.

The question of this newsletter is, therefore:

Do you have a resource-efficient business?

If you answer something like “no not really, unsure or have no idea” I suppose you would be interested in knowing how to get it FAST! Right?

I will give you a fast track to a very solid approach that can help you spot opportunities for savings and optimizations that you probably have not explored before.

Circular economy is the tool I recommend when you want to make sure you don’t waste money on resources. It is a discipline rooted in business thinking with a focus on the flow of resources and a distinct focus on getting the most value out of the resources we use and keeping them in flow for as long as possible while maintaining their value.

As is

You can be excused if you currently look at all kinds of resources in a category labelled “Cost of operation” as that is what probably all of you have learned in school back then and been taught on your journey towards the top of the organisation. You just have to tolerate it and minimize it is often how it is framed. In combination with the “take-make-waste” business mindset that exists so profoundly in the world today, it is sure set way to turn strategic attention away from a smarter use and understanding of resources.

Not working strategically with resources is also a consequence of the first of the three common problems I wrote about in this article – business leaders don’t know how to lead the transition into a sustainable company. When you don’t understand a subject, it is quite normal that you don’t want to take that subject on to the core of your business.

In many ways, the situation is similar to that of digitalization some years back. Most business leaders didn’t understand that either and thus were holding back on fully engaging themselves in the process and allowing to connect digitalization to the core business. Getting some variety of a chief technology officer (CTO) became a popular way of handling things and parking the responsibility with someone else. But as time went by it became obvious that it was not the way forward and slowly the leadership teams started to raise their competencies and opened up for working on the core parts of the business as well. Those that were not there yet when the COVID pandemic hit were in for a very rough ride with a choice (actually not a choice) between jumping in the deep end of the pool or perishing!

Right now, the same thing is happing with resources. Remember that resources including energy are part of the core elements of the circular economy and sustainability, so when you shy away from focusing on it because it is unclear to you how it affects the business, you could easily end up wasting a lot of money. The cost of electricity and gas is 4-5 times higher in many countries here in Europe and is very volatile. And we have almost certainly not seen the last of it. There has probably never been a time in modern history when the need for a resource-efficient approach to business has been higher. For many now is the time when the pain of staying in business as usual is bigger that the pain associated with the change.

Should be

I would like you to decide right now that you will embrace the circular economic thinking and take it into how you lead the business. The starting point is:

Circular economy is not a project – it is a way of doing.

It is not something that you put on the agenda for a little while, something that you assign some people to handle and then you continue whit business as usual. You must understand and take it to heart that it will be part of how you run and develop your business going forward.

It will affect your way of thinking (click here for an article I wrote at the beginning of the summer about the mindset for business success with circular economy and sustainability and affect your business – in a good way.

Circularity is the principle governing nature and until a few generations ago it was also the underlying concept of societies. Resources were used and used again and in the bigger picture, nothing was wasted. Resources came from nature and after several cycles of use, they went back to nature. Industrialization changed that and in the last 70-ish years, we have almost completely abandoned this thinking. Consequently, we now live in a very resource-inefficient world and billions of Euros worth of materials are wasted every year.

Yes, BILLIONS…

If you stop for a second and think about it, it is difficult not to reach a conclusion that it is pretty stupid and perhaps even wonder what got us here. It is time to unlearn a few things and reconnect to the success formula for mankind – but in an updated version matching today’s world. That updated version is called the circular economy.

I will not venture into a full introduction to circular economy but skip right to a method I have created that will guide you to map out potential actions you could take to lower your cost related to raw materials, components and energy. The method is called “Pathfinder” and it consists of three steps each with its tools and processes. For the purpose of this article, I will mainly focus on the first step – a way to spot and map out opportunities for you to become a more resource-efficient business.

The process

You can do the exercise alone, but I highly recommend you gather a few colleagues with solid insight into your processes and material flow. Then you go through each of the five disciplines presented below and brainstorm on all the places where you can see you might be able to find a better solution. Write down as many ideas and initiatives as you possibly can for each of the five.

