How to create momentum for your circular economy strategy
Companies understand the critical role that emerging technology plays in helping to implement a cyclical approach to manufacturing operations. However, the industry has more to do when it comes to technology adoption.
Sustainability is increasingly becoming non-negotiable for modern manufacturers and distributors. While business goals remain front and center, the industry is recognizing the importance of introducing environmentally focused goals into the mix as part of environmental, social and governance (ESG) programs.
The circular economy is changing the game. Manufacturers’ commitment to eliminating waste through a cyclical model of “make, use, reuse, recreate, recycle” is already resulting in real rewards. Despite a widespread understanding of the benefits, many manufacturers and distributors are struggling to shift towards a sustainable circular economy strategy as they face major industry challenges. The immediate need to address higher costs, supply chain disruptions, the move to “just in case” inventory strategies and changing customer demands are hampering businesses’ ability to focus on sustainability.
Sage and Deloitte discovered that momentum is the key required to unlock the full potential of circular economy initiatives. Sage’s new research into the state of the circular economy in manufacturing and distribution finds that organizations can actually thrive in the short, short and long term if they have the right tools and approach. This is how.
Manufacturers and distributors continue to work under enormous pressure – not least those navigating to a circular economy. Of those Sage surveyed, 72 percent said their organization is struggling with the immediate challenges of rising costs. Disruptions in the supply chain (71 per cent) and changed customer requirements (68 per cent) further challenge the industry.
The pressure to deliver products and services to customers under tough circumstances can easily push sustainability aside. The negative impact of this decision does not stop with the environment: 46 percent of Sage respondents said this could damage their brand perception and reduce long-term profitability (also 46 percent).
How can businesses survive and thrive, sustainably? A solution to overcome these barriers is also the solution to kick-starting a great circular economy: agility.
Agility starts with a cultural change supported by the right technologies. When it comes to technology, adopt platforms that promote efficiency and innovation. These will help reuse and recycle, because they give managers the ability to look at existing assets, assess solutions and come up with data-driven proposals that can be far greener. For example, let’s say an outage next week prevents one of your suppliers from delivering parts. Technologies such as advanced ERP can quickly suggest new options, reduce losses from this event and cover costs afterwards.
Such insights drive a culture of flexibility and agility that forms the perfect foundation for the circular economy to thrive.
84 percent of senior managers say building and implementing a circular economy strategy is now part of their role. This is a hugely positive first step, but action must follow – transformation of operations is also important.
A data-driven approach is key to this and must replace the current system of simply listening to the floor manager for advice on how to make operations flow more smoothly, as digital transformation expert Isaac Sacolick, president and founder of StarCIO, comments in Sage’s report . . When you integrate data capture, analytics and insights into your workflows, the results can dramatically streamline processes, reduce waste and increase efficiency.
For example, ARA Foods managed to reduce its raw material waste by 1.5 per cent within six months by simplifying workflows. The snack food manufacturer, which is a make-to-order company, implemented an ERP (Enterprise Resource Planning) system that has enabled it to better track processes in real time. It allows ARA to optimize the use of raw materials, better handle seasonal variations and reduce the time from order to shipment.
Another way that technology can drive efficiency in production and distribution is through the Internet of Things (IoT). When devices such as sensors are included in your processes, the insights can proactively point to where there are operational equipment effectiveness (OEE) reductions that affect efficiency, or when you need to replenish inventory, or blockages that can become costly later.
Businesses now understand the critical role emerging technology plays in helping leaders navigate turbulence and achieve a circular economy strategy. However, the industry has more to do when it comes to technology adoption.
Sage’s research found that manufacturers and distributors ranked cloud applications (74 percent), data analytics (68 percent) and automation (67 percent) as the most important technologies for running a business more sustainably. Despite 61 percent citing cloud apps as useful in collecting, analyzing and reporting on their CE capabilities, public cloud use is far from universal among manufacturers and distributors, according to the research. In fact, only a minority of respondents say they use the public cloud for core apps such as supply chain (39 percent), CRM (38 percent), and business intelligence (35 percent).
Only with the visibility provided by cloud-based applications can companies truly prove the value of circular economy initiatives internally and externally. A cultural shift towards sustainability that is embraced willingly by all stakeholders will unlock the long-term benefits of the circular economy: 50 percent of respondents said it improved reputation, followed by the claim that it increased energy efficiency (47 percent), increased business resilience (46 percent ) and reduces the impact on the environment (46 per cent).
With the right cloud-based tools to analyze performance, the momentum of companies starting to think with the “make, use, reuse, recreate, recycle” model at the heart of planning will increase.
The benefits of amazing agility and strong data insights don’t stop at reaching your sustainability KPIs. One of the biggest benefits to be gained from an effective circular economy strategy is the time to think creatively about additional goals to reduce, refurbish/reuse, recycle and recycle, thus creating a self-sustaining cycle of sustainability.
With a commitment to embrace the circular economy, manufacturers and distributors have a huge opportunity ahead of them. By leveraging agility to overcome today’s barriers, and data to make operations flow more smoothly, they will gain the momentum needed to succeed toward their long-term vision.
Rob Sinfield is SVP Product, Sage X3 and Sage Intacct Manufacturing at Sage.
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