Five critical areas to consider when designing a winning business model for recycling in the construction industry

The market demands and regulations are increasing the need for circular services. The EU green deal enforces regulation and incentives to speed up the transition to a circular economy to uphold global goals of reducing climate impact, material extraction and biodiversity loss. Meanwhile, industry sectors see value in applying circular principles, such as recycling, to provide more sustainable products and/or services and meet the growing demand from the market.

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Circular business models and services have been around for some time, predominantly for consumer goods. However, there are many challenges to overcome when designing an effective and efficient recycling model as its complexity stretches far beyond merely transporting materials to a factory.

To ensure a successful recycling business model implementation, it is crucial to consider the following:

1. How can recycling and reuse principles be incorporated into product design more effectively?

To enable an efficient and effective recycling process for a product, a fundamental change in the composition and design of the product is often required. A well-designed product incorporates circular economy principles and is both durable and easy to reuse and recycle. The re-design of a product needs to include a total cost assessment of the product's complete life span, comparing the costs of replacing and returning products as well as considering the reduction of procuring new materials. Start by assessing the following:

How can the design enable and simplify the recycling process?
What material can you include (or exclude) to avoid logistical challenges due to classification of products (waste)?
Can modular design principles simplify reuse or recycling?

The topic of design should be one of the top actions to address as it may have considerable effects on logistics and waste handling.

2. Is it better to start your own recycling service or partner with an existing one?

A “take-back program” is an initiative organized by a manufacturer or retailer to collect used products or materials and reintroduce them to the original processing and manufacturing cycle once they’ve reached the end of their lifespan.

There are several benefits of investing in a take-back system, for example, lower production costs as the material is recycled rather than purchased new, improved customer relationships, simplified reverse logistics, and a significant positive environmental impact.

Establishing a take-back system requires a substantial investment, both in infrastructure and the organisation which may indicate a financial risk. A company can implement a take-back system independently, or in collaboration with competitors handling the same or similar products. Independent take-back system may prove beneficial as it adds a potential competitive advantage. On the other hand, partnering with others leverages scale, cuts costs and lowers risks.

Consider the following:

What does the competitive landscape look like, are there any government initiatives to establish a national take-back system?
What are the current and prospective risks associated with implementing an independent versus partnership-based take-back system?

These questions may require a thorough situation analysis and assessment.

3. How can material transports be optimized?

Construction material is generally heavy with high density, making transportation a major part of the tangible cost of the service. It is therefore vital to optimize the range for which the service is financially viable. One solution to this problem would be sorting the waste on-site, limiting the number of materials mixed together and ensuring a full utilization of the load of the truck. This type of sorting ensures the quality of the waste before the material is transported to the factory gates.

Consider the following:

What are the main cost drivers in handling and transporting the waste?
What principles should guide the design of the take-back logistics to ensure a cost-efficient service?
What modes of transportation are most cost efficient?

In general, the key to cost efficient logistics is to optimize the weight of the transport (i.e., fully loaded trucks) and to sort waste at, or close to the source to harmonize the quality criteria of the waste transported to the factory.

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4. How to benefit from digitalization to optimize user experience and operations?

Leveraging the benefits of digitalization can enable cost reduction and improve customer experience. Therefore, digitalizing the marketing and sales cycle of a recycling service may effectively improve revenue. Customers may be required to procure a wide range of services, and all efforts to simplify or streamline the procurement process will be favorable when selecting suppliers. Digitalization can also support operations by optimizing waste collection and logistics as well as provide data for good governance of the take-back system.

Gathering and analysing data from construction projects can help companies pinpoint potential risks and challenges. When digitalizing a recycling service, it is important to consider the process from an end-to-end perspective i.e., an IT system that generates and collects data from the initial sale to the collection and delivery of recycled waste, thereby enabling production planning as well as following up with continuous quality controls. Enabling a cost-efficient digital service with standardized terms and conditions and a harmonised interface with external partners is key. Start by asking yourself the following questions:

How can digitalization enable sales and reduce cost of operations?
Are processes and interfaces with partners standardized to enable a cost-efficient design and implementation process of digital tools?
How can you design a digital support to meet current and future requirements?
How can AI be utilized?

