In a circular economy, economic activities build and rebuild overall system of the company. This concept identifies the significance of the economy requiring working effectively at all the scales for small and large businesses, for companies and individuals locally and internationally. Circular economic model is categorized as an economy that is regenerative by design with the objective to retain as much value as possible of the materials, parts and products (Ballou, 2007). The major objective of this report is to discuss about the concept of circular economy, its characteristics and major drivers. The report analyzes both theoretical and practical concepts of the circular economy framework. Theoretical aspect includes the concepts and characteristics of this model. In the next section, the concept of circular economy is applied on the chosen organization i.e. Johnson Controls. Furthermore, there is the discussion regarding the environmental, social and economic benefits of using this model into company’s operations.
Johnson Controls is a multinational corporation that is headquartered in Cork, Ireland and manufactures automotive components like electronics, batteries and HVAC stools for the buildings. It is an international diversified technology and multi-industrial leader. The company is serving variety of customers in over 150 nations. Currently, Johnson Controls employs approximately 170,000 employees in over 1300 places across six continents. As of the year 2016, the organization was listed as 242nd rank in Fortune Global 500. Firstly, it was headquartered in Wisconsin, United States. In 2017, it was shifted outside US so now it is not eligible for Fortune 500 (Johnson Controls, 2018). By using effective growth strategies, the company is able to increase its market share and deliver the value to its stakeholders and making the customers more satisfied. The major customer segment of Johnson Controls includes car nuts, automotive enthusiasts, gear heads, upper and middle class people etc. Johnson Controls is one of the organizations that has adopted circular economy model to support the environment and society.
In order to understand any particular concept, it is essential to recognize its theoretical aspect. It is an important part of the methods which can be implemented to manage the situations in firm’s internal and external environment. It covers different assumptions and opinions about a single concept. The conceptual perspective of circular economy and its different aspects are discussed below:
Concepts and Characteristics
Nowadays, organizations are developing different ways to constantly reintroduce and re-gain these assets to market instead of disposing them after one product cycle. Considering this requirement of business and environment, companies are implementing the concept of circular economy in their business operations. Circular economy is the concept that is regenerative and restorative by design. Basically, this concept is about the maximization of value circulation, not just the elimination of waste generation (Geissdoerfer, et al, 2017). It is a development cycle which safeguards and improves the natural resources, maximizes the resource revenues and reduces the risks by managing the stocks and renewable flows. This concept goes beyond the waste elimination and reduction to promote the social, organizational and technological innovation across the value chains.
The circular economic model is completely opposite of traditional business model i.e. linear model that works on different principles of producing, using and ultimately disposing the goods. It shows that manufacturing process of company works effectively and utilizes the waste material as valued source for economic benefits (Pan, et al, 2015). As per the report of European Commission, using assets and resources efficiently helps in attaining a considerable growth and employment opportunities with eliminating harmful emission from company’s factories. Today, there are several large scale organizations like IKEA and Johnson Controls are able to grab many opportunities by adopting circular economy concept. They apply this concept to strengthening its resource efficiency.
Some of the major characteristics of Circular economy concept are stated below:
- One of the major characteristics of circular economy is that it helps and improves the bio-diversity by using the human capital and processes. The organizations implement this model with the principle to overcome the difficulties in the process.
- Under circular economy concept, production cycles target to close the loop across the complete value chain. It uses fully recyclable, renewable and biodegradable resources which can be used in sequential lifecycles to decrease the costs and increase the control.
- The major emphasis of circular economy concept is on increasing the product life across the entire life cycle of product. It can be done by maintaining and enhancing and maintaining the products via repairs, refurbishment, upgrades and reproduction. The effectiveness of this characteristic is affected via design process with the emphasis on modular design and durability (Tukker, 2015).
- This type of economy allows the firms to mitigate the risks and issues related to environmental pollution and wastage emission. It offers a life cycle that preserves and enhances the environment and natural resources.
Main Drivers of Circular Economy
There are many factors which drive the circular economy in the business processes. These forces help the company to transform the business framework into reality.
(Source: Swink, et al, 2017)
It is the biggest factor that drives circular economy in the company’s operations. It is right to say that all the products and materials cannot be renovated and restored completely; most of them are produced by using similar parts which have a considerable value. Moreover, these materials have implantation capacity that makes it more valued in comparison to primary product. It forces the firms to implement circular economic model in production and operations.