Then write down a list of the top 3-5 problems that you have in your business and the top 3-5 problems that your ideal customer has. With that in mind go through the five disciplines again to see if you now spot additional ideas and potentials.

You will end with a complete map of all the places you currently can see you could use circular economy to improve your business and your impact on the world. Then circle out all the initiatives that will help solve the prioritized problems you and your clients are facing.

The second step is to choose the best and deploy resources to make it happen. This is where I leave the “Pathfinder” method and leave it up to you to decide which ones are best for you and where to start for your business in the current conditions. Last step in the Pathfinder method is to connect the dots and end with a full roadmap.

Map out potential

There are five disciplines within the circular economy, each with its focus, potential, and characteristics.

• Resource recovery
• Product life extension
• Stable supply of resources
• Increase utilization
• Product as a service

I will unfold them a bit below and there is also a link to brief (3 min-ish) explanatory videos for all five.

The five disciplines

#1 Resource recovery

The first discipline we also call “waste equals resources”. This is what most people think about when they think of circular economy.

The big picture idea here is that everything that is a waste or by-product should be food for something else.

Just like in nature where the concept of waste does not exist. Everything is part of a larger system and whatever one plant, insect, animal etc. leaves behind is food for someone or something else in the system.

In a business context, the focus is on whatever leftover materials or waste or byproducts that you have in your production. Instead of viewing it as waste to get rid of, perhaps often even pay to get rid of, you view this as a resource. A resource that you or someone else would find valuable and can use. Waste should be viewed in a broad sense to increase your ability to view new solutions. It can be waste in the form of:

1. Products/components not meeting your quality standards incl. starting up and dialling in equipment after shot downs and results of defects in the process
2. Inevitable surplus material (e.g. cutoffs from producing round objects from square raw materials)
3. By-products of the manufacturing process (e.g. water or lubricants)
4. Energy (e.g. excess heating or cooling)
5. Overproduction
6. Raw materials/components that are overdue or not used anymore (waste of inventory)

It can also be meaningful to cross-pollinate your thinking with the LEAN thinking and look for waste of transportation, human and machinery motion and waiting.

You will have all kinds of leftover materials and it is not necessarily because you don’t have an efficient production setup, but simply that it is unavoidable that you have something left over. But it can most likely be minimized further by changing your thinking about resources or you can find new ways of turning waste into value.

Instead of considering it as waste, view it as resources that need a new direction.

Remember that waste is a manmade concept. Nowhere in nature do you will find waste. Everything is a resource for something. Take that approach and ask yourself: “What could I use this for?” Or “who could use this” or “what would it take for somebody to find this valuable and useable?” In some companies, it is reused in-house by looping it back earlier on in the manufacturing process. Another example of use is what is often referred to as symbiosis, where you buy and sell leftover materials between companies so one company’s leftover becomes raw material for somebody else. Others again take back their products and close the loop themselves and can reuse the product or the materials in the product somehow.

It is particularly relevant for you if you have large quantities of byproducts or leftover materials today, and if you have products with very long-lasting materials with shorter use cycles. If you are looking to utilize other companies’ leftover materials as your input, it can in principle be for everybody. If you are looking into closing a loop yourself, it will be an advantage (but not a necessity) if you have control over production as well as the actual point of sale.

• Some support questions to ask yourself:
• How much money do we roughly spend on raw materials, energy and on waste handling?
• How many tons of raw materials end up as waste instead of a finished product we sell? How much money has it roughly cost us to buy these materials that we never utilize in products?
• Why are they not utilized today? In what ways can we optimize to reduce the overall amount of wasted resources?
• What would it take for them to become valuable resources again? For us? If not in our production, then who might find them useful and valuable?
• What companies or sectors have our input materials in their waste streams? What would it take for us to be able to utilize them? How can we engage in a dialogue around it?

