Effect of circular system on primary material demand in widget market Volume of annual material input required. Demand BAU

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5 Effect of circular system on primary material demand in widget market Volume of annual material input required Demand BAU ILLUSTRATIVE Virgin material substituted by circular material Demand under circularity Effect of circular system on material stock and landfills Cumulative volume of material used In use BAU material stock BAU landfilled Material stock under circularity Landfill under circularity SOURCE: Ellen MacArthur Foundation circular economy team 4

6 End-of-life product flows based on 2010 EU figures Percentage of total end-of-life devices Status quo Transition scenario 1 ESTIMATES Mining Mining Parts manufacturer Parts manufacturer Product manufacturer 9 Recycle Product manufacturer 10 Recycle Service provider 0 Remanufacture 2 Service provider 21 Remanufacture 2 6 Reuse 19 Reuse 85 Unaccounted and landfill 15 Maintenance Collection Unaccounted and landfill Maintenance Collection 1 Transition scenario: conservative assumptions on improvements in circular design and the reverse cycle, within today's technical boundaries 2 Remanufacturing, here refers to the reuse of certain components and the recycling of residual materials SOURCE: Gartner; EPA; Eurostat; UNEP; Ellen MacArthur Foundation circular economy team 5

7 Biological materials Mining/materials manufacturing Technical materials Farming/ collection 1 Parts manufacturer Restoration Biochemical feedstock Product manufacturer Biogas Cascades Service provider Recycle Refurbish/ remanufacture Reuse/redistribute Maintenance Anaerobic digestion/ composting 2 Collection Collection Extraction of biochemical feedstock 2 For fast moving consumer goods: cost savings potential of $700 bn p.a. globally Energy recovery Landfill Leakage to be minimized For medium-lived complex goods: cost savings of up to $630 bn in Europe 1 Hunting and fishing 2 Can take both postharvest and postconsumer waste as an input Source: EMF circular economy team drawing from Braungart & McDonough and Cradle to Cradle (C2C) 6

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9 SOURCE: Ellen MacArthur Foundation circular economy team 8

10 Definitions of business models and their essence fundamental structures for how companies create, deliver and capture value. A. Osterwalder and Y.Pigneur, Business Model Generation, 2010 The bundle of specific activities conducted to satisfy the perceived needs of the market, along with the specification of which parties conduct which activities, and how these activities are linked to each other. R. Amit and C. Zott, MIT Sloan Management Review How to create value? How to capture value? How to distribute value? SOURCE: Returnity Partners 9

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12 UK 39.2 million corporate wear garments consumed each year (around 16,290 tonnes) 90% are sent to landfill or for incineration. Many before end of economic or technical life The majority workwear is difficult to recycle through traditional routes Potential for reuse is limited by aesthetic and practical considerations. Corporate wear is often branded or taxtagged which is difficult to remove Associated security sensitivities to consider The business potential for a circular model is significant: the public sector in the UK procures GBP 900 million clothing per year, GBP 410 million of this is work wear 11

13 SOURCE: Returnity Partners 12

14 Linear value chain Product import Branding Distribution Storage Where and how is value created in this value chain? Where and how is waste potentially created? Where and for whom do you think there is an opportunity to turn waste into value? Is there anything missing from this value chain? Use End of use SOURCE: Returnity Partners 13

15 Linear value chain Current waste and pain points (selected examples) Product import Cotton-based product very resource intensive Branding Branding is fixed permanently onto shirts Distribution Customers overstock shirts as demand is hard to predict and very seasonal Storage Use Users use shirts for only a short period of time (e.g. campaigns) or special purposes (e.g. during service) End of use Shirts cannot be sold into secondary market (e.g. security, staff functions) Classic clothing recycling difficult due to mixed-bag problem SOURCE: Returnity Partners 14

16 How might you address one of the key challenges in the current linear product design - the T-shirt branding issue? Think about some of the T-shirts that you own how are they branded or personalised - printed, stitched, embroidered? What technical or design solutions could you envisage that would permit branding but also ability to de-brand? SOURCE: Returnity Partners 15

17 The heart of the circular business model: prerequisites for capturing the value opportunity profitably What do you think are the prerequisites for a circular product-service business model to work effectively? (think costs, practicalities, what needs to happen) What are the most significant issues and questions that the procurement team and retailer are likely to raise with you which will affect the ability to create a successful new circular business model? SOURCE: Returnity Partners 16

18 Sales Price 5.50 Cost at dock 2.90 Printing and branding GBP 1 Profit for FAIRCO per 1.20 Profit SOURCE: Returnity Partners 17

19 Circular value chain Design Product import (Re-) Branding Rebranded Storage Debranding Non-Branded More durable shirt (improved quality, better seams) Mono color basic shirt (few basic designs, non-toxic colors) Stitch-on patches (defined materials) Distribution Secondary Market Use Use Reverse network Collection services Washing services De-branding services Re-distribution services Closed loop recycling services End of use Collection & washing Recycling End of use Enablers De-branding technology Inventory forecasting and tracking Online-booking platform SOURCE: Returnity Partners 18

20 Impact indexed to base case Cornerstones of business model Profit contribution / shirt 2.5 MODIFIED CLIENT RESULT Company % Shirts / wear cycle Resource productivity % 0.4 Discount: 50-75% Recapture rates: 50-75% Recycling rates: 25% # loops: up to 3 loops Product Service Offering User Cost / wear cycle % SOURCE: Returnity Partners Linear Case Circular Case 19

21 Indirect benefits Direct benefits Building blocks packaged into product-service-offering Business Model Reverse Network Design Enablers Service provider Profitable growth business Locked-in customer base Upselling opportunity for more services businesses (e.g. washing) User Lower priced, but better quality shirt Avoided inventory costs and write-offs Improved control over circulation of shirts Contribution to sustainability goal Societal benefits Improved resource productivity Reduced emissions More local jobs Reduced landfill Fair Trade Cotton Growers SOURCE: Returnity Partners 20

22 Is the case study proposed business model consistent with the core ideas of a circular economy? What is missing? Is redistributed manufacturing a better model for the production of work wear T-shirts? Who is likely to gain from the new business model proposal and how? Who is likely to lose out and how? Does this matter and if it does what do we do? 21

23 The role of the firm in creating not just products and services - plus profits, wages, rent and interest - but also food for the system Follow the money - does any model circulate rather than just capture and extract value? Does the activity regenerate, add to or at least preserve natural capital stocks? What are the system requirements (policy, regulation, reform of finance) to allow the flourishing of circular business model activity? SOURCE: Returnity Partners 22