The Circular Economy: Definition and Benefits

Discuss about the transition towards circular economy of Philips. 

In a circular  economic system  trade of products and services takes placed in closed loops. It is also characterized as an economy which has regenerated design which aims to retain value as much as possible from the products, materials and parts. The aim of this kind of economy is to create a system of products which allows for the long life, recycling of the products and optimal reuse of materials. In this type of economy toxic substances are eliminated and the residual streams are again used as a resource. Therefore, the goal of circular economy is to decouple economic growth and focussing on retention of value.

Koninklijke Philips N.V. is a Dutch multinational company whose headquarters is located in Amsterdam. It is currently focused in the area of healthcare. The three main divisions of Philips are Philips Consumer Lifestyle which deals in domestic appliance and personal care, Philips circular lighting and also Philips Healthcare(Philips 2018). Philips is also considered to be one of the largest manufacturer of lighting in the world.

Concepts And Characteristics

A circular economy is a kind of economy where resources are used as long  to extract the maximum value as long as possible  from the resources and then recover, regenerate products at end of service life (Lacy, Rutqvist, 2016). This kind of economy is a renewal system in which leakage of energy, emission and waste can be minimised by closing, slowing and narrowing energy. A circular economy is a contrast to the linear economy which can be achieved through recycling, repair and long lastingdesign. Therefore, circular economy is a kind of economic model which addresses  human needs and distributes resources fairly without causing any harm to the biosphere.

Drivers Of Circular Economy

 There are seven pillars of the circular economy are:

1. Materials can be cycled at a continuous high value:Material cycles are needed to be designed of certain lengths which are relevant to the human time cycle and are suitable to the natural cycles to which they well be connected. Preserving the material complexity is been highly prioritised by surging the materials in their most complex form as a quite ling period of time. The materials should not be mixed in such a way so that they cannot be separated or recovered unless it can be continued to cycle infinitely at high value.
2. Energy based on renewable sources: Transportation of energy should be avoided. Energy consumption density should match the local energy’s density availability in order to avoid energetic lossesCharter(2016). The system should be designed in such a way so that the energy efficiency is maximum where performance and service output of the system is not reduced.
3. Enhancement of biodiversity through human activities: Preserving biodiversity is the highest value in the circular economy. Rare habitats should not be damaged through human activities. Ecological diversity should be preserved as it is the core source of resilience of the biosphere.For the sake of preservation of biodiversity energetic and material loses are tolerated.
4. Preservation of human society and culture: It is important to maintain the bond between social cohesion and human cultures. The activities that threaten the existence of human cultures that are unique, should be avoided. Appropriate use of governance in the organizations and processes should be used and it should also reflect the need of affected stakeholders.
5. Humans and other species well being and health should be supported:The well being of circular economy and the health of human should not be threatened by economic activities. Substances which are hazardous and toxic should be eliminated and it should be minimized in the tansition phases and should be kept in cycles which are highly controlled.
6. Values generated by human activities in measures beyond just financial: Usage of both energy and materials should be intentionally contributed to the creation of societal value as they are not available in infinite amount. Emotional, aesthetic and ecological forms of value are included beyond financial. As the forms of value cannot be brought down without making any gross approximations therefore, they should be recognized as value categories of their own right.
7. Water is extracted at a sustainable rate and resource recovery is maximized : The value of water should always be maintained in a circular economy and also cycling it for using it indefinitely. In a circular economy,valuable resources is recovered from water whenever it is Freshwater usage should be minimized and maximum energy and nutrient should be recovered from freshwater.

The key benefits of circular economy are creation of jobs and new green industries, dependence of imported raw materials are reduced, environmental damage can be avoided and also less pollution enters the earth’s life systems (MacArthur 2013. Circular economy benefits business in many wayslike it provides more return and low risk to the benefits, develop new markets, price stability and security is increased in the supply chain. The circular economy can also create jobs when unemployment rate is higher. Circular economy has also reduced environmental pressures in Europe and also minimised the continents dependency on imports. The strategies of circular economy are also considered as cost savings which resulted in increase Of Competitiveness.

Philips Business Divisions

Role Of Circular Supply Chain

The circular economy works on a manufacturing model which is a closed loop. When raw materials are transited to the manufacturing centre and then transited to the distribution centre to consumer to trash products is defined as the circular supply chain. As the world’s resources are finite, therefore the modern supply chains wills to reverse the entire logistic process in order to become sustainable in future with only limited supply of resources (Winkler, 2011). Though the government plays an important role in pushing towards the circular supply chain , however the consumers are main driving force behind the circular supply chain. Therefore, a key role is played by supply management in the circular economy is to work with suppliers to eliminate waste and drive financial value.

Practical Perspective

In a circular economy effective use of materials helps to create more value by growing the existing markets or developing new markets by applying cost saving methods.A circular economy therefore can be defined as a driver of innovation in the areas of reuse of product and components.

