Industry 4.0 as an enabler of the Circular Economy: preventing the waste of value and permitting the recovery of value from waste

12 June 2017

Once upon a time, we were all farmers – we produced little waste and what was produced was mostly biodegradable. Then the first industrial revolution occurred. Powered by the steam engine, the by-product of manufacturing was unprecedented amounts of waste. Ever since, our economy has essentially been a linear one: a one-way street in which we take resources from nature, make them into products, and then eventually dispose the very products we created as waste.

Now we are witnessing the fourth industrial revolution, this time driven by digitalization and the huge volumes of data it generates. And whereas the first industrial revolution introduced waste, the fourth has the potential to eliminate waste altogether. It supports circular business models that only consume renewable resources and keep materials from finite stocks in an infinite loop.

Scarcity is driving the circular economy

One of the drivers in the shift towards a Circular Economy, is the volatility in resource costs, mostly as it introduces risk - increasing prices, reducing quality and certainty of supply - that could ultimately impact the bottom line. This is one reason why Danone, for example, prefers bio-based rather than fossil-based plastics for the dairy product packaging. Supply risk factors also play an important role in Apple’s ambition to end its reliance on mined resources, using recycled materials such as aluminum, copper, tin, and tungsten instead in its devices. Scarcity also prompts authorities to impose tighter environmental standards on producers and consumers in order to reduce the use of resources.

Recovering value is key

Circular business model transformations however are not primarily about resource conservation or waste reduction. The essence of turning linear models into circular ones is to not only prevent loss of value, but also recover it. The diagram below shows that when feedback loops are shorter (i.e. the smaller the circles), more value is recovered. For example, the scrap value of a smartphone is only a few dollars worth of precious metals. But taking a refurbishment approach means that when a defunct smartphone is refurbished with a new touchscreen, a battery and a software update, it's worth several hundred dollars again. There is a strong business case to integrate circular economy models into business as usual and strategy.

170518-165551-SW-OS_diagram_pg 4_v5

A pervasive shift in customer behavior

In addition to an increasing awareness of the need to adopt more sustainable ways of living, the primary driver behind the transition to a circular economy is a change in customer behavior. Consumers increasingly prefer access to a service above ownership of the goods that provide it (e.g. mobility versus cars). And we see companies adopting the same reasoning in order to remain agile in a fast-changing and uncertain world, unencumbered from investing in costly infrastructure.

Enabled by technological breakthroughs

Whereas the main driver is a change in customer behaviour, the main enabler of many circular strategies are technological breakthroughs. Social platforms for example facilitate sharing of an ever wider array of services and goods, from a place to stay during a city trip using Airbnb and city-to-city car sharing with Blablacar to borrowing a neighbour's power tool via Peerby Go.

Where Industry 4.0 meets the circular economy

This is where the transitions to Industry 4.0 and the circular economy reinforce each other. The various technologies under the umbrella of Industry 4.0 serve as a major enabler of circular strategies. At the same time, this contribution to a circular economic model gives the development of Industry 4.0 purpose and momentum. The following examples show how this may occur in practice.

1. Internet of Things (IoT) & data analytics: Products that are connected to the IoT allow manufacturers to control and analyse their performance at a distance and collect usage data. This provides a foundation for many circular business models:

  • Car sharing platforms require data about the whereabouts, the usage and the condition of each car.
  • In Products-as-a-Service (PaaS) models, manufacturers retain ownership and the responsibility for the flawless operation of their equipment. They can only do so when they are able to monitor and analyse performance at a distance. In addition, PaaS models allow capacity to be tailored to fluctuating demand, and provide manufacturers an incentive to produce goods that are durable, which should both help to reduce waste.
  • Circular strategies like recycling, remanufacturing and parts harvesting likewise require the collection and analysis of data about the usage and condition of parts.

2. Robotics: Human errors are the most common cause of product errors, both during the initial manufacturing process and in the use of the product. Advances in robotics allow manufacturers to employ robots in an increasing number of applications, thereby increasing yield and reducing waste, as well as extending product life times.

3. Additive manufacturing or 3D printing: The use of 3D printing for the on-demand production of spare parts improves maintainability and extends the life cycle of products and equipment. It also affects product design in that future 3D part maintenance can be built in to the process.

What is becoming increasingly clear, is that where Industry 4.0 and the circular economy meet, the waste of value is prevented, and the value of waste is recovered.

To find out more about the Circular Economy and what businesses can do, go to: www.pwc.com/circularbusiness 

Jan-Willem van den Beukel | Manager, Sustainability & Climate Change
Email | +31 (0)88 792 46 58