Turning the Linear Circular: The Future of the Global Economy

When circular-economy models are combined with IoT, efficiency skyrockets.

Mark Esposito | Harvard University

Institutions, both in the private and public sector, can always reap the benefits of doing good, even while still accomplishing their goals.

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A major way to enhance social performance is through resource conservation.

As resources become scarcer, a major way to enhance social performance is through resource conservation, which is being underutilized.

Although the traditional model of the linear economy has worked forever and will never be fully replaced, it is essentially wasteful.

The circular economy (CE), which involves resources and capital goods reentering the system for reuse, saves on production costs, promotes recycling, decreases waste and enhances social performance.

When CE models are combined with IoT – internet-connected devices that gather and relay data to central computers – efficiency skyrockets. Thanks to finite resource depletion, the future economy is destined to become more circular.

The economic shift toward CE will undoubtedly be hastened by the already ubiquitous presence of IoT, its profitability and the positive public response it yields.

What is the circular economy?

Unlike the linear economy, which is a take-make-dispose model, the circular economy is an industrial economy that increases resource productivity, with the intention of reducing waste and pollution.

The main value drivers of CE are:

  • Extending use cycles of an asset
  • Increasing utilization of an asset
  • Looping and cascading assets through additional uses
  • Regeneration of nutrients to the biosphere

What is IoT?

The Internet of Things is the connection of physical devices through electronics and sensors, which are used to collect and exchange data.

The main value drivers of IoT are the ability to define:

  • Location
  • Condition
  • Availability of the assets they monitor

By 2020, there are expected to be at least 20 million IoT-connected devices worldwide.

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If an institution’s goals are profitability and conservation, IoT enables those goals with big data.

If an institution’s goals are profitability and conservation, IoT enables those goals with big data and analysis.

By automatically and remotely monitoring the efficiency of a resource during harvesting, production and at the end of its use cycle, all parts of the value chain can become more efficient.

How can IoT be used?

When examining the value chain as a whole, the greatest uses for IoT are at the end. One way this is accomplished is through reverse logistics.

Once the time comes for a user to discard their asset, IoT can aid in the retrieval of the item so it can be recycled into components. With efficient reverse logistics, goods gain a second life. Fewer biological nutrients are extracted from the environment, and the looping and cascading of assets is enabled.

One way to change traditional value chains is the IoT-enabled leasing model. Instead of selling an expensive appliance or vehicle, manufacturers can produce them with the intention of leasing to their customers.

By embedding these assets with IoT, manufacturers can monitor the asset’s condition, thereby dynamically repairing the items at precise times. In theory, the quality of the asset will improve since it’s in the producer’s best interest to make it durable rather than disposable and replaceable.

Immediate benefits

Even today, many sectors are already benefiting from IoT in resource conservation. In the energy sector, Barcelona has reduced its power-grid energy consumption by 33 percent, while GE has started using smart power meters that reduce customers’ bills by 10 to 20 percent. GE has also automated their wind turbines and solar panels, automatically adjusting to the wind and angle of the sun.

Cities like Hong Kong have implemented IoT monitoring for preventative maintenance of transportation infrastructure, while Rio de Janeiro monitors traffic patterns and crime at their central operations center.

Mexico City has installed fans in their buildings, which reduce local smog. In the waste management sector, San Francisco and London have installed solar-powered, automated waste bins, which alert local authorities when they are full – creating ideal routes for trash collection and reducing operational costs by 70 percent.

Despite the many advantages to this innovation, there are numerous limitations. Due to difficulty in legislating new technologies, governmental regulations lag behind innovation.

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The increase in efficiency, combined with the goodwill generated by conservation, is a win-win proposition.

For example, because Brazil, China and Russia do not have legal standards to distinguish re-manufactured products from used ones, cross-border reverse supply chains are blocked.

Reverse supply chains are also hurt by the lack of consumer demand, which is caused by low residual value of returned products. IoT technology itself, which collects so much data from people’s private lives, generates major privacy concerns.

New questions

Certain questions arise: Who owns this collected data? How reliable are IoT dependent systems? How vulnerable are these assets to hackers?

Despite the prevalence of IoT today, with 73 percent of companies invested in big-data analytics, most of that information is used to detect and control anomalies – and IoT remains vastly underutilized.

Take an oil rig, for example. It may have 30,000 sensors, but a small percentage of them are normally examined. Lack of utilization of IoT in 2013 cost businesses an estimated $544 billion alone.

Even with these current barriers, because of the potential profits and increased social performance, the future implementation of an IoT-enhanced CE is bright.

A brighter future

As government regulations catch up and technology improves, recycling and conservation will become more profitable, and reverse supply chains can expand.

As the CE expands into different sectors of the economy, farmers may remotely monitor their crops and use GPS-guided tractors to perfectly plow and harvest. Governments can prevent depleting fisheries by tracking fishing boats with IoT. Energy companies can share their production responsibilities by attaching connectivity-enabled solar panels on city roofs.

In the infrastructure sector, GPS-guided, driver-free smart cars can reduce congestion by taking optimal routes. In healthcare, $1.1 trillion of annual value can be created through remote healthcare in monitoring patients.

The increase in efficiency, combined with the goodwill generated by conservation, is a win-win proposition for innovation. Even with cost implementation, future profitability makes it a no-brainer.

This article first appeared on World Economic Forum and was republished with permission.

You might also like:

The Circle of Trust in 5 Steps

The Essential Role of Logistics in a Growing Circular Economy

Q&A: How One Leading Company Supports the Circle of Life

Mark Esposito is a socio-economic strategist who teaches Economic Strategy and Competitiveness at Harvard University’s Division of Continuing Education.

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