Traditional asset management practices generally follow a linear take-make-waste philosophy, where resources are taken as raw materials and made into new assets. Those assets are then utilised to maximize their performance and then disposed of, making them waste. This cycle is then repeated to fulfill the business need using new assets.
To reduce the impacts of climate change, organisations (and subsequently, asset managers) are focused on understanding their assets’ carbon emissions (and, increasingly, environmental impact). By looking to the future, they aim to measure and reduce these overall limits, to meet net-zero targets and commitments. However, when applied to the traditional take-make-waste business model, these objectives can often contradict, prioritising the generation and consumption of new assets when practiced alongside relatively novel sustainability goals.
Meeting net-zero targets should not be constrained by a purely sustainability or environmental view but must also include economic opportunities driven by innovation. This view should also be enacted beyond the asset’s operational life to consider its prospective impact across elements such as the asset’s production, supply chain, and disposal.
The future challenge for asset managers will be, given the organisation’s transition towards a circular economy, what can we already capture that we are doing now in our asset management systems that is going to add value, and how can we exploit asset management further given the organisation’s revised strategy and purpose?
DEVELOPING CIRCULAR ECONOMY SYSTEMS THINKING
If we initially view a traditional take-make-waste model, the asset life cycle is very much a linear process. In many respects, whole life cost only considers the cost of replacement, not the wider impact that that replacement has on externalities.
That said, it is likely that asset managers utilising this model already include some form of activities related to the circular economy. We already carry out work to determine how we can extend the life of assets far beyond their design life where organisations have already taken the move to incorporate aspects of the circular economy within their operating model. So why don’t we design assets with that expectation in mind? The question then becomes: how do you expand your boundary to further increase asset and resource utilisation (and performance), and what tools and processes do you subsequently develop to enable this?
The vision is an asset management system that is restorative and regenerative by design and aims to keep products, components and materials near their highest utility and value at all times. The asset life cycle is a continuous positive development cycle that preserves and enhances natural capital, optimises resource yields, and minimises system risks by managing finite stocks and renewable flows, such as in a closed-loop asset management system (pictured).
A framework based on the circular economy promotes the exploration of different services or business models. It can bring groups of organisations together to support each other in symbiosis. This enables the concept of circular economy syndicates, a strategic network of organisations or value chains that collaborate to optimise value from the circular economy. However, this reflects the challenge of defining where the asset system resource boundary is and who has responsibility for it.
Hence, what are the different entry points to developing an asset management system based on the circular economy, and what respective tools and processes can help feed into each of these points of the system?
CREATING VALUE
operationsengineer.org.uk/article-images/image-library/65/figure_3_957cd422.jpg" class="img-responsive">Pictured above is an illustration of three entry points as an example for asset managers to understand where to start creating value for the circular economy within their asset management systems. Starting with the assets at the centre, the first viewpoint is the here and now, where we can positively affect assets that already exist and are in everyday operation. In general, an effective way of minimising the environmental impact of assets may be to extend the asset’s life. Asset managers are already good at this.
Next, considering the asset life cycle boundary more widely, we have the before and after, where we can intervene on how the assets are initially designed or renewed.
Finally, the widest boundary to consider are the overarching practices, which influence how assets are used and the value (for example, the externalities) that the assets enable.Value management needs to be applied, but its application should extend beyond the asset and the asset creation project. It’s what externalities the asset enables that matter. They must be tied back to the organisation’s purpose and the value that organisations create. Asset managers need to work continuously at all three entry points, discussed below.
HERE AND NOW
For those making a start in the circular economy, one of the most effective interventions is either to extend the life of current assets or develop alternative practices that make the need for new assets redundant. Within an asset management context, the asset management system is no longer running the asset down toward the end of its life. Instead, it determines in more detail using a circular economy lens how asset life could be extended, considering options beyond those currently considered. Good asset management already considers this by considering, for example:
1.Different areas (beyond those already being considered) of asset criticality (that is, how much additional risk are you willing to accept on your asset’s condition) to prolong the asset’s useful operation
2.New asset breakdown structures (that is, components and sub-components) to enable the retention of parts that have a longer life than the whole asset system or sub-system.