Click here if you would like a brief explanatory video of this discipline.’

#2 Product life extension

The second discipline is called “product life extension”.

The big picture idea here is that you don’t need to reinvent the wheel every day – you can take what is already out there and upgrade it.

Just like a meal kit where your dish is partly prepared, and you finalize it and tune it to the desired taste of your audience.

In this discipline companies take a product that is already in use and instead of throwing it out at the end of that service life, they take it back and upgrade it somehow and thus give it a new service life. It is the “RE-everything” – re-manufacture, re-purpose, re-design, etc. You can do it with your products, or you can build a business around giving someone else’s used product a new life and putting it back into the marketplace.

Often it revolves around giving the product a new look or a new price or around offering it to a new market or segment. Numerous examples show you just need a fraction of the money, time, energy, and materials to upgrade an existing product to become valuable and put it back in the marketplace.

It is particularly relevant for you if you have products consisting of materials with a long lifetime; or if you are working in a sector where there is a really high speed of change, and thus a fast turnover of products. This is more prevalent in sectors where customers perceive the product to be redundant and purchase a new version way before the product is actually used up or loses functionality – before it has come to its actual end-of-life.

Do bear in mind that it does require a change in either incentive structures, concepts or business models around how you get your hands on products that are already out in the market. But it is known technology and products you will be working with and that makes it slightly easier for many as they are and familiar ground.

• Some support questions to ask yourself:
• Do we have products where the perceived value amongst our customers suddenly drops without a corresponding drop in material value?
• What would it take to upgrade these products to become fully functional again?
• Who would find them valuable – either in the same segment or another segment or geography?
• Do you produce components that can upgrade some other products? What could you upgrade that today is thrown out?

Click here if you would like a brief explanatory video of this discipline.

#3 Stable supply of resources

The big picture idea here is that the long-term health of the business relies on a steady, affordable and acceptable flow of the resources you need to produce your products.

It does not matter if you can sell it if you can’t get your hands on the materials you need to produce it! That is a lesson many business leaders have learned in the last couple of years.

In essence, it is a matter of price and conditions and the ability to get what you need to fulfil the demand in your market. But very importantly, it is also about ensuring that you use materials that are, and continue to be, accepted by the market in the future. The obvious example is how the growing understanding and anxiety of the climate crisis affects the acceptance of the oil-based product.

This discipline focus on ensuring that you have long-term stability in your value chain – from supply to market. Companies that focus here tend to have a large consumption of materials or have some component in the product that is really, really critical to the quality of your products. Or have a product consisting of materials that are in risk of being deemed “not acceptable” in the marketplace in the coming years.

The exercise here is to go from non-renewable resources to renewable resources. And in most cases, at the same time, it is also a shift to healthier materials with less/no negative impact on people and planet. Most of the time companies focus here to avoid the fluctuations in prices and availability that they either already see or that they can foresee will come in the years ahead. Very much a risk analysis-driven discipline where all the tools you have related to risk can come in handy.

Bear in mind that this is basically a substitution process and as with all other kinds of material substitutions in your product it demands a lot of knowledge, and it is imperative that you collaborate well, and can take leadership of the supply chain dialogue as this is a co-creation process in most cases. Moreover, it will likely demand investments to get the kind of results that you would like

Some support questions to ask yourself:

• Could the availability of raw materials restrict my growth in the future?
• Will customers continue to accept the key materials we use?
• What alternative materials could we use and what additional value could they create?
• What business benefits would a shift from non-renewable to renewable materials give us?
• What risks does business as usual constitute for us?

Click here if you would like a brief explanatory video of this discipline.

#4 Increased utilization

The big picture idea here is access trumps ownership.

It is less important to own a product compared to getting access to it when needed. The discipline is also referred to as the sharing economy or the collaborative economy because you share a product between several users.

