What the Circular Economy needs from SAP, to run better ?
Implement a SAP Digital Platform supporting the new business models
“On a planet of finite resources, the circular economy is not optional, it is inevitable”
With this first document, I would like to initiate a series of whitepapers sharing my thoughts about the new vision related to Circular Economy and in particular share with you, how SAP helps our customers to implement and monitor these new business models more efficiently, thanks to its rich product portfolio, the recent innovations and its powerful vision of the SAP Digital Transformation.
2. Highlight of the Circular Economy vision
The circular economy aims to eliminate the concept of waste by changing design choices and creating new, innovative business models. The vision is to create a virtuous cycle that fosters prosperity in a world of finite resources, moving away from traditional linear consumption patterns.
Today, our industrial economy is an unsustainable linear model of resource consumption that follows a ‘Take-Make-Dispose’ pattern.
65 billion tons of raw materials entered the economic system in 2010,
and this figure is expected to grow to about 82 billion tons in 2020
Companies extract materials, use them to manufacture a product, and sell the product to a consumer—who then discards it when it no longer serves its purpose.
The circular economy is a new sustainable economy, one that has innovation and efficiency at its heart to foster prosperity and sustainability in a world of finite resources. In front of unsustainable overuse of resources, it is crucial to rethink the way we do business, redesign and build a positive future and restorative economy.
If no action is taken, high prices and volatility will likely be here to stay if growth is robust, populations grow and urbanize, and resource extraction costs continue to rise. Nearly 3 billion new middle-class consumers are expected to enter the market by 2030. Price signals may not be strong enough to turn the situation around quickly. We may not be able to face this growth requirement.
The circular economy is an industrial system that is restorative by design or regenerative by intention.
The model is presented by 2 circles: one for Consumables largely made of biological ingredients or ‘nutrients’ and one for Durables such as engines or computers, are made of technical nutrients:
Eliminating waste from the industrial chain by reusing materials to the maximum extent possible promises production cost savings and less resource dependence. They are many ways to reuse products or their components and restore more of their precious material, energy and labor inputs.
It aims for the elimination of waste through the superior design of materials, products, systems, and, within this, business models, replacing the ‘end-of-life’ concept with restoration.
One of the main principle is to ‘design out’ waste. Waste does not exist—products are designed and optimized for a cycle of dis-assembly and reuse.
In conclusion, the benefits of a circular economy are not merely operational but strategic, not just for industry but also for customers, and serve as sources of efficiency, innovation and value creation:
- The ‘power of the inner circle’: The tighter the circle, the higher the potential savings.
- The ‘power of circling longer’ refers to maximizing the number of consecutive cycles and/or the time in each cycle.
- The ‘power of cascaded use’ refers to diversifying reuse across the value chain.
- The ‘power of pure circles’, lies in the fact that uncontaminated material streams increase collection and redistribution efficiency while maintaining quality, extending product longevity and thus increases material productivity.
Circularity as a ‘rethinking device’ has proved to be a powerful new frame, capable of sparking creative solutions and stimulating innovation.
- For the ones who want to know more about Circular Economy, I do encourage to read documents available at the Ellen MacArthur Foundation and in particular this very good video here where she explains how she moved from a record-breaking career in sailing to focusing on her most challenging project, thank to her experience of managing survival with finite resources.
3. First example with a new use case for Titanium recycling
During the summer 2015, I had the pleasure to work on a sales opportunity for a customer building a new plant in France, recycling Titanium for the aerospace market. Its objectives were to better manage replenishment’s of this strategic raw material, in order to develop new markets and gains competencies in Titanium recycling.
Today, this customer manufacture Titanium bars in a first plant, going through forging in a second one, before selling these bars on the market, where customers will assemble different aircraft components.
Implementing an innovative Circular Economy business model, will allow its own customers to benefit from competitive prices independent of commodity market volatility, in exchange to scrap returns at low & fixed prices. This customer will organize the end to end process from purchasing scrap, collecting and processing scrap to produce titanium ingots. To efficiently run this new plant, it was important to select the best IT solutions bringing more flexibility & value to the business.
He decided to select SAP as a trusted partner for this first experience in the Circular economy.
4. Collaborating with the customer to build the best solution
The SAP team demonstrated its capacity to be a long term trusted partner for this customer, in particular in a complex and sophisticated environment as required in Circular Economy for Titanium. We assembled a team of experts to deep dive on this new business model. Key steps of our approach were:
- Perform a gap analysis for the Circular Economy Requirements
- Build an overall SAP Solution architecture
- Develop a vision and a roadmap to favor a step-by-step transition
Our Solution map ensures the respect of SAP standard, the alignment with the SAP strategy & the development roadmap of our portfolio.
Instead of just proposing a new product, we decided to build an overall solution for the future, with a clear vision which will allow him to progressively transition towards a circular economy.
The first key requirement related to the circular economy calls for a new contract between businesses and their customers based on product performance.
SAP is coming with a standard solution to help several partners trading globally. This solution integrates both sale and purchase contracts with a lot of flexibly (ex: currency, unit of measures…). This trading contract is a single & unique order entry point (sales & purchase) for better visibility and ease of use to automate the required transactions to execute the end to end process of recycling.
5. My vision of an innovative SAP Digital Platform for Circular Economy
As we can imagine, Digital technology will play a crucial role in providing the information needed to create iterative logistics and restorative systems. Information technology is now so advanced, it proposes numerous capabilities to implement and monitor efficiently the circular economy.
Our SAP Strategy and Vision fully supports the new business model for Circular Economy.
There are 6 key pillars on which our prospects and customers can rely to succeed:
- A Digital Core to ensure the end to end execution of the processes, tracing material through the entire supply chain, with simplified and easy to use interactions.
- An integrated Contract Management solution covering both sides Purchasing and Selling, describing clearly the business rules for each of the partners involved in the circle.
- New powerful Analytics solutions allowing to access to finance and risk dashboards as well as supply chain monitoring thanks to the end to end visibility of material flows.
- A series of new flexible Planning tools allowing easy collaboration between each partner to exchange key information to smooth the process execution.
- A Business network where suppliers will be connected, transactions standardized, beyond the four walls of each partner, trading together in real time, reducing cycle time and waste.
- Asset connectivity to identify products and material fractions, tracking product status during the circular economy circle.
This is the SAP digital framework for our customers to transition to digital businesses and Run Simple.
In a next whitepaper, I will share with you how we can better leverage this framework to address major challenges of the new circular economy, benefiting from the shifts in technology and consumer behavior be used to accelerate the transition.
“The potential of the circular economy for business is immense”
“Fostering innovation through novel business models”
Thanks Pascal for a very nice introduction to the circural economy, and how SAP can assist its customers to put it in place. Looking forward to reading more details in your next blog.
Excellent article to understand what is circular economy and how SAP can support it!
Thank you for explicitly drawing connections between SAP technology and the Circular Economy. This is long overdue! Here are a couple of other SCN articles for additional perspective.
Internet of Things as driver for a Circular Economy
4 Ways the Digital Economy is Circular
Very good article. Thank you.
Congratulations for this clear article
about the circular economy
with a concrete SAP experience!