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A Circular Path to Sustainability for Manufacturers

More manufacturers are building business models that embrace circular economy principles in which they make goods once and customers reuse them. It’s good for business and the planet.

By Lloyd O’Donnell, Torsten Welte, Cindy Waxer | 14 min read

Nearly 350 million ink cartridges are discarded each year, creating heaps of hard plastics and steel components that can take between 450 and 1,000 years to break down, according to UK-based Recycling Factory.


The problem is not lost on Lexmark, one of the world’s major manufacturers of laser printers. The company has lowered its carbon emissions by 62% globally since 2005 and is on track to be carbon neutral by 2035, thanks to a wide range of eco-friendly initiatives. Its ink cartridge collection program, for example, is designed to reuse and recycle millions of pounds of materials. Its Managed Print Services program uses predictive analytics to extend the life of IT infrastructure, reducing the need to replace equipment as often as usual.


Lexmark’s moves are intended to reduce the impact of its manufacturing operations by putting less materials into the world and taking back more of those materials so that they can be reused productively. Such efforts are part of what proponents call “the circular economy,” in which manufacturers replace outdated “take-make-waste” practices with smart strategies that aim to reduce material consumption and recover or recycle the resources used to create their products.


The circular economy concept is based on three key principles: design out the negative impacts of economic activity such as waste and pollution; keep products and materials in use by ensuring that they’re durable, reusable, and recyclable; and choose renewable resources over nonrenewable ones. Practically embedded in this idea for manufacturers is a shift from creating single-use products to building services based on products that get used again and again.


The argument for this kind of thinking is an urgent one. We need new approaches to the ways we use materials, or we risk running out of materials to use. In 2019, the world consumed 100 billion tons of materials. Yet only 8.6% of these materials are recycled back into the economy for reuse. What’s worse is that, if current patterns continue, the United Nations expects our annual resource consumption to almost double – to 190 gigatons – by 2060.


The promise of circular strategies has a positive environmental by-product: these strategies stand to reduce global greenhouse gas emissions by 39% by 2032, according to the Circularity Gap Reporting Initiative’s 2021 report. Beyond societal needs, though, there are also strong commercial incentives for manufacturers to adopt a circular model.




Products as a service, from cars to toothbrushes 

For decades, manufacturers have been providing their products as pay-as-you-go services. In the 1960s, Rolls-Royce began offering jet engines maintenance services as “power by the hour.” In 2021, motorists could pay for car subscriptions from the likes of Audi, BMW, and Volvo.


Other manufacturers are transitioning to a model in which a combination of assets and services is sold as a subscription with variable or fixed payments. Consider Hilti, which manufactures products for the construction, building maintenance, and energy industries. The company offers Hilti Tool Fleet Management, a fixed monthly subscription service that covers the cost of all tools, including their use, service, and repair costs. Kaeser Compressors offers air pumps, blowers, filters, and compressors as a service. Global health technology company Philips sells a monthly subscription service to replace the heads on its Sonicare electric toothbrushes.

We recognized early on not just the environmental benefits of participating in the circular economy but also the business benefits.

John Gagel, chief sustainability officer, Lexmark

These business services extend the life of manufacturers’ products, thereby reducing waste. But the new models also encourage manufacturers to rethink their approach to hardware design to find new ways to optimize the life of the products they own.


At Lexmark, executives are pursuing initiatives such as cartridge recycling and infrastructure services to improve its triple bottom line – to improve profits and its commitment to people and to ensure that the company minimizes its impact on the planet, says John Gagel, chief sustainability officer.


“We recognized early on not just the environmental benefits of participating in the circular economy but also the business benefits,” Gagel says.


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There’s also evidence that a key benefit of participating in the circular economy is tapping into the core values of sought-after consumers.


In 2020, the SAP Insights Research Center conducted a groundbreaking research study to advise business leaders on the skills they would need to succeed in today’s experience economy. The research identified a group called “the Passionates” – an increasingly large and influential part of the population of workers and consumers who believe in taking action to make the world a better place and expect business leaders to do the same. For example, Passionates feel 18% more strongly about sustainable sourcing than their peers and are likely to use such criteria when making purchasing and employment decisions – a strong incentive for organizations to embrace a circular strategy or risk alienating this influential market force.


“Globally, customers are asking companies to help them meet their carbon neutrality goals, lower their carbon footprint, reduce waste, and be a responsible supplier,” says Gagel of Lexmark. “Participating in the circular economy plays a big role in these factors that are now considered table stakes.”




Making circularity pay

Unleashing new services is one of the most effective ways for manufacturers to reap the rewards of a circular economy. Take Schneider Electric, for example. To date, the French multinational company, whose energy technologies, automation software, and services help companies improve efficiency and sustainability, has enabled customers to save and avoid 302 million tons of CO2 emissions since 2018. One way that Schneider Electric achieves this goal is by offering an end-of-life take-back service that recycles, reclaims, or destroys the sulfur hexafluoride (SF6) gas contained in customers’ electrical equipment.

