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As business conversations around the circular economy shift from conceptual aspirations to concrete action plans, leaders are preparing to reshape traditional business models into circular successors. However, the road from intention to implementation is long and complicated, with few points of reference to gauge progress along the way.
Building upon the latest insights from circular economy think tanks and thought leaders, this blog series explores ways in which the circular transformation can be measured at the business level through sustainability performance management systems.
Definition of the Circular Economy
A circular economy is one that is restorative and regenerative by design, and which aims to keep products, components and materials at their highest utility and value at all times, distinguishing between technical and biological cycles – Ellen MacArthur Foundation
Summary: As sharing platforms become increasingly available within upstream operations, businesses looking to access the financial and environmental advantages on offer require clear information to guide their participation. This need can be met by adding selected utility and risk indicators to existing sustainability performance management systems.
The business case
Whilst most prevalent in a consumer to consumer context, sharing platforms (see box below) are starting to gain traction within upstream business operations. Their increasing use in this area is occurring for the following reasons:
- Business efforts to reduce costs and environmental impact from fixed assets are encouraging a shift from privatized equipment ownership to shared equipment access
- Enhanced forecasting capabilities are enabling businesses to accurately predict equipment needs and fulfill them with shared assets
- Co-location of business activities are improving the viability, cost effectiveness and efficiency of equipment sharing platforms due to geographic proximity
Consequently, business uptake of equipment and services made available through upstream sharing platforms is set to increase.
- Enables businesses to rent, share and swap underutilized equipment
- Reduces wasted capacity and distributes operational costs (maintenance)
- Uses digital technology to forecast, reserve and track use of shared equipment
The challenges ahead
Though the consumer sharing economy is mature, business focused sharing platforms are nascent, and have yet to secure widespread buy in. Inertia can be attributed to the following reasons:
- Contractual ties to long term equipment leases can preclude access to recent ‘shared’ alternatives
- Specialized equipment needs may not be satisfied by standardized offerings on sharing platforms
- Perceived operational risks may be introduced by the outsourcing of critical equipment
Despite the challenges stated above, sharing platforms remain attractive for operations where they are applicable. To accelerate their adoption under such circumstances, sharing platform focused indicators are required to feedback on their use. Therefore, the remainder of this post proposes responses to the question ‘which indicators can be added to sustainability performance management systems to measure the uptake of sharing platforms?
The strongest opportunities for the addition of sharing platform indicators lie within the utility and risk categories (see heat map below – as explained in the first Circular Optimisation blog). This focus has been proposed due to the essential role of equipment functionality within business operations, and the risks introduced should equipment provision through a sharing platform fail.
Establishing circular indicators
Note: defining the scope of analysis is a critical preliminary step prior to adding circular indicators.
Within utility, a first step could be to apply filters to indicators measuring the quantity of fixed assets (such as vehicles or machinery) to establish the proportion of owned equipment that could be retained with full access, retained but shared with peers, or divested and substituted with equipment sourced from sharing platforms.
With a view of sharing platform potential in hand, additional indicators could be introduced to target participation opportunities by measuring the frequency and duration of equipment use. These could identify underutilized assets where redundant capacity could be offered to sharing platforms. It may also identify fully utilized equipment where extra on-demand capacity could be sourced from sharing platforms.
Turning to risk, indicators could be established to categorize, per equipment type, the operational risk level introduced by either contributing to, or depending on sharing platforms. Combined with information gathered on the reliability of sharing arrangements, a business could then gauge the suitability of participating in sharing platforms across their equipment portfolio.
Setting circular targets
With such indicators in place, businesses can set measurable targets for optimising their use of sharing platforms. Some illustrative examples include:
- Increase equipment portfolio compatibility with sharing platforms
- Reduce equipment under-utilization through intra- and inter-organisation sharing
- Eliminate sharing platform shortfalls within high risk equipment categories
Strength in numbers
On paper, business centric sharing platforms offer operational agility, financial benefits and reduced environmental impacts. However, those advantages only materialize once a critical mass of forward looking businesses participate. Using sustainability performance management systems to both identify the opportunity
Adrian Wain is a consultant at UL EHSS. His focus is on bridging the gap between strategic priorities and the information systems that underpin their achievement.