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🌱 SUSTAINABLE DIVE

Closing the Loop: How the Circular Economy and Digital Modernization Drive Sustainable Business Practices

 

In the 1990s, Interface, a flooring manufacturing company, aspired to close the loop on its supply chain optimization by shifting from selling to leasing commercial carpets. After pushing unprecedented sustainable business practices for several years, the company brokered only a handful of leases.⁰

Yet, they persevered. Interface pivoted from leasing to producing energy-efficient carpet tiles – leaning into their identity as a business and what made them successful. By optimizing product design and rethinking materials, Interface’s total sustainability efforts resulted in a 69% reduction in carbon footprint¹ – and the total savings of their program more than paid for the transformation itself.² Today, Interface is a $1.2 billion company and the first global flooring manufacturer to sell all products as carbon neutral across their full lifecycle, with plans to become carbon negative by 2040.²

Based on take-make-dispose logic, the world’s current linear economy digs up the resources out from under our feet to make products that quickly return to the Earth as waste or pollution. It presents a false choice between the environment and the economy. From a business perspective, the linear economy masks the immense potential within an opposed business model, the circular economy.

Early pioneers such as Interface proved emissions and waste reduction can translate to profit growth. What was possible then is accelerating now with intelligent technology. The circular economy provides a concrete business strategy to transition from the traditional linear model to a regenerative system that maximizes resource efficiency, minimizes waste, and bridges the gap between sustainability and profitability. At Avvale, technology is the catalyst for the circular economy and companies can accelerate growth and positive impact on the planet through digital modernization.

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The Circular Economy as a Business Model

The circular economy is a business model that aims to decouple economic growth from resource consumption and environmental jeopardy. Unlike the linear economy, which follows a "take-make-dispose" pattern, the circular economy promotes the principles of reducing, reusing, repairing, and recycling. This closed-loop system recirculates products, materials, and resources within the economy for as long as possible, maintaining or repurposing value and minimizing waste. A well-substantiated theorem, Gartner predicts that by 2029³, governments and consumers alike will find waste so unacceptable, that supply chains will be pushed to uphold zero-waste efforts – ushering in an inevitable circular economy.

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Over the last century, society has nearly perfected the consumption-driven economic models. As digital-first companies disrupt traditional business models, so will circular-first businesses disrupt linear models. For traditional businesses transitioning to circularity, the journey requires rethinking and implementing business processes that simply don’t exist today. The first step towards profitably closing the loop is digital modernization at scale – implementing intelligent technology that leads to evolved customer experience, hyperconnectivity, and increased innovation.

How the Circular Economy and Digital Modernization intertwined

The circular economy and digital modernization form a dynamic synergy that drives sustainable innovation and economic progress. It emphasizes the regenerative and efficient use of resources, aiming to minimize waste and extend the lifecycle of products through practices like recycling, remanufacturing, and sharing. Digital modernization, on the other hand, involves the integration of advanced technologies like the Internet of Things (IoT), artificial intelligence (AI), machine learning (ML), and blockchain into various industries, enhancing efficiency, data-driven decision-making, and interconnectedness. The convergence of these concepts is where their true potential unfolds: digital technologies facilitate the monitoring, tracking, and optimizing of resources and products throughout their entire lifecycle, enabling more effective implementation of circular economy principles. From intelligent waste management systems that optimize collection routes to AI-powered predictive maintenance for equipment, the symbiosis of the circular economy and digital modernization fosters a profitable, sustainable, and resource-efficient future.

The Business Value of the Circular Economy

Embracing circular principles allows businesses to optimize resource utilization, reduce waste, and minimize environmental impact, leading to cost savings, increased operational efficiency, and enhanced brand reputation. By adopting practices like product design for durability, reuse, and recycling, companies can create recurring revenue streams through extended product life cycles, waste utilization, refurbished offerings, and the creation of secondary markets.

Additionally, the circular economy sparks a supply chain optimization evolution, encouraging collaboration and the development of innovative business models, such as leasing and sharing services, that tap into evolving consumer preferences for sustainable business practices. Embracing the circular economy not only mitigates risks associated with resource scarcity and growing regulatory⁵ changes but also cultivates loyalty with consumers, space for new value channels, resilient process efficiency, an environment primed for innovation, and regeneration of the planet.

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Consumer Attraction and Retention

With greater access to information, consumers’ opinions and demands directly shape modern commerce. A growing base within the population is becoming more environmentally conscious and expects changes to be made. More than 60% of consumers said⁴ they would pay more for a sustainably packaged product and 78% of them say a sustainable lifestyle is important to them. With rampant green-washing and surface-level Environmental, Sustainability, and Governance (ESG) claims, consumers’ discernment is as razor-sharp as their demands. Attracting and retaining loyal customers is a byproduct of circular business models. By “walking the walk”, businesses can amplify proof of products and services designed with customers, and the environment, in mind.

