Globally, more automotive manufacturers are adopting a circular economy model, and more in Asia are following suit.
Article by Syed Suroor Anwar, Vice President, Strategy and Commercial, Asia Pacific, RS Components
A linear ‘take-make-dispose’ approach is a common model for businesses and manufacturers in Asia. The circular economy offers an alternative to this model, moving instead in a closed-loop system to create more value for the environment, for the business, and for customers. It involves moving away from relying solely on natural resources to channeling resources at the end of its product life back into production through innovation and better collaboration throughout the end-to-end value chain. This way, waste, and emissions are drastically reduced, and so is the impact of manufacturing and industrial activity on the environment.
How will the circular economy transform automotive manufacturing in Asia?
Sustainability is largely becoming a strategic priority for the automotive industry. On a global stage, research shows that many experts believe it is ahead of other industries in driving global sustainability and adopting sustainable practices. Globally, more automotive manufacturers are adopting a circular economy model, and more in Asia are following suit.
We’re already beginning to see manufacturers benefit from the shift in Asia. India, for example, is honing in on an end-of-chain approach, and has implemented a scrappage policy to push more manufacturers to maximise the lifespan of End-of-Life vehicle (ELV) components and resources. By recycling, reusing or recovering these components, more manufacturers can benefit from lower material costs, while reducing the impact on the environment. Implementing the policy will also provide consumers with more cost-friendly and sustainable vehicle options, which have become more popular over the last couple of months.
The circular economy can also help manufacturers increase productivity and innovate. It encourages collaboration across the value chain, from procurement and production to consumption and recycling. Automotive manufacturing supply chains, for one, are complex, with components and materials being sourced from multiple locations around the world. Ensuring responsible procurement can create stronger and more resilient supply chains. Likewise, leveraging circular economy in production lines can lead to lower energy consumption used to produce cars, and to cars being designed to be more environmentally friendly. All these, in turn, lower passenger carbon emissions.
As more customers gravitate towards environmentally friendly options, this will enable manufacturers in Asia to strengthen existing customer relationships and foster new ones, allowing them to compete on a global scale.
What processes and products should automotive manufacturers look to adopt in their shift towards a circular economy model?
Embracing innovation across the business, from the design to the maintenance phase, is crucial for manufacturers looking to make the shift. Circularity begins at the design stage. Automotive manufacturers should integrate sustainable design concepts with the help of tech such as artificial intelligence (AI) and machine learning. If vehicles are designed to be easily disassembled or more durable, for example, this can help reduce the overall environmental impact along the value chain.
Building resilient supply chains also enable not just innovation, but productivity and efficiency. Having ethical, diverse, and digital supply chain processes can steer businesses towards the right direction. There are various approaches to this. One way they can do so is by leveraging eProcurement solutions, which can greatly reduce waste. By having full visibility of requests and procured items, manufacturers will be able to experience fewer procurement errors, better control of the process, and alignment with the team. Manufacturers will also no longer have to make the journey to warehouses to procure items because the process is online. This will help reduce their carbon footprint and allow them to focus on other tasks at hand.
Strong supply chains can also mean reliable access to critical technologies. RS Components help their customers to leverage Industry 4.0 innovations for sustainable manufacturing. Manufacturers are encouraged to adopt the right technologies that would not only reduce their impact on the environment but would also ensure business efficiency and employee safety.
AI is one such example. Not only will it help manufacturers predict supply and demand, it can also help track their environmental impact across the chain. This data can be helpful for future investors and stakeholders, and can provide direction for future business decisions. 3D printing can also help manufacturers shorten the manufacturing processes and reduce energy and resources used. Instead of purchasing new machines to replace those that are defective, manufacturers can innovate and either integrate green tech into remanufactured equipment or rebuild and restore large assets.
What should automotive manufacturers avoid when making this shift?
Sustainability should not only be carried out on production floors, but should extend across the business and end-to-end value chain. Manufacturers must implement a culture focused on sustainability and collaboration, and should ensure that suppliers and partners are operating in line with their sustainability goals. By avoiding working in silos and actively seeking collaborative partners, manufacturers can reach new grounds in the space of innovation.
Additionally, shifting to a circular economy model is not a one-time deal. It requires long-term commitment and investments. Manufacturers must regularly monitor and manage their supply chains and operations to close the loop and reduce supply chain risks. When gaps arise, manufacturers must be ready to pivot and adopt new strategies to ensure that their supply chain is not only resilient, but also sustainable. When manufacturers are able to build strong and agile supply chains, they’re able to ease the shift and adopt changes that would last long-term.
How will moving towards a circular economy model affect supply chain management and allow automotive manufacturers in Asia to benefit from maximum revenue?
Having a strong supply chain is key to successfully leveraging a circular economy model for growth through innovation and more value creation. The strategies and technologies adopted within the model help manufacturers maintain smooth operations amidst disruptions and periods of uncertainty. Aside from ensuring sustainability, a strong supply chain allows manufacturers to steadily tackle unplanned maintenance, which often leads to downtime, waste, and lost revenue if not managed efficiently.
In the automotive manufacturing industry, sustainable strategies such as remanufacturing and extending the lifespan of a product can also open up new opportunities to drive alternative revenue streams. By reusing and repurposing raw materials that cost manufacturers around 40 percent of their budgets, they’re able to channel their revenue to investing in technologies that will help maintain operational and energy efficiency.
As more investors gravitate towards investing in companies with clear ESG (environmental, social, and governance) goals, manufacturers in Asia can expect the heightened value of the sector, should more manufacturers take on the circular economy model. In Indonesia, for example, GDP is projected to increase by US$45 billion by 2030 thanks to the adoption of the model. External investments into the sector’s growth can spur innovation, create more job opportunities within Asia, and lead to greater industry empowerment.
That said, investors are not the only ones prioritising ESG goals. More customers today are committed to reducing their impact on the environment, and would stand behind brands who align with their values. Moving towards a circular economy can help manufacturers in the region not only strengthen ties with existing customers, but also create new ones with environmentally conscious customers.
Ultimately, the benefits of the model go beyond the automotive manufacturing industry, and can influence a collective movement towards a sustainable society.
Featured photo created byzirconicusso.
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