At its core, it is about taking existing products and maximizing their utilization. You can potentially do this for all products that have idle time, and there are lots and lots and lots of stuff around us that we produce, but that we are far from using at its capacity. Thus, there are lots of business opportunities and lots of opportunities to deliver the same output with fewer products.

And it is done in many ways. Some set it up as an old fashion way of just sharing stuff as you do with your neighbours either with or without money involved. Others set up a company that has ownership of the products and invite a larger group of people to use them. Again, with or without payment. We also meet this model in action with production equipment and with logistics equipment.

So, if you think it is only about B2C you are missing the point – there is quite a lot more than Airbnb and Uber to this discipline.

It is particularly relevant for you if you have access to a large volume of products that have idle time. Or if you are engaged with products with a very long lifetime, but shorter use cycles. E.g., a hand drill, a car, special production equipment, or excess storage capacity in your warehouse. Everything that is used for a shorter period, or perhaps just once or twice, but where the product can live a lot longer. If you could share that between several users, it will increase the revenue each product can drive as fewer products would be needed to deliver the same kind of results.

Bear in mind that this will just about always demand new business models. It is platform-driven and tech-demanding – data is the glue here. It does require new partnerships and new value chains in most cases. So, there’s a bit of work necessary to get this done but there are also a lot of opportunities because the products are already out there.

Some support questions to ask yourself:

• How high is the utilization degree on our main products?
• Is our product suited for sharing in terms of the typical use scenario?
• Do I see products around me with a significant idle time that we might be able to utilize better through our competencies, access to market, position, etc.?
• Is there any excess capacity in transportation or elsewhere in the value chain that we can take part in utilizing better?
• Is there any excess production capacity in our factory or elsewhere, that we can take part in utilizing better?
• What shared services could we offer our employees, partners, community, and clients that would create additional value?

Click here if you would like a brief explanatory video of this discipline.

#5 Product as a service

The big idea behind the fifth and final discipline is Results are what counts – not the process.

Nobody cares about your product! They care for the value it creates. It is the old story about nobody wanting a drill bit, they want a hole. Actually, they don’t what a hole either, they want art on their wall or perhaps even the recognition from friends and family about the art on the wall. Everything in between is just necessary steps to archive the price. Often even considered a hassle. Something you have to go through to get the result you want.

Thus, the focus is on the essence at the core of your product. On the value – the functionality of the product? That is what people are interested in. Instead of selling the product, you sell the service; the result; the value that it provides. This means that you as the producer, maintain the ownership and thereby also the risk of the product in the use phase.

You would want to build different services on top of your product to make sure that the product delivers optimum performance and that your customer gets the best experience. The implication is a shift away from selling to offering your product in leasing, buyback programs, or subscriptions.

It is particularly relevant for you if have high-quality products with a long lifespan and a solid business. Please note that this is not the easiest of the disciplines to get started with when you have an existing business. It does demand that you have a pretty solid business and quality products. And you do need a fair level of capacity for change and development in your organization, including yourself as a leader as it demands innovation in terms of the products, the processes, the finances, the business models, and your service models. So, there are a lot of things you need to reconfigure and develop. Do bear in mind that shifting sales to a service model will change your cash flow with all the implications that this has. Also, remember that such a move will change the sales process and you need to make sure that your market is prepared to change and no longer buy the product and own it but just access the service that’s needed.

Some support questions to ask yourself:

• What opportunities could arise if we maintained the ownership of the product and thus also the contact with the customer?
• How would not owning the product make it easier for our customers?
• What additional services could we put on top of our product that would increase the value of the product?
• What value could we get out of our used products once we get them back?
• How much longer would it be possible for us to make the service life of a product?

Click here if you would like a brief explanatory video of this discipline.’

Doing the exercise on all five disciplines will leave you with a long list of potential initiatives. As I said in the “Pathfinder” method I would now help you prioritize them and set up a roadmap for the years ahead. For now, I will only remind you to prioritize based on the top 3-5 pain points you and your customers have.

Happy hunting