What is the circular economy and why might you want to consider this as a part of your business’s operations?

This article is for educational purposes and does not constitute legal or tax advice. For specific advice applicable to your business, please contact a professional.

You might be familiar with the idea of a milkman delivering fresh milk in glass bottles to your home, but what you might not know is that this is an example of the circular economy. The milkman delivers your milk in glass bottles. When you’re finished, they’re picked up, cleaned, and used once more to deliver milk to another customer. Here, the process of delivering milk reuses bottles, refills bottles, and has the option of recycling the bottles. So, what exactly is the circular economy and why might you want to consider this as a part of your business’s operations?

What is the circular economy?

Businesses that employ a circular economy model are ones where the systems used to provide goods or services are restorative and regenerative by design. These companies prioritize the elimination of waste through everything from manufacturing to design. 

The areas where businesses can factor in circularity include product design, manufacturing, and logistics. SAP Insights suggests five principles for consideration when circularity is being designed into a product or process:

  • Modularity: Can components be swapped out rather than forcing the entire item to be discarded?

  • Maintenance: Can parts be refurbished or reused in a current or new way rather than being discarded?

  • Disassembly: Does disassembling the product and designing it with a goal to disassemble it later in the process yield a higher percentage of materials for reuse or recycling?

  • Regeneration: Does the product or process use easily accessible materials? Can the process rely on renewable resources?

  • Recovery: From product trade-ins to repairing or remanufacturing, can products be designed with as many similar or biodegradable materials to easily repurpose and recover them? This consideration emphasizes thought around the logistics aspect of the circular economy for your business.

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Circular economy businesses can come in many forms

While these types of businesses can take on many forms, here are a few categories that fall under the circular economy umbrella and how you can better identify them or incorporate elements into your own business model.

Recycle

Recycling is a component of the circular economy but typically considered when there are no other alternatives for reusing or repurposing materials. The goal of circular economy models is to prioritize reducing and reusing materials before recycling. For example, Adidas partners with Parley to create shoes made of recycled ocean plastics. Klean Kanteen, which offers an alternative to single-use plastic bottles, has gone a step further and created a line of 90% post-consumer recycled stainless steel bottles. The company has set a goal for 95% of its line to be made of this recycled steel by 2023.

Repair and refurbish

Businesses that offer repair and refurbishment services are similar, however, refurbishment is considered a step further than businesses that offer repairs. When a good is refurbished it is restored to its original working order and appearance, or better, while a repair is simply mended.

Some retailers, like Patagonia’s Worn Wear program and North Face’s Clothes the Loop program, offer buyback and resell programs to customers. Buyback programs allow companies to sell items back to the retailer in exchange for money or store credit. Sometimes companies will repair the items and put them back up for sale while others like Madewell’s Denim Recycling Program turns pre-worn jeans into housing insulation and offers customers a store credit. 

Refill

Cleaning product companies Grove Collaborative and Blueland offer refills for their product offerings. The bottles themselves are reusable and customers can purchase tablets to mix with water in order to refill the products. Beauty brands like Ouai, Milk Makeup, and Glossier offer refillable products with designs that allow customers to refill the original vessel the product came in.

If an in-house refill program is not an option, some retailers have partnered with companies like Loop, which offer waste-free packaging and delivery. The company offers partnerships with Ulta, Kroger, and Walgreens. Once customers are done, they ship back the empty containers in reusable totes for a refill. 

Reusable

Reusable businesses might offer reusable packaging with incentives for customers to use them over single-use products. Fast-food chain Burger King recently started testing eco-friendly packaging options and reusable cups and containers as well. International coffee chain Starbucks has also invested in reusable to-go mugs, offering a discount in exchange for consumers bringing their own cups. The company has set a goal for 2025 that every customer will have the option to either use their own mug or borrow a mug. 

Depending on the company, the good itself may be a reusable alternative to single-use items. Reusable beeswax wrap companies like Abeego, reusable bag companies like Stasher or Baggu, and reusable straw companies are a few examples of this.

Deadstock

Originally, deadstock was a term used by retailers who could not sell brand-new items. These items that would fail to sell would sit on the shelf and be considered a loss in the business’s books. Some retailers, like Reformation and Christy Dawn, use deadstock materials for some of their offerings to repurpose and sell what would have otherwise been a loss for the company.

Deadstock items today have taken on a new meaning: They are a coveted part of the circular economy for many consumers. This refers to discontinued or vintage items like clothing and fabric that are no longer for sale but have their original price tags. These brand-new but older items typically sell at a premium price, such as popular sneakers. 

Does the circular economy model make sense for your business?

The circular economy helps avoid the prevalence of single-use items, opening the doors to more creative ways that businesses can be sustainable. Not only that, but prioritizing sustainability can positively impact your bottom line. Repurposing materials can cut on costs, increase customer retention, and help you better manage your business’s inventory.