Company’s Business Model

In this report, the way Philips is operating its business in terms of circular economy is being discussed. The circular economy has been the part of Philips daily business and it aims at improving the lives of around three billion people by the year 2025. Most of the new proposition of Philips supports the circular economy. As the company gets most of the energy from the renewable sources and maximum of the sales revenues comes from the green products, Philips therefore, was named Industry Leader in the Diversified Industrials category in the 2017 Dow Jones Sustainability Index for the third year in a row ( Ghisellini, Cialani and Ulgiati, 2016).. The new business models of Philips is moving from traditional transactional to long term performance based relationships with end users. Philips is also growing its renovated business systems in healthcare.

The Closed Loops of Philips Circular Economy

Philips aims to move from linear economy to the circular economy for the help of these four returning loops

• Service- by selling a service, maintenance and report agreements, upgradation of technologies to extend the life and make re use possible.
• Refurbish- major components of the existing products are been repaired.
• Harvesting -new products are created from the recovered components of the existing products.
• Recycle- valuable materials from waste are been recovered to be reused in the new products.

Some of the ways used to drive circular thinking in Philips are

One of the way is engaging and  informing with other employees of Philips to implement  circular economy principes in the organization.

The other way is Philips shared their vision of journey towards circular economy by connecting with other industry partners, NGOS and governments.

Philips’ Commitment to the Circular Economy

Lastly, developing a hero project and implement new business models to show what circular thinking can bring.

Examples Of How Philips Attempts To Implement Circular Economy:

HEALTHCARE: Royal Philips, headquartered in Netherlands has been a leading health technology all over the world which focuses on improving people’s health. Philips health technology is a leader in image guiding therapy, diagnostic imaging and health informatics. As the healthcare budgets are in huge pressure and also as all applications does not need new equipments, the healthcare facilities of Philips looking forward to extend their resources without comprising the quality ( MacArthur,  2013). Refurbished medical products by Philips are the very good examples of circular economy products. Over the last twenty years, these products have been growing significantly. Philips offer quality tested, upgraded and refurbished pre owned systems through its Refurbished Systems business units. One of the example of the Refurbished Systems business is Philips Diamond Select Program which offers refurbished products at a lower cost with full warranty, which has been a huge success for both Philips and customer.

LIGHTING: Ina world of declining natural resources and increasing energy demands, when linear economy is transited  to circular economy it is an essential measure to increase sustainability. Therefore, a circular economy effectively uses resources by “creating rather than wasting, using rather than owning and reusing rather than disposing.” New business models of Philips in this category includes Philips Circular Lighting which is economical as well as more efficient. Philips circular lighting design the lighting products in a fully sustainable way (MacArthur, 2013). Philips  maintains ownership of materials by shifting from “one time sale” to  “Light as a Service”. Therefore, Philips Circular lighting provides LED lighting which is energy efficient and which helps in reducing both up front  and operational costs. The lighting system can be upgraded and reused as all the materials or parts are retuned for recycling. RAU architects in collaboration with Philips developed a project known as “pay-per-lux”  In this way Philips, from the second hand market explore possibilities to capture new value from the used parts and with the like minded companies creates a platform for innovation.

CONSUMER LIFESTYLE: Royal Philips which is a diversified company dealing with technology aims on improving lives of people through innovation in the field of healthcare, lighting and consumer lifestyle. It is experimenting with performance based business models which are quite new in the field. Philips has been raising awareness about the circular economy. It has also started designing modular products which results in longer lifetimes and better use of repair. Philips designed SENSEO UP coffee machines for recycled plastics. Philips has been actively working on it since 2010. The new coffee machine which has a high recycled plastic content is a part of large scale initiative taken up by Philips to incorporate recycled plastics into product design. The designers of the SENSEO up also had to face a number of challenges.

Philips and the Circular Supply Chain

Source From The Business Article

The  famous American international business magazine Fortune, reports that Frans Van Houten, the CEO of Philips stated that Philips has transformed the one time electronics and lighting maker into a company of health care technology. The report also stated that Philips launched a five year sustainability program in 2016 so that by 2020  fifteen percent of the revenues from circular solutions can be generated. Van Houten also won the Fortune award  for Circular Economy Leadership in the World Economic Forum annual meeting . Refurbished medical equipment  OF around 7000 tons has been returned to the market by Philips and in place of that recycled plastics of around 6000tons are been  incorporated in the consumer products. Therefore the 126 year old Dutch firm is moving towards a more sustainable future.

Benefits Achieved

The SENSEO up coffee machine of Philips has a  number of environmental benefits . along with recycling of plastics it is also smaller in size and therefore takes less space. It has also reported to reduce energy consumption. It also reduces energy consumption as it immediately goes to off mode after the coffee is brewed. It is also quite cheap.  Philips circular lighting also proved to have economic and environmental benefits to the customers around the globe with the reduced consumption of energy with the use of LED. As LEDs have longer shelf life it reduces  maintenance and replacement cost. The products of Philips therefore seemed to provide social, environmental and economic benefits to its consumers.

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