Design to Retain or Repurpose Value

It’s in the name: One-shot products earn income once and become waste. Products built from regenerative design can become recurrent revenue streams. The circular economy prioritizes longevity, adaptability, and resource efficiency. Designs that embrace durability and modular components not only extend the lifespan of products but also facilitate easy repairs and upgrades, thereby reducing premature obsolescence. Collaboration drives information sharing across lines of business, fostering a culture of creative problem-solving that encourages novel solutions for repurposing and reimagining products at the end of their primary use. In this way, the circular economy catalyzes design innovation, creating a virtuous cycle where products retain or even enhance their value over time, benefiting both businesses and the planet.

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Sustainable business practices in the future are not a cost but an investment, and to prevent products and materials from ending up in landfills, companies must adapt existing processes and introduce new methods. In the textile production sector, for example, industry leaders are engaged in projects aimed at 'circularizing' yarn to make their high-quality synthetic yarns 100% reusable as raw materials, thus decomposable and re-processable in production. Clothing and accessory manufacturers willing to exclusively use the specific yarn (typically mono-polymeric) can benefit from retrieving unsold items by the yarn's chemical producer, which will then become raw material ready for further processing. This model allows clothing manufacturers to reduce residual inventory costs, and the chemical company to reuse a valuable raw material, avoiding premature end-of-life disposal, possibly in a landfill.

Greater Efficiency 

Circular economy models heighten the potential to run a pragmatic, cost-effective business. Streamlined supply chains lead to reduced procurement costs and more robust risk management. Smart packaging and designs promote reuse or repurpose within the value chain. Focus on energy and resources can reduce carbon emissions and waste. Our customer, Naturgy Energy Group, is an excellent example of the commitment and payoff of the circular economy. By implementing waste and energy-conscious programs, they have achieved several milestones including decreased waste in production by 89%, reduced atmospheric emissions of SO₂ by 96%, and reduced material consumption by 90%⁶ while operating as one of the largest international integrated gas and electricity companies, present in more than 20 countries.

Double Materiality

What started as a core accounting concept has evolved into a crucial benchmark for businesses around the globe: Materiality. But, addressing only the needs of investors is only telling half of what the future demands. Double materiality, reporting both on internal financial performance and external environmental expectations, is becoming the standard across Europe, which inevitably reaches the rest of the world given our global economy’s interconnectedness. Circular economics empowers companies to naturally achieve double materiality by simultaneously improving financial performance through resource efficiency and quality while meeting external expectations for environmental responsibility and satisfying customer demands for socially responsible practices.

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Naturgy Adapts Agile Approach to Procedures Management

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Supply Chain Optimization Evolution

Circular economics have the most significant impact on supply chain optimization- creating a ripple effect that affects all players across product ecosystems from materials to transportation. The shift to a more circular economy is coming, and when the major manufacturers embrace it, producers along the supply chains must be ready. These new processes are uncharted territory for most companies and require a massive, but necessary, shift in strategy. Early adopters will be the first chosen in the field to support the major players ushering in this new economic era.

Agility to Innovate

Clear lines of sight and connection between lines of business, employees, systems, and customers weave a foundation for innovation. This streamlined approach is the key to a circular business model. The force multiplier behind it all is technology. By identifying and intentionally applying AI and ML, blockchain, IoT, or other intelligent technologies, companies can innovate at the speed of their business.

Positive Impact on the Planet

The sobering truth is this: Our current consumption habits will impact the Earth that our children inherit.⁷ With finite resources and a growing global population, the linear economy's reliance on extraction and disposal is unsustainable. The circular economy offers a solution by maximizing resources and reducing dependence on natural materials; actions that go a long way in the fight to preserve ecosystems and mitigate climate change.

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Shaping a Business Built on Circular Economy

Avvale serves as an advisor for businesses to embark upon a full end-to-end digital modernization journey, achieving a deeper connection between people and products, collaboration within the business ecosystem, and a technology foundation for exponential innovation. Leveraging intelligent technology, we bend the traditional strategy into a circular model that focuses on people, design, materials, and technology.

Connecting People & Products: From Strategic Advisory to Technology Platforms

From ground zero, we examine how operational strategies are impacting the business and greater value chain. Sustainability is a matter of strategy: It’s a deep change that requires corporations to leverage smart products/services and share data across their entire value chain. This harmony fortifies the foundation for circular business practices.

