Circularity: Next-gen industrial sustainability explored

This is Talking Digital Industries, the podcast for technologies and trends that drive sustainable digital enterprises. I'm your host, Alex Chavez. Today, we'll dive into the concept of circularity. We'll be exploring its impact on industrial companies and how digitalization plays a pivotal role.

My guests for this very timely discussion are Erin Devola. She's the head of sustainability at Siemens Digital Industries. Welcome back to the show, Erin. It's good to have you here.

It's always good to be here with you, Alex. Also joining me is Katya Grimmett, industry analyst and strategy consultant for sustainability at IDC. Welcome, Katya. I'm really excited to have you with us.

Thank you very much. It's a pleasure to be here, Alex. I'd like to start by getting your individual viewpoints on circularity. And Katja, I'd like to begin with you.

But perhaps first, you could share a bit about your role at IDC and the work you do there. And then we'll go right into your perspective on what circularity means. Sure, Alex. Well, IDC, for those who may not know the company, we are a global IT industry analyst and advisory firm.

So that's a chunky word. IDC provides trusted market intelligence. We provide data. We also organize events for technology markets.

IDC has over 1,300 analysts worldwide, and our research covers 110 countries. We look at all kinds of technologies from hardware to software to services, but sustainability is also a key topic, and that really spans all of the technologies. And we look at sustainability in two ways. First, how sustainable are technology vendors and the solutions they are offering?

For example, how to operate sustainable data centers, how to develop software in an environmentally friendly way or how to conduct responsible AI. And the second way we look at sustainability is how digital technologies are being deployed for sustainability. For example, what technologies exist that support sustainable product design? Or how can digital technology support take-back programs or reverse logistics?

So it's really sustainability, the environmental, the social and the governance aspects that we do research on, obviously in the context of technology markets. So this is a little bit of a background on my work, and I'm absolutely passionate and excited that I can work in this role at IDC. On the circularity topic, which has been a real research focus for us, for me and the sustainability team at IDC over the past six to 12 months, we see that the circular economy is really a critical concept within sustainability.

because it addresses the root problem of our current model, which is take, make and waste. And which means that we are extracting finite resources from the environment. We're using them inefficiently by throwing them away after use. And it also means that we're generating enormous waste and emissions as a result of that.

In the business environment, circularity is clearly not new, but it's not really any longer a nice-to-have. But businesses are increasingly under pressure from different sides. And we can talk more about that, but I'll stop here for now. All right.

Thank you. Erin, how about the Siemens perspective? So I think when you talk about circularity, you need to really think about two things. You need to think about the right material models.

And that's what Katja was really referring to there is this material model where we extract material from the earth, we use it for a purpose, and then when we're done with it, which is often after a very short amount of time, we dispose of it. That material model needs to be rethought because we have a finite amount of material on this planet, and you can see all over signs of having entirely too much waste and entirely too few new resources for us to consume. Those sort of take, make, dispose models really need to be the models of our past and newer material models, which involve recollection, which involve reuse, and really involve longer lifetimes of the materials we're consuming.

Think about the plastic bottle versus your stainless steel or glass bottle. Look at the number of times you use that. Look at the amount of energy that goes into making and disposing of that. And that's where you see these seas of plastic in the ocean.

And that's really what we need to move away from with a circular material model. The other side of it is you also then need a circular economic or business model to support that So we need to look at instead of transacting when I buy or dispose of something how do we better extend the useful life of a product, but also make sure that we're recognizing the value that's in that product or the value that's in the use of that model the whole time. And what that really sounds like, and I'm sure to the listeners, that this sounds really complex.

And the truth is that it is really complex. And we need better tools to manage that complexity moving forward, both in a greenfield application when you're thinking about from the very beginning of how do I design something for this new material model and how do I set it up with this new business model, but also transitioning the products that we make today to last longer, to have more intention about the end of their life. and maybe think about servitization, maybe think about leasing models and things that could help us better monetize that residual value that's often left in a product at what some people would consider the end of its first life, thinking way more about that second and third life.

And so when I think about it from a Siemens perspective, we see resource efficiency and circularity as one of our key impact areas. And this is why we continue to drive digital tools that better manage all the complexity that comes with transitioning to a circular model moving forward. Katya and Aaron, you've both stressed the importance of these circularity practices being taken over by industrial organizations. But if you look at the map, not everybody has been doing this.

It's still in the beginning phases for many companies. Isn't that right, Katya? Yes, indeed, Alex. In fact, IDC conducted a survey amongst around 500 businesses across the EMEA region.

And we found that maturity for circularity is still somewhat limited. So 44% of EMEA companies still do not have a circularity strategy or integrated circular practices in place. And another 29%, so nearly 30%, do have a strategy and targets in place with some practices and core areas, but not necessarily really a very comprehensive and holistic strategy. Still, we have found that a majority of EMEA organizations do spend on circularity.

So part of their procurement or supply chain budget is spent on circularity initiatives. So there is activity there. And interestingly, one third of the companies we survey dedicate around one to 10 percent of their budget and another one third spend even more than 10 percent of their budget on circularity. So that's already kind of an interesting and promising finding.

And probably even more interesting is that companies will continue or even increase their investment in the coming year. So we asked them about their investment plans and nearly half plan to continue their investment as before. So like what I explained just now, and the other half will even increase their spend in 2026. And only very few, just a couple of percent, will actually decrease their investment.