Unleashing new services is one of the most effective ways for manufacturers to reap the rewards of a circular economy. 

“The SF6 gas contained in electrical equipment is used around the world, but we have to make sure that it doesn’t enter the atmosphere,” says Frederick Morency, vice president of energy and services at Schneider Electric. Nearly 24,000 times more warming than carbon dioxide, “it can have a greater negative impact on the environment than cars,” Morency warns.


Schneider Electric’s take-back service works by collecting sulfur hexafluoride from switchgear and other equipment that faces retirement, then filtering and cleaning the gas at specialty gas-handling facilities, and recycling 99% or more of the SF6 by reusing it in new products. For example, equipment manufacturers can use purified SF6 in producing new switchgear products, closing the exact type of loop that supports a circular economy.


Some manufacturers are even retrofitting and reusing equipment to reduce the amount of discarded apparatus that ends up in landfills with unique service offerings. Morency points to one of Schneider Electric’s customers, mining company ArcelorMittal Belval, as a perfect example: “ArcelorMittal’s aging electrical installation was having an impact on operation uptime and creating safety concerns,” says Morency.


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Rather than replace the mining company’s outdated equipment, Schneider Electric’s service team audited ArcelorMittal’s assets and determined it was possible to retrofit 13 of its switchgears while adding temperature and hygrometry sensors for continuous condition monitoring. The result: a savings of 26 metric tons of materials and 170 equipment metric tons of carbon dioxide for the planet and a new line of business for Schneider Electric.


Lexmark’s participation in the circular economy has also culminated in innovative service offerings. The manufacturer’s Managed Print Services program uses Internet of Things (IoT) technology and predictive maintenance capabilities to increase the uptime and longevity of its customers’ critical IT infrastructure. Printers are outfitted with sensors that continuously monitor device performance – data that Lexmark collects and analyzes to identify usage trends and reduce waste by flagging potential equipment failures before they occur.

A boon for recruiting employees

Today, Schneider Electric’s circular economy activities, such as recycling materials in its products and prolonging product life span, now account for 12% of the group’s revenues, Raconteur reported. More than simply a boon for business, such initiatives are also having a significant impact on the company’s ability to recruit and retain highly qualified employees in a challenging labor market. By embracing a circular strategy, Morency says the company’s “employees feel as if they have a chance to make an impact” on the world.


Andrew Winston knows the power of circular economy principles to attract and retain top talent. Winston is coauthor of Net Positive: How Courageous Companies Thrive by Giving More Than They Take, a book he wrote with Paul Polman, former Unilever CEO. “About 75% of people who come to work at Unilever choose to because of the company’s sustainability initiatives,” says Winston. “Unilever is one of the most in-demand employers in the world.”


Among Unilever’s circular economy initiatives is its Sustainable Living Plan (USLP), which recently celebrated its tenth year. The USLP successfully integrated sustainability goals, which represented “the most aggressive and robust set of goals for a large company in the world at the time,” according to Winston. These goals included improving the well-being of one billion people and moving to zero-waste manufacturing and 100% renewable energy into the group’s hundreds of brands, including Close Up, Ben & Jerry’s, and Hellmann’s.

About 75% of people who come to work at Unilever choose to because of the company’s sustainability initiatives.

Andrew Winston, coauthor of Net Positive

Since the start of the program, Unilever’s stable of Sustainable Living brands has consistently outperformed the average growth rate of the rest of the portfolio. The USLP has also helped the company avoid over €1 billion in costs by, for example, embracing innovative packaging strategies designed to maximize the recoverability of materials used in new products. Unilever is working with Santiago-based startup Algramo to address the problem of single-use plastic pollution by allowing consumers to order whatever household products they need through the Algramo app and to have them delivered straight to reusable dispensers and containers stored at home. Each refill of a product, such as laundry detergent or rice, eliminates the need to recycle plastic or send it to a landfill.


Employees aren’t the only ones taking note of the manufacturing sector’s commitment to the circular economy; investors also are stepping up. According to the Ellen MacArthur Foundation, by the end of June 2021, there were 13 public equity funds focused on the circular economy, with a combined US$8 billion assets under management. Since 2019, over 35 corporate and sovereign bonds have been issued to help finance circular economy initiatives. Moreover, as demand for sustainable investment strategies increases, many of today’s eco-conscious organizations are becoming attractive targets for acquisition.




Circular business strategies

While participating in the circular economy can be challenging, there are strategies that can help manufacturers embark on a successful circular journey. Here are some lessons learned from organizations with proven track records for participating in the circular economy:

  1. Leverage digital technology to improve and authenticate circularity.

    “We had to completely revisit our business, starting from the way we develop products using an eco-design strategy to making sure we use the minimum amount of primary raw materials in our products,” recalls Morency about Schneider Electric’s foray into the circular economy. Complicating matters further, he adds, is the fact that “a large portion of our business is B2B2C, so tracking the installed base is quite a challenge.”

