In a study entitled “Resilient product design – circular product architectures for sustainable products and companies”, management consultants COALAXY and the University of Stuttgart have identified the key success factors for the success of circular product development. Digitization plays a key role here, which is still underestimated by most companies. In our article, we use four success factors to work out how to integrate digitization into a promising roadmap for resilient product development.

From Matthias Kreimeyer, Merlin Stölzle und Thilo Pfletschinger

The study is based on interviews with experts in product development or the circular economy from 35 companies in the manufacturing industry, including several DAX companies, as well as SMEs, mainly from the DACH region. Most companies underestimate the importance of digitization in connection with the circular economy. It is true that 15% of the study participants already use the IT perspective as a relevant circular product perspective. However, the transition to a circular economy requires the best possible coordination of information and material flows across the entire life cycle. Information on quantities and, above all, qualities of materials, components and products must be recorded and continuously updated. Updates to this information must be kept in the cycle so that all waste and product components become a reprocessable resource.

Value streams and success factors for circular product development

Companies that want to strategically prepare for the future opportunities of the circular economy should consider the five value streams of the circular economy. These so-called ‘R-value streams’ are defined as a bundle of success factors that deliver added value for companies and their customers (see Figure 1). From the perspective of the study participants, the R-value streams, together with the success factors assigned to them, represent the necessary ingredients for a successful entry into the circular economy.

Figure 1: R-value streams and success factors for circular product development

The REINFORM value stream takes into account the importance of digitization and data in the design of circular products as part of the five R-value streams. A key challenge here is to effectively generate, collect, process and make available again the wealth of information on the material composition of each individual product, its assembly and distribution, its usage patterns, its fate in the waste system, etc. This is necessary to establish functioning markets and cycles in the next step. All of this is necessary in order to establish functioning markets and cycles in the next step. Instead of relying on regulation, effective market-based solutions could emerge.

The reluctance of individual links in the supply chain to engage in cross-company and interoperable data exchange is also currently still a massive hurdle. According to the study “Data Sharing in Germany” by the German Economic Institute, 58% of companies in Germany do not participate in data sharing. Furthermore, only 21% of companies share data, of which just 14% do so at a high level of intensity.

The twin transformation of digitization and sustainability to be initiated in most companies offers the potential to accelerate the implementation of the circular economy. However, the digitization of the circular economy must not be an end in itself, but requires appropriate guard rails for actual contributions to climate, biodiversity and resource protection, so that digitization does not become a fire accelerator of ecological destruction or rebound effects occur, which at least partially neutralize or even overcompensate for the efficiency potential created by digitization. If digitization can be made sustainable, it can make a decisive contribution to the circular transformation of the economy.

The REINFORM value stream and its bundle of success factors

The Corporate Sustainability Reporting Directive (CSRD) is obliging more and more companies to collect a large amount of data that is currently not yet sufficiently accessible in a verifiable quality. Instead of using this data exclusively for annual ex-post reporting, the pioneers of the circular economy are recognizing the value of this data for the strategic orientation of the company and the development of sustainable, circular products. ‘Consistent verification’, ‘sustainable product intelligence’, ‘virtual mine’ and ‘convincing communication’ have emerged as success factors of the circular economy from the field of digitization.

Consistent verification: With ‘consistent verification’, companies disclose which and how performance indicators on resource use and the circular economy are used in product development and regular internal planning and control. The organization explains how suitable processes ensure the reliability, comparability and consistency of data for internal management and external communication. For ‘consistent verification’, it is important to ensure that every data transaction is stored with an audit trail so that all data entering or leaving a system can be checked. Ideally, a separate role and rights concept for auditors is provided for in the systems. The audit itself should be part of every data-related process and provide for auditability before data is frozen as a separate test step. A ‘consistent audit trail’ guarantees the organization audit security. In addition, the organization meets the requirements for the preparation and disclosure of CSRD information with a consistent audit trail.