Our Customers’ Success: Connecting People & Products

Delicate tasting notes of wine develop from vulnerable grapes on the vine. Winemakers grapple with climate-induced hardships from harsh temperatures shrinking annual yields to wildfires cooking vines.⁸ Avvale worked with partners to create a symbiotic ecosystem where technology and nature converge, resulting in a renewable energy source for wine producers and ensuring sustainable business practices for the future of the Spanish wine industry. Together with Iberdrola, PVHardware, and Gonzalez Byass, Avvale played the role of the technology expert in an ambitious project: collecting sensor data and leveraging artificial intelligence, we determined the best position of solar panels to absorb energy and provide crop cover for the vines and the best growth conditions for the yard, creating data-driven and sustainable vineyards.

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Winesolar: Sustainable Data Driven Agriculture for Vineyards

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Recent studies show that cars are parked nearly 95% of the time.⁹ Our customer revolutionized car sharing in Italy, basing their business model completely on shared circular economy principles. By connecting customers with shared mobility options through intelligent technology, our customer enables their end users to be a part of the solution: Shared cars’ potential to decrease carbon emissions by 41% by 2050.¹⁰

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The Future of Car Sharing: Connected Vehicles for Urban Mobility

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Avvale has developed a digital passport technology that allows our customers to implement product and material identification technologies for traceability. The European Union has chosen our solution as a critical innovator within the European Innovation Radar program. Our solution has been analyzed and evaluated as 'tech-ready' and with high market potential. Avvale actively uses this technological solution to support an international fashion house in an ambitious 360-degree circularity project.

The project spans from the creation of dedicated second-hand business lines through distribution channels, both physical and virtual, to clothing rental services, all authenticated by certifications in which digital passports and complete traceability systems for customers and stakeholders play an indispensable role.

In this way, the brand maintains continuous interaction within its application ecosystems with customers who often seek used garments elsewhere, resulting in in-depth knowledge and greater loyalty.

Ensuring the authenticity of the product, as well as quantifying the value of a used garment, requires the use of innovative data analytics and machine learning technologies to make the project scalable. Without technological acceleration, it would be impossible to envision a globally distributed comprehensive service. This precisely sets apart a genuine shift toward the circular model from an isolated marketing initiative, perhaps in a single point of sale or on a single item within the collection.

Business Ecosystem Collaboration: From Operations to Management

By creating and configuring a truly intelligent enterprise tailored to your business, connections become clearer than ever before. Data-sharing across all lines of businesses weaves together a tightly-knit ecosystem, promoting faster time-to-value and space to innovate, rather than analyze. This free-flowing web of data and information empowers employees to be proactive and focused on driving success across the entire value chain.

Our Customers’ Success: Business Ecosystem Collaboration

In the pursuit of competitive advantage, our client confronted challenges ranging from intricate operational processes to cumbersome reporting and sluggish data processing. The solution platform, now overseeing numerous plants, users, car lines, and materials, eradicates vertical silos and standardizes reporting through integrated business systems. The interface's intuitive visualization tools empower users with agile data analysis, while historical data availability ensures data traceability. Through this comprehensive solution, the client now enjoys an integrated, end-to-end perspective of their supply chain optimization processes, a pivotal asset for thriving in the circular economy landscape.

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Full Integrated Supply Chain Digital Platform Powered by AWS Cloud

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With operations in the United States and Mexico, our customers were utilizing siloed IT systems for order-to-cash, production planning, supply chain optimization management, and financial processes. After successfully implementing and adopting RISE with SAP, our customer has a unified global platform that supports all of their core business processes.
With S/4HANA, our customers’ financial processes are shortened, reducing the financial close process from twenty days to five days. The real-time reporting capabilities and insight into key data, such as inventory and production costs, regardless of location, continue to be instrumental in guaranteeing critical business success. By reducing manual tasks, our client’s employees can focus on higher-value work and innovation for the future. Another important result of implementing S/4HANA was real-time visibility to inventory, which is centralized, better controlled, and provides real-time updates across the company’s locations.

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Scalable Consumer Packaged Goods Company Automates with SAP S/4HANA

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Employee feedback and ideas are valuable assets, especially to SEAT. Previously, company feedback submissions could only be accessed through the internal network, creating roadblocks for employees working on the assembly line who required a more agile solution. We created an automated system to receive feedback and evaluated each submission against a customer set of criteria to determine potential ROI. This system results in faster time-to-innovation while empowering employees to become part of the future business.

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SEAT Accelerates Internal Ideas Program Through Automation

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Exponential Technology Foundation: From Core Infrastructure to Composable Architectures

In a circular economy, where users and products are interconnected, stakeholders flourish within a highly collaborative ecosystem. Throughout the entire value chain, data is consistently gathered and examined, making systems, technologies, and ongoing integration pivotal. Avvale helps businesses create an advantage – expanding out-of-the-box solutions through custom development or extension – to create a competitive edge in the circular economy. Customers focus on what they do best, and we take care of the rest.