Next-life Materials and Products
It is also one of the primary drivers of circular economy. It states that when a business entity can enhance and reposition the raw materials after the use and place them in market to earn money again. There are several firms which are using this theoretical concept for later life products and raw materials because it declines their production costs (Mangan, Lalwani and Lalwani, 2016).
Challenges related to price and supply
Additionally, today’s companies face some challenges related to prices and supply which can be overcome by using circular economy concept. They believe that traditional model can cause these types of risks to the companies. Moreover, it may confront the problems associated with the supply of resources. Thus, these threats force the entities to develop this model in its business processes.
Social, Economic and Environmental Benefits
After discussion about the features and major drivers of circular economy, it is obvious that this model is very significant for the firms as it offers various advantages to society, economy and environmental resources of the nation. It can be analyzed that the primary advantage of circular economy is for the environment and its related sources like air, water, land etc. By adopting this model, the companies are able to reduce the waste emission and decline the dependability on materials’ importation (Robinson, 2016). It is very much different from linear business model and traditional framework of waste disposal. This concept focuses on the limits of natural resources by enhancing the renewable and recyclable sources with the decrease in the resources and raw materials’ utilization. Adoption of circular economy model enables the companies to eliminate the emission of harmful waste from the factory premises which can decline the negative effect on environment. In addition to environmental impact, this concept can resolve the issues related to society and economy. It assists increasing employment opportunities for the country’s people as the companies need to hire more people to engage in recycling and repair activities. It enhances the effectiveness of ready products (Swink, et al, 2017). Furthermore, this model can assist the companies to reduce the production and related costs.
Circular Supply Chain Supporting Restorative Processes
In today’s competitive business environment, the enhanced significance of reverse supply chain as a value source has directed the organizations to implement circular supply chain method. It reduces the wastage, gives the sources of inputs and takes the benefits of investment in forward supply chain. The concept of circular economy is based on the reutilizing and re-launching the products in the value chain. Thus, making unending loops, where the results become inputs. The role of supply chain is to avail the firm with the end-of-life products to be utilized in developing more significant value. This type of supply chain supports the adoption of circular economy model in the production company (Rushton, Croucher and Baker, 2014). It allows the company to develop a smooth and better restorative process. Additionally, it will enable the organization to enhance the transparency in procedures and decline the transaction costs. Thus, there are many companies which implement circular supply chain system by aiding the circular economy. It enables the companies to fulfill the demands and requirements of end users.
Application of Concepts
After gaining the knowledge about the theoretical perspective of circular economy model, this is the stage to implement it to the real world organization. For this, Johnson Controls Organization is chosen that has successfully implemented he circular economy model in its manufacturing process (Benzaken, 2018). Application of circular economy on Johnson Controls is explained below:
As a major leader in the automotive industry, Johnson Controls has moved towards circular economy by creating an efficient business model. Looking at the market trends and concern of society towards environment, this company has involved in the different circular economy processes like producing, refining, storing and development. In addition to this, the firm is committed into various environmental and eco-friendly initiatives. It is moving from traditional model to circular economy framework. It has adopted it as a sustainability strategy and Johnson Controls is threatening the perception that its products cannot be reused by evolving the opportunities to recycle and reuse them (Crosby, 2017). The company has developed its business model with the innovations and created a model that is completely emphasized on environment and society. Under this model, it has set various quality standards with the safety, environmental safeguarding, sustainability, social responsibility and trustworthiness.
· Tyco International (Merger)
· Different partners in joint ventures
· Manufacturing parts and automotive batteries
· Research and development
· Automotive experience and power solutions
· Developing efficiency
· Cost reduction
· Battery recycling
· Management systems
· It offers over one-third of lead-acid batteries in the world.
· Well-behaved staff
· Sustainable and comfortable
· Data centres
· Health care
High-profile automotive companies
· Industrial operators
· More than 130000 employees
· Intellectual properties
· Extensive distribution network
· Regional and local offices
· Company’s website
· Sales Force
· Raw material
· Software development and maintenance
· Product development
· Technology Development
· Automotive components and parts
· Sales of batteries
· Operations services
· Climate and environmental controls
· Consultation fees
This organization is using circular economy model since many years. It has recycled its first battery in Germany in the year 1904. Then, it has assisted to develop a recycling system which makes sure a large number of batteries are accurately recycled (Grady, 2016).