    Luckily, the ability to monitor the identity, location, and condition of individual components and products is improving as supply chains become increasingly digitized. “Digital technology is helping us to better track and offer services for our customers,” says Morency. “Through the lifecycle of the product, we’re able to be in contact with the end user and inform them of the different paths for the end-of-life of their products.”
  2. Build a strong business case for continued investment in circular initiatives.

    Investing in the circular economy can be a daunting proposition for finance teams. That’s all the more reason, says Gagel, for advocates to “successfully connect the issues around sustainability, carbon neutrality, and the circular economy to the language of the business. When we’re able to talk to the business units in their language and tell them how [circular initiatives] will affect their ability to stay competitive, or to put a product on the market that people will buy, it makes the discussion a lot easier.”

    For example, finance teams may be reluctant to invest in processes designed to reclaim assets with low residual value, such as used and outdated mobile phones. However, by demonstrating how collecting these devices and updating them with the latest software can create a profitable secondary market, circular economy advocates can create a more convincing argument for financial support.
  3. Establish the culture, with incentives and education.

    At Schneider Electric, financial incentives are at the core of driving senior-level buy-in on sustainability efforts. “Sustainability is part of the variable pay of thousands of managers within Schneider Electric,” says Morency. “Performance is audited by third parties that are able to effectively see if we walked the walk.”

    Yet Morency warns that support must also extend beyond “the corporate level and be a part of local organizations at every level – that’s a game-changer.” Today, Sustainability Ambassadors can be found at any one of Schneider Electric’s locations around the world, forming a network of employees committed to programs such as Act for Green, a cross-region initiative that aims to improve the company’s energy efficiency by examining workplace sustainability efforts across the organization and establishing benchmarks.

    Because not all employees are natural-born circular economy enthusiasts, Morency says Schneider Electric has also implemented a curriculum, developed with the Ellen MacArthur Foundation, to help employees “understand the opportunities we have to make our supply chain more sustainable and leverage a circular approach.” More than 4,000 employees have completed the curriculum to date.
  4. Design products with circularity in mind.

    For decades, manufacturers have designed products with ease of manufacturing and cost containment in mind. But that has to change for companies to achieve success in a circular economy. Rather, reusability, reparability, and recyclability must be at the heart of product design.

    With this principle in mind, Gagel says Lexmark’s engineering and product design teams are constantly asking themselves, “Have we made enough design improvements to ensure that a product is as energy efficient and durable as possible? Because if we can design durability for longer-lasting products, we’ll need less raw material, less often.”

    Another way that Lexmark designs for circularity is regularly conducting life cycle assessments on its hardware and examining how components can be reused in new designs. Lexmark incorporates post-consumer recycled (PCR) plastic from empty ink cartridges into over 60 product components. PCR plastic is recovered from discarded cartridges, all parts are examined, and those that can be reused are. The plastic parts that are not qualified for reuse are converted into pellets, melted down, and molded for integration into new cartridges and printer components for potentially infinite circulation of this raw material.

    Samsung Electronics has adopted a similar approach with its Galaxy Upcycling at Home program. The initiative lets consumers upcycle their Galaxy smartphones by converting them into a variety of IoT devices, such as childcare monitors and smart home appliances. Consumers simply use software that repurposes the device’s built-in sensors. For example, Galaxy devices can be digitally enhanced to more accurately distinguish sounds, such as a baby crying, and automatically send an alert directly to a user’s device.



Partnering for opportunities

Even the most inventive manufacturers face limitations, though, when it comes to the reuse, repair, and recycling of its products and materials.


“What happens if I have a product and I can reuse nine out of the ten parts, but the tenth part is made of materials that I know another manufacturer in another industry could use as its raw material?” asks Gagel.


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One potential solution to this conundrum is forming cross-industry collaborations, in which manufacturers sell or share raw materials with partners from other industries to be used in their own manufacturing processes – a development that could herald the future of the circular economy. “The next step is when manufacturers aren’t only focused on their own circular economy but they are interacting with manufacturers outside their industry,” says Gagel.


Whether manufacturers will successfully build partnerships to share raw materials remains to be seen. What is certain are the ever-increasing business incentives for manufacturers to keep components and materials in a series of closed, circular loops – and out of the world’s landfills.


Editors’ note: Explore more circular economy examples and takeaways including

Meet the Authors

Lloyd O’Donnell
Global Venture Lead for Sustainability | SAP

Torsten Welte
Global Vice President and Head of the industrial business unit for aerospace and defense | SAP

Cindy Waxer
Independent Writer | Business and Technology

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