Technology is seldom the sole answer of a problem; however, it can be a key contributing factor in gaining a competitive advantage. This will require a degree of harmonization of operations, governance, and interface between internal and external stakeholders.

5. How can you leverage your partner's capability in logistics and waste handling?

Suppliers in the construction industry are good at producing and marketing products, while transportation and waste handling procedures receive less attentiveness. Thus, product suppliers should leverage partners in logistics and waste management to manage transportation, sorting, handling and quality control of the waste material from the collection site to the gate at the end destination. There are multiple ways to partner with logistical companies e.g., 3PL, 4PL etc. The market conditions and infrastructure of the service will partly inform what type of partnership is most suitable for the recycling service. Ask yourself the following:

What role and capability should be sourced by external partners?
How many partners are required to secure the take-back system across different markets?
Can we set common conditions and terms with partners to enable a more efficient operation?

The capability and quality of external partners will have a large impact on the recycling service; thus, it may be sound to have multiple partners across markets to address any weak links in the supply chain.

Apply a market driven and phased implementation approach

Both trends and demand differ across markets; some have legislation in place and prevalent customer requirements for circularity, whilst others are just starting to consider their sustainability criteria. It is important to understand what market segments are interested in recycling services, and where the market potential lies. It is equally important to understand and be aware of upcoming legislation that may impact criteria or landfills costs, which in turn will impact the market demand for circular solutions.

Thus, it may be applicable to apply a phased implementation approach where markets are free to establish the service subject to market demand, potential and conditions, but where given principles of the recycling model must be applied. This approach would provide a quicker ROI, simplify buy-in, and ensure that a common model of the recycling service is applied. How do you leverage digitalization to optimize user experience and operations?

Dealing with indifference in the recycling business model

While the transition to circular business services in the construction industry is fundamental, as with any major change, there are risks and challenges to consider:

The need to coordinate sales, production, procurement, and logistics
Alignment, successfully setting common goals and KPIs to enable circularity
Being a change-maker, gaining management trust and employee support
Market and sell high-end services (i.e., value based selling approach) which is different to sales focusing on price, availability, and delivery criteria.

A successful transformation to a business model for recycling is complex, with several risks and challenges in the change process. Ensuring a streamlined approach when implementing a recycling business model will require a new governance as well as joint objectives to ensure proactive collaboration across functions as well as with external partners.

The best way to go about this change is to see it as a business transformation program where different initiatives make up a holistic business model. Starting out with management support and a solid business case is important.

Ramboll has a substantial track record of, and much experience in, supporting companies in their circular transition – learn about how we helped a global supplier in the construction industry with the ambition to gain a commercial advantage with a sustainable service offering.

How can we support you?

We provide integrated solutions and guidance to our clients to enable them to navigate the oftentimes complex circular transition. Pivoting towards a circular economy requires technical and commercial insight across multiple sectors. At Ramboll Management Consulting, our circular proposition draws upon 18,000 technical experts and colleagues from seven global divisions in over 35 countries to drive circular innovation - through and across value chains.

Our multi-sector expertise provides us with the necessary vision and skillset to guide our clients on a successful transition to a circular economy - from strategy to integration, business planning to business model innovation.

💻 Thu, Oct 19, 2023 10:00 AM - 11:00 AM CEST Sign up to our expert-led webinar: How to design and implement a profitable recycling service, with an opportunity to learn from ROCKWOOL Group, the world #1 sustainable construction company according to Corporate Knights Global 100 sustainability index in 2022. https://lnkd.in/ddMkWPeF

Get in touch

Peter Önnby
Local Industry Lead, Industry & Manufacturing
+46 76 767 10 82