(Source: Crosby, 2017)
Under the above business model, conventional automotive batteries of Johnson Controls have been manufactured so 99% of their materials can be used again. Every time, a customer requires a vehicle battery replacement, he/she can return the old battery to the same supplier offering new battery. Then, the person of Johnson Control collects the old batteries and transforms them into new batteries (Johnson Controls, 2018). The circular thinking of this company united with a one for one exchange of product of old product for new one has allowed it to set one of the best examples of circular economy. By using circular economy model, the company is able to manage designing a battery which is 99% recyclable. It is an incredible initiative for a product that is hazardous and chemically complex. By inspiring the customers of traditional batteries to recycle and renew, Johnson Controls has received sufficient material to preserve millions of batteries from disposing in landfills (Lombardo, 2018).
(Source: Benzaken, 2018)
Thus, the business model of company indicates that Johnson Controls is looking for the different ways through which it can offer various supply chain solutions. The major idea is to bring back the batteries and recycle its materials into new batteries. Thus, the business model of this firm demonstrates that circular thinking of Johnson Controls is emphasized on community and environment. The circular supply chain of the company assisted it to push the recycling rates for the traditional batteries to 99% in North America, Brazil and Europe in 2015 (Lieder and Rashid, 2016). It allows the company to manufacture the batteries containing over 80% recycled material. Some of the major benefits which Johnson Controls’s circular economy model:
Circular economy model of Johnson Controls Company is a key driver to develop a strong economic environment. This model helps the company to generate more profits and revenues than it makes investment in its business processes. Circular economy of Johnson Controls allows a more manageable, resilient and considerable source of raw material supply. The raw materials which company uses come from the geographical areas where it operate and have diversified supply sources. Reverse logistics network and closed loop supply chain system decreases the requirement for extra transportation every year (Govindan, Soleimani and Kannan, 2015). Moreover, it helps the company to reduce the costs related to manufacturing, operations and other activities.
The use of circular economy can provide various benefits to the society and its people (Walicki, 2017). At Johnson Controls, recycling of batteries develops various opportunities for employment and it offers economic development to communities, suppliers and operations. It can be stated that recycling batteries in the circular supply chain system reduces the chances of human health risks related to inappropriate battery handling and disposal. Additionally, company’s employees are involved and motivated by its work on circular economy. In this way, circular economy of Johnson Controls has good effect on the community people.
The major objective of Johnson Controls behind implementation of circular economy model is to provide different benefits to environment and natural resources. The data of the company indicates that reutilization of the metals from already used batteries results in 99 percent fewer greenhouse gas discharges than producing chief ore from the mines. Furthermore, the usage of recycled plastic uses 90% less energy than handling new fresh plastic made by natural gas and oil (Saidani, et al, 2018). Ultimately, it eliminates the waste and hazardous emission to big water resources. The company is able to reduce the pollution to environment and related components like land, water and air.
Role of Circular Supply Chain at Johnson Controls
At Johnson Controls, circular supply chain begins and ends at the same place as it has adopted circular economy model. The company requires a fundamental shift to look at the end of life product not as wastage like a major source of new products’ supply. It is totally committed to encourage the environmentally sustainable manufacturing and other practices that combine the restoration and natural environment protection. To attain circular economy, the products are manufactured with the raw materials which can be responsibly and economically repurposed or recovered (Jawahir and Bradley, 2016). By focusing on the life cycle of material as opposed to final products, Johnson Controls can benefit both socially and financially. This company is making efforts to manage the logistics and timing of supply chain in an exclusive manner.
Thus, it is hereby concluded that nowadays, circular economy is a required concept for all the organization whether it is in manufacturing sector or in service industry. Johnson Controls is one of the companies which are successful in implementing this business model in its supply chain operations. In the future, the company has set a vision to recycle 100% of its batteries. It is working effectively with the suppliers, customers and logistics partners. It has created a circular supply chain that assisted to recycle most of its batteries. Circular economy of Johnson Controls is beneficial for all like society, country’s economy and environment.
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