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Achieving Circular Economy with Blockchain and IoT

Supply chains across a myriad of industries have long followed a traditional approach when it comes to delivering services and goods. This typically involves a “Take, Make and Dispose” model that ultimately results in the depletion of finite resources. The uni-directional flow of procuring raw materials for manufacturing goods and rendering them as non-recyclable waste after their useful life is what makes up a linear economy model. Compare that with Circular Economy and what you get is a systematic and focused method of eradicating waste throughout product life-cycles by keeping resources in use for as long as possible, and then recovering and regenerating products and materials.

With ever-increasing global consumption, access to non-renewables such as rare earth metals, minerals and fossil fuels is scarce thereby inducing a struggle to keep up with global demand. Rising costs and price fluctuations inhibit a corporation’s ability to accurately forecast for their procurement cycles. Coupled with supply disruptions, this results in massive economic and social losses for both corporations and countries whose growth remains tied to the use of scarce natural resources. An uncertainty in supply of resources also prevents companies from generating stable revenues and maintaining market share, as they may need to stop production at uncertain times and not run their production plants at desired capacities. Increasing production and the later depletion of natural resources is leading to significant negative environmental impact(1).

Furthermore, a company’s adverse environmental footprint and resource dependency could erode brand value as consumers shun companies with unsustainable business practices(2). This makes it easy to follow that, as planetary bottlenecks and resource scarcity become more critical, policymakers and investors alike will tilt towards companies that can prove they have a net positive social impact.

Simply put in the context of electronic and IT Assets, a circular economy is a system of eradicating waste throughout the product life-cycle by keeping resources in use for as long as possible by processes involving recovery and re-use of parts and materials. This is best focused in consumer returns programs such as mobile-device trade-ins, warranty exchanges, end-of-lease take back, and infrastructure modernization that involve decommissioning of existing hardware assets.

Companies can start as early as the design stage of a product life-cycle by introducing methodologies such as Design for Engineering and Design for Recycling. An interesting new technology that has the potential to really revolutionize the reverse logistics industry is the concept of material passports. Most OEMs, recycling service providers and re-marketing agents in the industry, struggle with identifying the right value for the products that they are trying to re-use, re-sale or recycle. There is also, an uncertainty when it comes to a product’s whereabouts and its condition (New/Used/Damaged/B.E.R.). Such information is invaluable to enable the repair and refurbishment of products in time.

Think about it, a product that has a Material Passport containing information about its composition would allow for the highest possible recovery of that product at the end of its life-cycle. This is so crucial, as most end-of-life recycling is highly dictated by the residual value of a product or a part. Often times, companies that have excess or obsolete products, hold auctions by inviting various recycling vendors to take part in a competitive bidding process.

In most cases, vendors receive a list of materials that are typically listed on a spreadsheet with details such as part numbers, product description, quantities and condition (if available). In order to hedge their risks, vendors often resort to providing valuations at the lower end of the spectrum as they need to include pickup/handling costs, freight, customs, processing and ad-hoc labor costs that seriously deplete the offer value to the product owner. This results in a vicious cycle wherein both product owners and third-party vendors alike are not able to realize the full extent of a product’s recovery value.

Material Passports may risk revealing sensitive information such as design concepts, bill of materials, component suppliers, material composition and other highly valuable data that may all be proprietary and protected by IP’s and design patents. Such highly sensitive information may deter organizations from engaging in Material Passports, which is why when combined with Blockchain, it becomes a powerful tool and opens doors to information that had previously been notoriously difficult to get access to.

Product data is usually fragmented as no single party holds all the information. For example: Apple works with suppliers in over 43 countries and six continents to make its products. With such a complex supply chain, it becomes almost impossible to trace the origin and material composition, not to mention the secrecy involved. Supply chains are not transparent and there’s a good reason companies such as Apple keep it that way. Competitive edge. In fact, centralization is undesirable as stakeholders are not keen on openly sharing any information. Furthermore, trusting an authority that holds all information repositories may pose a risk to a company’s competitive advantage in the industry.

Blockchain technologies that support concepts such as tokens or smart contracts can certainly help in alleviating most of the problems identified above. In general, a blockchain is a distributed database that maintains a growing list of transactions. These transactions are aptly called blocks and every block has a link to the previous block, hence the “chain”. In other words, it is an open ledger that captures the transaction between two parties in a permanent and verifiable way. This very nature of a blockchain being decentralized helps with the problem of a central authority storing all sensitive data in one place. No single party can have ownership of data or manipulate it for their personal benefit. The immutable and cryptographic nature of data makes it almost impossible to compromise the historical ledger. Every detail in the blockchain gets documented at every instance a product changes hands. If a stakeholder requests access to a product’s specific information, it is secure and authentic all the while protecting the data owner’s identity.

For a supply chain to effectively capture data at all stages, we need a link between the physical and the digital realm. Thanks to IoT, technologies such as sensors or beacons can collect data from real world objects and convert them into valuable information. For example, when products contain RFID chips, sensors at various gateways in the supply chain lifecycle can detect them ensuring seamless tracking. This can take place both in the forward supply chain as well as in the reverse life-cycle during consumer returns, warranty repairs or exchanges, or simply during end-of-life.

The circular economy provides for a strong and intuitive business case both in the short and long-term. Corporations are able to cut their dependency on increasingly scarce and costly natural resources, while turning waste into extra revenue and value. Relying on system-wide innovations, it aims to redefine products and services to cut waste and decrease negative impacts to the environment. Underpinned by a transition to renewable material supply, the circular model builds economic, social and environmental capital. The transition to a circular business model is no longer a matter of corporate marketing and public relations, but one of business viability.

Citations:
1. Article by Robert B. Richardson, Associate Professor of Sustainable Development, Michigan State University. https://theconversation.com/yes-humans-are-depleting-earths-resources-but-footprint-estimates-dont-tell-the-full-story-100705
2. Nielsen article: Sustainability sells: Linking sustainability claims to sales – https://www.nielsen.com/us/en/insights/news/2018/sustainability-sells-linking-sustainability-claims-to-sales.html

About ALOK SARSIDHARAN

Alok Sarsidharan is the Executive Director for Re-Teck.