Why the Circular Economy Is the Answer

There is no way around it: the economy has to become more sustainable. An end to overproduction, an end to short-lived products, an end to electronic and other scrap. Bring on products that are recycled and longer-lasting. Bring on the “right to repair” , bring on the circular economy!

While much-needed raw materials are becoming ever scarcer – including wood, steel, plastics – and entire industries are producing in slow motion, current crises are increasing the pressure further.

This is where “circular economy” comes into play: How can the circular economy bring about the change that business and the environment so urgently need now? Where to start? Who is already getting it right, and how does the shift succeed?

With Dr. Stefan Frings, we take a look at some pioneers from the wood and metalworking industries.

Dr. Frings, the last time we spoke was in February, about the benefits of local sourcing compared with global sourcing. And about whether “hyperlocal logistics” will become a trend. What has happened since?

The trend toward local sourcing has risen massively since then. Because in February there had already been a peak in raw material scarcity that people believed could hardly get any worse. But the Russia-Ukraine war has taught us otherwise: That is why I rather think: by now, the trend is, out of necessity, even moving from local sourcing to insourcing.

What shortage is concretely driving insourcing in German companies?

We receive far more materials from Ukraine than we had assumed. Worldwide, it is becoming clear how strongly the world depends on raw materials from Ukraine and Russia. The ceramics industry, for example, sources input materials such as feldspar from Ukraine. These are now falling away. Or wiring harnesses for the automotive industry: they are extremely scarce. The topic of human resources also makes clear how heavily German companies have relied on assembly workers from Ukraine. Now they have to find a new workforce and open up alternative sources of supply for energy and other raw materials.

How is Germany positioned when it comes to insourcing? Do you know examples from your consulting practice? And won't it now also become really expensive if Germany's industries have to supply themselves on their own?

It can become more expensive. But security of supply now comes first. Some developments I observe include: vehicle components. The welding of steel frames, for example. Previously, processes like these were carried out at suppliers. These scopes of work are now increasingly being carried out in Germany itself. And there are many other examples.

How do alternative sources of supply, which have become a key topic, fit with the topic of sustainability?

They are one facet of a major development that is currently setting a fast pace.

And it has to: the keywords are “ESG” and “Green Deal”. At the end of March, the EU Commission presented a package of measures for this. The overarching mandate to business and consumers is: “Reduce, reuse, recycle.” Fewer products are to be newly produced, it says. How, in your view, is business responding?

Still decidedly too slowly, but things are happening. I observe that companies are increasingly undergoing assessments – primarily guided by these three key questions: 1. How can less raw material be used? 2. Which materials can be reused? 3. Which materials can be substituted? These are three approaches aimed at massively reducing raw material consumption.

What does that mean concretely? What approaches is the wood and wood-processing industry pursuing, for example? Because wood is a very scarce raw material. The price has been rising steadily for some time. According to forecasts, it will continue to do so.

That's right. Wood is a scarce resource for many reasons. That is why the wood and wood-processing industries in particular depend heavily on innovation. This in turn is linked to sustainability goals. Which is good. There are research projects, among them one at TU Wien , that deal precisely with this. For example, to what extent climate-neutral products can be made from by-products of the wood-processing industry – such as sawdust and lignin. It is even said that houses could be built from these by-products! The findings help providers to specialize. Some now produce sustainable wood parts using 3D printing.

Processes like these could possibly stop the felling of several million trees every year.

Yes, the ecological factor would be immense! In the meantime, so-called “wood powder technology” has also gained a foothold: it enables the production of climate-neutral wooden floors, ceiling and wall cladding that consist of real wood but to a high share of recycled wood or simply wood waste. The principle of the circular economy is also increasingly being relied on in other industries.

Okay, what about the metalworking industry? In February we talked mainly about bicycle manufacturers that – hit hard by supply stoppages – built their own plants in the EU. How could the circular economy establish itself more strongly here?

It already is, albeit on a small scale: WirtschaftsWoche recently reported on start-ups and other business models that – out of the supply crisis – are focusing on upcycling old, used bicycles and “urban bicycle corpses”. They don't just upgrade old bikes: if necessary, they also build completely new two-wheelers from old ones.

In doing so, small and agile companies meet the requirements that the mentioned package of measures also demands. But what about larger players? Let's stay with the metalworking industry: Are there developments there too that reflect the principle of the circular economy?

Yes. When we think of aluminum, a scarce commodity, Nespresso and Velósophy have already set a good example with their RE:CYCLE Bike: The aluminum frame of this bicycle, for example, is made from recycled Nespresso coffee capsules. Another example of aluminum reuse comes from the automotive industry: Volkswagen has aluminum offcuts for its Audi brand returned to suppliers so that they can make other parts from them. Components from old commercial vehicles are also reused for MAN. By now, aluminum chips are even melted down on site to produce new raw material for further use. “Fresh start instead of scrapyard” is the motto.

Sounds like significantly fewer resources, less logistics effort, fewer cars in the scrap press and – against the backdrop of the “early warning level” and the “oil embargo” – less energy consumption, too. The cost advantage seems obvious. Is that so? Will the circular economy continue to gain ground?

Yes, inevitably. The developments show that the circular economy represents a clever, contemporary, but also badly needed solution. Not only because of regulations and raw material scarcity: an economic problem is, at its core, always an incentive problem. Meaning: if certain services or products promise profit, they will be realized. And the circular economy is exactly such an incentive mechanism. The circular economy offers a congruence of profit opportunities and ecological benefits. That is also why it will pick up massive speed in the future.

Which questions reach you most often in this regard? And what are entrepreneurs currently racking their brains about the most?

Above all, they ask how they can compensate for the kind of cost increases we are experiencing right now. The framework conditions have changed. The market has become very expensive. Companies are under heavy rationalization pressure and are looking for rationalization opportunities to save costs.

What do you recommend to companies in this respect: Which guiding question can provide initial orientation here – and ultimately also for the necessary shift toward more sustainability?

“What can I influence myself?” – this question actually provides clarity in many respects. And it is astonishing which possibilities emerge in the answers, simultaneously for companies and for compliance with climate targets. Because it is like this: if companies want to meet rationalization pressure, they will also have to work considerably more energy- and resource-efficiently. Take “supply chain” or “local sourcing”: Can supply chains be adapted to the new framework conditions? Can they be designed more smartly so that transport and logistics costs can be reduced? Or take “insourcing”: What options are there to process raw materials internally or in the immediate vicinity? To reuse or substitute them? What new cooperations could become interesting here and at the same time mean added value for the market, consumers and the environment?

The rationalization pressure obviously makes people very creative.

Crises always produce innovation. The crises of the last two to three years are additionally forcing ecological rethinking. And, hopefully, bringing us closer to the climate targets.

Thank you for the interview, Dr. Frings.

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