In the Circular business model costs can be split up into four different “Blocks”.
Block 1: Increasing the Product Lifetime.
In the first block, we can include the costs associated with achieving the objective of extending the useful life of products. Products can achieve this extension through a more studied design or by using materials or components that allow it to last longer. A further aspect of product life extension is reuse, either by the original or by a different user. To achieve this reuse, we will probably have to factor in the costs of reconditioning the product or the logistical or commercial costs of making it available to the new user, or both at the same time.
Block 2: Multiple user access.
A second block would be related to costs related to how customers reach the product's benefits. The standard way would be the physical and complete possession of the product for its use, such as owning a 3D printer. If we choose to offer the 3D printing that customers need more circularly, we can evolve in two different directions. We can offer 3D printing services from a platform where the customer uploads the design, and we send them their printed prototype (virtualisation). We can create a physical space where the customer comes and rents the printer time he needs (sharing services). There are beneficial circular effects in both cases, but they will require specific costs for their development.
Block 1: Increasing the Product Lifetime.
In the first block, we can include the costs associated with achieving the objective of extending the useful life of products. Products can achieve this extension through a more studied design or by using materials or components that allow it to last longer. A further aspect of product life extension is reuse, either by the original or by a different user. To achieve this reuse, we will probably have to factor in the costs of reconditioning the product or the logistical or commercial costs of making it available to the new user, or both at the same time.
Block 2: Multiple user access.
A second block would be related to costs related to how customers reach the product's benefits. The standard way would be the physical and complete possession of the product for its use, such as owning a 3D printer. If we choose to offer the 3D printing that customers need more circularly, we can evolve in two different directions. We can offer 3D printing services from a platform where the customer uploads the design, and we send them their printed prototype (virtualisation). We can create a physical space where the customer comes and rents the printer time he needs (sharing services). There are beneficial circular effects in both cases, but they will require specific costs for their development.
Block 3: End of Life Management.
A third block has to do with managing the product's end of life (EOL). If the provider cannot reuse the product, there will be costs associated with recycling operations. These operations will include logistical fees, separation and preparation expenses, recycling process costs and costs related to taxes that may arise from the process. If, on the other hand, the provider can reintroduce the product into the production chain, the provider will incur the costs associated with the support of the Take Back System (TBS). These costs will include the logistical fees of recovery, preparation, and reconditioning, as a raw material or as a component, of the goods provided by the TBS.
Block 4: Adoption Factors.
The fourth and last block has to do with the cultural component that any transition from a linear to a circular model implies. Within this block are the costs derived from implementing the Adoption Factors, both internal and external. The Inner Adoption Factors derive from training our teams and preparing your processes to make circularity operational in a fluid and consistent way. We must train, measure and control new aspects of management and operation, which will undoubtedly bring benefits, but which initially will also entail additional efforts and costs. Concerning External Adoption Factors, we must mention the costs derived from the action on all types of stakeholders to generate a favorable positioning of our circular model. Also included here are the costs derived from educating our immediate society about the benefits of circularity and developing corporate social responsibility (CSR) policies and actions in this direction.
The Triple bottom line.
All these new costs will impact our unique way of achieving the bottom line of circular companies. That new bottom line will serve a triple bottom line: economic, environmental and social. The Triple Bottom Line: Market, Planet and Social.
The circularity of our offer is a positive differentiating attribute for that part of the market that is aware of the need to work with this triple orientation. This differentiator makes it possible to attract this demand to our company and create strong retention links. The social connection with what is close, local, helps create barriers to aggressive competition from offshored companies that compete based on the cost economies derived from this offshoring.
In other words, a circular business stands out from the rest of the producers in the market. Used wisely, this status can give the business access to new customer segments and maybe even convince conventional customer segments to “join the cause”.
Initially, the costs of implementing circularity will impact revenue, because they are added to those of the linear model of producing or operating service, but they are costs of change that later displace and replace them. Sourcing reused raw materials can initially be more expensive, but in the long run they may prove to be a cheaper alternative, and setting up a TBS can be costly, but will in turn save on sourcing new materials.
The circular model is designed to achieve more with less and reintroduce those economies into benefits on the planet and society. Circular models can, ideally, be cost-competitive, as they incorporate an evolution of LEAN (zero waste) methodologies with the addition of DESIGN TO LAST and LOCAL PROMOTION.
