In the media

How to make sure your entire food chain delivers on sustainability and decarbonisation

LOOP Forum

12 April 2022

Read the article in Danish here

In order for Danish companies to continue their economic growth, they will have to think sustainably from cradle to grave, and companies are beginning to prepare for this approach.

But how do we get our entire complex value chain, from suppliers of ingredients from Indonesia, to transport links, to our own production and later sales through intermediaries, to reduce GHG and CO2 emissions, or limit water consumption so we can live up to our ambitious sustainability goals for 2030? Why should a supplier in a foreign country make his life more difficult, just because I, a company he barely knows, have some climate goals that I have to live up to in Denmark?

These are some of the issues that Danish companies face when they look holistically at the sustainability agenda, and build new, sustainable business models that will initially run in parallel with the existing business model before merging completely into a new sustainable model.

For a long time we have worked with one of Europe's largest retail chains, which wants to completely remove disposable plastic from its stores. This type of work is complex because, of course, there are both advantages and disadvantages to plastic, which must be weighed against each other. Plastic packaging often reduces food waste, but this benefit is overshadowed for consumers by e.g. the problem of plastic in the oceans. There is much that needs to be designed differently if we are to achieve our entire goal and not just solve parts of our waste problems, and here consumers play a crucial role in driving companies to succeed in their goals.

It is precisely the tension between strategic ambitions and human behaviour that makes the circular economy both complex and exciting, because it requires new patterns of behaviour and a new understanding of the connections between different issues.

This means that from the beginning you have to design your products so that the production uses  green energy, so that large parts or all of our production, including packaging, can be recycled, or is biodegradable, so that wastewater from one producer can be used in a nearby  company which does not need completely clean water and so on. These are circular supply chains where products or parts of them are returned and where customers expect them to be recycled or broken down for recycling.

It's not that hard to see how circular start-ups can emerge that capture this logic from the start, they invent a new type of biodegradable packaging, or a sustainable way to make food last longer, but how does the circular economy affect large, established companies?

The Ellen MacArthur Foundation CE100, University of Exeter and PA Consulting have researched this question, and developed a "Circular Economy Business Model Playbook."  In collaboration with some of the 100 leading companies that are members of CE100, we have prepared a “how-to manual”  that companies we support can work through systematically regardless of their starting point. That was the greatest need identified when we asked the other members of CE100, and they are, after all, some of the world leaders in circular economy.

This has led us to jointly develop five strategic steps companies can take to move further into the circular economy. There is money in it - perhaps a little counter- intuitively. The Ellen MacArthur Foundation estimates that by 2030, in Europe alone, the circular economy will be worth $ 13 trillion. With that potential in mind, it suddenly makes sense for companies like Renault to set themselves the goal of increasing the financial potential of their circular business by DKK 750 million as early as 2022.

Nevertheless, there are many companies that find it difficult to identify the right circular model, or the combination of circular initiatives for their particular business. It does not make it easier that circular models rely on long-term collaborations across entire value chains and ecosystems. Getting all those people to work together toward a common goal, and actively contributing to a circular system, requires courageous and agile leadership that leads people out of their traditional company-centred mindsets.

Five strategic steps

The following five strategic steps will enable your organisation to select, design and test the right circular business model for your particular business:

1. Find the part of the circular economy that provides value for you ("where to play")

Buy, sell or rent your product via platforms. These include "Product as a Service" options, where you sell a service instead of a product (think Green Mobility), extending the life of your product, or you can restore or reuse resources from your product, etc . There are parts of the circular economy that are tailored to your business.

The right models are often determined by the resources consumed and the value lost in the existing business, as well as the potential value you can create by switching to a circular business model. In this context, value means more than just profit. It also covers value creation such as that from stronger and deeper relationships with customers, value from new data sources and an improved business reputation and a stronger brand.

2. Agree on the value of collaborating across your value chain

Once you have identified the right model, you must methodically identify all the stakeholders you need in your circular business model, and the value each one gets from being part of your circular value chain. Here you can really talk about the need to identify win-win situations.

This can include customers, suppliers, and those who provide infrastructure. It is important to understand each stakeholder in your system’s goals, and create common goals where you work together for the benefit of both parties. To be successful, your partners must also be successful.

3. Identify the operational changes the transition will require

At this stage, we identify the operational changes required to succeed with the new business model. The best place to start is by looking at your organisation's capabilities: what you need to do that is new or different in a circular business model, and ask whether you have the right employees, the right technology and data and infrastructure in place for to support the model? Can you cope with the existing capabilities, or do you need to develop completely new skills as a company?

4. Ensure financial viability

Once you have identified your business model, the right partners and the operational requirements, then you need to  choose a profitable revenue model. This is about considering and analysing the many revenue models the world has become acquainted with in recent years: subscriptions (think Netflix), products that are returned when they are no longer used (the Swedish steel company Sandvik guarantees repurchases of steel and H&M collects used clothes) , resale and many other pricing models.

5. Implement the model successfully

Plan your implementation in detail, and take into account the risks and challenges that inevitably arise. To minimise your risk, we recommend that you: think big, start small, and scale quickly. This will allow you to test new concepts with a limited group of customers, get their feedback, go back and refine the concept and keep incorporating feedback until  customers are genuinely excited and willing to pay for the new approach.

If there is one thing larger companies can learn from startup companies, it is precisely this experimental approach to new products and services, and that the customer is the only judge of whether something is good or not. Remember to check their willingness to pay.

The circular economy is a unique opportunity. If you follow these five strategic steps, you will create value, not only for your own business, but also for your partners, the environment and society at large. It is  worth taking them.

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