Activities asset managers can undertake in this area can include:
Developing tools and processes that extend the life of assets already owned (for example, component replacements that ensure longer life and less maintenance)Developing tools and processes that enable a greater understanding of the asset’s condition (such as through utilising the Internet of Things (IoT) or digital twins to enable condition-based monitoring (CBM))Evaluating the risks and opportunities of the status quo against any interventions, including the potential added value that can be created (such as multiple lifecycle costs and the inherent benefit of carbon reductions).BEFORE AND AFTER
The circular economy provides an opportunity to fundamentally challenge traditional business models through a drive to design assets that can extend their useful life, develop components that can be reused and remanufactured, and utilise new materials that can then later be reclaimed, all while facilitating new business models that promote the continued development of the circular economy. For example, in the assets-as-a-service business model organisations lease their assets to operators which are then returned at their end of life. In this case, the asset is worth more to the manufacturer because the manufacturer will have already planned its remanufacture or will upgrade to the next generation of the asset.
Although technically everything can be shared, repaired, reused, or recycled, there are constraints in how the circular economy can create value from asset management systems (for example, intellectual property protection blocking reuse designs from becoming widely adopted, or legislative barriers preventing the life extension of certain assets due to increased risk). This is where and how the value of deploying systems thinking (which is central to good asset management practice) counts – by allowing asset managers to adopt and develop a circular economy that enables the design and management of closed-loop asset management systems for their specific assets, taking into consideration the different barriers to widespread deployment.
Potential activities include:
The adaptation of business models that work towards assets as-a-service
The development and strengthening of strategic partnerships and links with relevant markets and sectors that enable secondary re-use or other circular economy activitiesModelling multiple life cycle costs of an asset that utilises circular economy activities (for example, remanufactured parts vs. new)New commercial frameworks that establish circular economy syndicates involving the client and a network of circular economy actors and stakeholders working within the supply chainRedesign of assets so that they are:-Designed for life extension interventions (that is, designed for repair)
-Designed for remanufacturing
-Designed for reuse
-Considering innovative materials which enable all the above.
OVERARCHING PRACTICES
As organisations move away from the take-make-waste way of working and move toward being part of (and supporting) closed-loop asset management systems, demands for new types of business and opportunities that specifically enable the circular economy will increase. These changes will be used to transition an organisation (or network of organisations) from current working practices to necessary future working practices adopting potentially new business models. Some of these may be temporary, replaced, or phased out by new ways of working as part of the organisation’s future position on the circular economy. This is where systems thinking is beneficial.
For example, in the manufacturing sector, there is the opportunity for asset managers to develop in-house refurbishment and reconditioning centres, support the growth of local small to medium-sized enterprises (SMEs), or new technologies and industries that specialise in assured asset systems upgrades. This can have the knock-on effect of creating employment by redeveloping the skills and capabilities that were previously lost – therefore supporting wider societal benefits.
It is also worth reflecting that changing climate, regional instabilities due to conflict and other factors may affect future global supply chain security, including materials and resource availability. Hence, supply chain volatility can be mitigated by returning the production and manufacture of goods to companies’ in-house manufacturing sites or perhaps delivered through trusted local suppliers.
There may also be drivers to increase value from the circular economy by external stakeholders. For example, there may be demands for evidence of circular economy credentials in the future. In some sectors, there is already a move towards this, with evidence in emerging policy, strategy, and future demands. Furthermore, the ‘circularity’ of an organisation’s value proposition may be considered and compared against others. Contracts may no longer be awarded on up-front price alone. New, non-monetised values that address the changing priorities of individuals, communities, industries, and regional and local governments that want to be part of the circular economy future will have to be identified. Hence, it may soon become important to measure how developed your circular economy system is compared to your competitor.
This article is an edited extract from the Institute of Asset Management white paper ‘How Asset Management Can Enable the Circular Economy’, and is published with permission. The original paper is available for free download via www.is.gd/ibekur