Sustainable product intelligence: Along the value chain, a recyclable product comes into contact with a number of stakeholders who place legitimate demands on the product in terms of circularity, for example

• Regulators: e.g. local and legal framework conditions
• Consumers: e.g. ecological and social conditions for the manufacture of the product
• Repair companies: e.g. disassembly and spare parts information
• Disposers: e.g. environmentally friendly and resource-conserving recycling

Already 40% of the study participants are considering a change in the stakeholder landscape and the changing requirements in architecture development. In future, a digital product passport will bundle this information for all stakeholders in a central location. Monitoring the condition of the product over the entire product life cycle makes it possible, for example, to detect wear and tear at an early stage and thus extend the service life of the product through predictive maintenance and adaptive control in the various cycles depending on the condition. Digital product passports and circular analysis capabilities turn conventional products into ‘sustainably intelligent products’ and thus enable product life to be maximized.

Virtual mine: With a so-called ‘virtual mine’, manufacturers around the world are hoping to cover a large proportion of their own future demand for raw materials and materials with the highest possible return and collection rates for their products through recycling. Products equipped with sustainable intelligence are creating completely new raw materials markets as digital platforms for materials and components. The merging of supply and demand for waste and secondary materials can be revolutionized by internet-based solutions. In terms of a resilient, future-proof positioning, manufacturers are aiming in particular for guaranteed availability of the required materials and components as well as price stability. External dependencies, which can lead to supply bottlenecks, are to be reduced by these secondary material markets. Manufacturers who are already set up with product-as-a-service or leasing models can make the best possible use of the advantages of these models to set up a ‘virtual mine’, as the availability of the materials used can be precisely predicted.

Convincing communication: The legal requirements for the use of environmental claims are still unclear in many places. This gap can be used by companies to advertise with vague, unfounded or false climate promises. The Green Claims Directive is a directive that the European Union is currently launching. The aim is to create clear and transparent standards for the use of environmental claims for companies’ products and services. Claims can only be made if they are scientifically verifiable (Bundesverband Nachhaltige Wirtschaft e.V. FAQ Green Claims Directive| BNW (bnw-bundesverband.de) [06.05.2024]). The growing awareness in society for sustainability and the circular economy as well as the radicalization of individual activist groups require a serious dialogue with critics. For ‘convincing communication’ with critics and society, this dialog must be underpinned by circular product architectures and all associated data.

The REINFORM roadmap for increasing maturity

Companies that have recognized the potential of the circular economy and digitization for themselves should critically examine the identified R-value streams and success factors and adapt them to their respective use cases. The procedure should follow the “two steps ahead” principle. Here, companies proceed in two steps for each success factor in order to gradually approach their vision:

• Consistent verification
  • Step 1: From manual to tool-supported verification management
  • Step 2: From information overload to real transparency
• Sustainable product intelligence
  • Step 1: From purely physical products to cyber-physical systems
  • Step 2: From planned to adaptive cycle management
• Virtual mine
  • Step 1: From primary to secondary materials
  • Step 2: From supply bottlenecks to guaranteed availability
• Convincing communication
  • Step 1: From general to scientifically proven environmental claims
  • Step 2: From green claims to a stable sustainable image

Companies pursuing the transformation to a circular economy must also accompany this with a robust and secure IT structure and professional change management. Figure 2 shows how the step-by-step transformation can succeed using REINFORM as an example.

Figure 2: Roadmap for circular product development using the example of REINFORM

More information on the study “Resilient product Design. Circular product architectures for sustainable products and companies.” can be found at https://coalaxy.com/studienbericht-resiliente-produktentwicklung/.

Prof. Dr. Matthias Kreimeyer heads the Chair of Product Development and Design Engineering at the University of Stuttgart. He focuses on models, methods and tools for the planning and development of modern, complex and sustainable products and technical systems.

Merlin Stölzle (M.Sc.) is a research assistant at the Institute for Construction Technology and Technical Design (IKTD) at the University of Stuttgart and works on the circularity of product architectures.

Dr. Thilo Pfletschinger is managing partner of COALAXY, a consulting firm that focuses on strategy, innovation and mindset in the field of product sustainability. As an advisor and implementation partner, Thilo has been supporting transformations towards sustainability and the circular economy with a focus on product development and innovation for more than 20 years. For Thilo, the economic success of his clients while having a positive impact on the environment and society is at the center of his actions.