Our Customers’ Success: Exponential Technology Foundation

Our customer, a nationally recognized American football team, found themselves waiting two days to capture and process game-day analytics. This prevented leadership from responding to customer issues, refining sales and operations channels, and improving resource efficiency. Leveraging a data cloud platform, the team now has a real-time 360° view aggregated from multiple data sources, which allows them to pivot within the game to address challenges and recognize opportunities.

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Intelligent Stadium Elevates Fan Experience Through Real-Time Data Decisions

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Delivering highly personalized hospitality experiences requires myriad information and cutting-edge technologies. As an acutely customer-focused brand, Hotel Gran Bilbao saw an opportunity to become even more proactive with predictions and services using AI and real-time data. Today, the hotel can predict demand and room occupancy with 90% accuracy, leading to increases in revenue and reduction of operational costs. Most of all, Hotel Gran Bilbao can focus on what they do best – delivering exceptional service and hospitality.

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Hotel Gran Bilbao Forecasts Occupancy Rates Using AI

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Our luxury fashion customer chose not to rest on its reputational laurels and instead, fused haute couture with cutting-edge technology to form deeper connections with their clients. With the creation and implementation of a digital showroom, our customer presents new collections in a completely innovative way, building a virtual and customized environment that supports both the clients’ independent discovery of products and for sales agents to deploy an engaging approach. Analytics provide the brand with relevant information on the client journey and the performance of its sales campaigns in a complete solution for catalog management and presentation. Our customer has gained a competitive advantage by creating bespoke experiences while also connecting their business data primed for proactive innovation.

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Virtual and Innovative Showroom: Lookcast Enters Fashion Maison Designs

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These stories illustrate the symbiotic relationship between people, products, and technology as the foundation for thriving in the circular economy.

Incorporating Circular Strategies for Sustainable Business Practices

As seen in the case of Interface, a circular strategy is not one-size-fits-all. The journey must be thoughtfully tailored to amplify what your business does best to secure a profitable future through sustainable choices.

🔍  Measuring ESG: A critical component of analyzing and actioning change, ESG data provides a comprehensive framework for evaluating and improving sustainability performance, guiding strategic decision-making, managing risks, and demonstrating long-term value creation through resource efficiency and reduced environmental and social impacts, ultimately driving the successful integration of circular principles throughout operations.

💪  Design for Durability and Repairability: Businesses can design products with a focus on longevity, durability, and ease of repair. This approach extends the product's lifespan, reduces waste, and fosters customer loyalty.

🚀  Technology as a Force Multiplier: Circular business models, based on lease, share, reuse, repair, and recycle, can accomplish the mission of decoupling revenue from resource consumption by leveraging smart and connected products and digitally hyper-automated processes across the entire value chain. Digital innovation is fundamental for enabling a circular economy at scale.

✨  Embrace Product-as-a-Service: Shifting from consumer-owned products to a service-based model can optimize resource utilization and enable higher income per unit. Offering products as services encourages maintenance, upgrades, and end-of-life responsibility, while businesses retain ownership and control over the materials, and gain valuable feedback from connected products to optimize usage and design.

♻️  Implement Recycling and Upcycling: Establishing efficient recycling systems and upcycling processes enables the extraction of valuable materials from products at their end of life. This not only reduces waste but also creates a secondary market for recycled materials. Avvale’s Reclaim AI solution is an example of how technology can enable profitable upcycling. Additionally, smart sorting technology can empower businesses to evaluate materials in real time, improving waste and recycling efforts proactively.

🤝  Foster Collaboration and Innovation: Businesses can collaborate across sectors to create closed-loop systems. Sharing knowledge, resources, and infrastructure can improve the employee experience and optimize the use of resources, spur innovation, and create diverse workforces.

🌱  Educate and Engage Consumers: Raising awareness about the circular economy and its benefits empowers consumers to make informed choices. Businesses can educate their customers, promote sustainable business practices and consumption patterns, and encourage responsible disposal of products.

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Moving Forward with the Circular Economy

The circular economy provides businesses with a profitable approach to tackling resource scarcity, environmental degradation, and economic sustainability. By adopting circular strategies, companies can enhance growth, efficiency, and resilience while promoting sustainable practices. Embracing the circular economy is both a moral duty and a strategic move, enabling businesses to align with sustainability goals, support a healthier planet, and thrive in a resource-constrained world. By merging sustainability with profitability, businesses can drive positive change while ensuring long-term success.

Transform with Avvale

Circularity is a profitable business model built to flourish in the future. People plus our proprietary methodology, multiplied by technology's power, equals measurable, concrete results from the onset. Get in touch to see how Avvale can empower your business to map your journey to circularity, leveraging your unique business power to guarantee you sustainable business practices and a profitable future.

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