So there's definitely potential. And that means that we will be seeing more and more initiatives. Erin, if you look at the business at Siemens, do you also see this increase happening and more interest for circular business models and practices? Yeah, and I'll call them the two R's right now.

I see it for two key drivers for this growing interest and demand. The first is around resilience. If I know where my material is, if the products I've made last longer, I'm no longer as dependent on my supply chains in the future as I have been in the past. This really helps in a world of continually changing geopolitics, of continue changing situations.

And so resilience is a big key here. The other key is regulation. We see, especially in China, for example, with extended producer responsibility coming also in the EU where Katja's research is done. And we see companies really preparing for a future where they're going to have to understand and know where their products are, and in many cases, take them back or give instructions about how to treat those at the end of life.

They're struggling a bit with where to start because, as Katya mentioned, is they need the systems and they need the models and they need the overall strategy. But what we're seeing is that because a circular material model is so complex, there's not usually one company that would be good at all of the things in that circle. And this is where partnerships and putting together your own little systems or ecosystems that extend beyond the boundaries of your company become infinitely more important.

The amount of collaboration you will need in the future to really get to a circular material model is just greater than any one company, even a Siemens, is going to take on on their own. You've just mentioned a very important term, Erin, ecosystems. I wondering Katya do you see any of this in your research that it not just one company that can solve these problems or can offer these solutions but several companies coming together Yes, absolutely. We see that in the business environment, circularity is, while it's not really new, but it is no longer a, well, a nice to have.

So there are a number of pressures from different sides and the current geopolitical situation, the supply chain disruptions, the macroeconomic environment with a lot of cost pressure, for example. And then there are other stakeholders that are exerting pressures, including investors, including the consumers who make more sustainable purchasing decisions and also public bodies like public authorities. So there are many pressures and that means circular business models are becoming more attractive.

They are helping with business outcomes and beyond operation savings, circular models can also unlock innovation and new revenue streams. For example, a market for refurbished or remanufactured assets, product as a service or servitization, as Erin has called it already, or pay-per-use business models. But especially for those innovative approaches, it is very important to work in an ecosystem, to work with the technology providers that have the technology knowledge and the data expertise, and also to work with different players within the industry so that it really covers the entire, the holistic value chain from the very beginning, from the materials over the design, the production, the use phase, and then the end of life phase.

of a product. So there are obviously many players involved and those need to come together. And as I understand it, one of the key tools in bringing people together and also probably for processing data is digitalization. It could be seen as an enabler, I'm thinking.

Yeah, absolutely. From our perspective, think of a material system, which is more complicated, has more people in it. I need to understand what those requirements are up front. And so one thing we always are trying to do with our digital tools is move those decisions, move those requirements early in the design process.

So as I'm imagining a new product, I want to imagine not just how do I make it and get it to my first user, but how do I recollect it? How do I monitor its performance? How do I refurbish it and get it to a second customer? And that could be something like, how do I need to package it so that it doesn't need additional packaging to come back to me?

How do I need to modularize it so that I can update it with new software so it can add new features so I don't need new hardware along the line? And all of those things need to get built in at the beginning, tested, simulated, and looked at in this digital world, which gives them then the ability to not have to make costly and resource-intensive decisions along the line by running through real tests, by running through scenarios, because the products that we're producing today, we hope will still be in circulation and use 20, 30 years from now.

So we need to build in capability for upgrades, capability for maintenance, capability for return. And all of that feels very complicated to our poor designer sitting in a chair, looking at their performance requirements, their manufacturing requirements, their cost requirements coming forward. And so this is where the complexity of AI tools, the ability of AI tools to manage that complexity can really help us quite a bit in our design suite. So we look at things like, how do I manage more and more requirements for the same piece of hardware?

How do I simulate different and expanding boundary conditions and scenarios for that same hardware? All of that is almost impossible to do in the real world. But if I first do it in the digital world, then I go over and take those design decisions, the multiple things I've looked at into the real world, I can do this in a much more intentional and streamlined way moving forward. And that's what we're talking about with this digital first approach, systems thinking, it really can help future proof a business and move it forward.

It also gives the ability to be faster and much more creative. If you're going into the real world first, you have to really take it down to one or two options to test out in the real world. In the digital world, the number of options I can test is really, really quite unlimited. We've been speaking about a lot of theory until now.

Erin, can you give us some examples from Siemens and its customers where we can see circularity and digitalization coming together? So I want to talk about two examples. One of them is a Greenfield, so a company that started with its circularity in mind from the beginning and what they really have done. And we've got a number of customers like this who are starting with Circularity in Mind, these small startups, and they're really important, I think, for our future to really start thinking about things super differently.

So the company I want to talk about is Hattie, and they partnered with Siemens to transform first the furniture industry, but really to think even broader about how robotic additive manufacturing can really help us reimagine what we're looking for from furniture but maybe even beyond that into any other type of goods that we might have in the future What we were able to do with them is create a digital workflow that automates tracks and optimizes the manufacturing of these custom-designed pieces of furniture.

And that allows them at Hattie to produce sustainable furniture at scale with the savings of between 50 and 75 percent of their raw material. Then at the end of life, we talked about these material models. Their goal is to get those pieces of furniture back when they've maybe are no longer fashionable or no longer wanted in that way, and then reuse them again, grind that material and repurpose them into either another piece of furniture or another good that someone can use. And they were able to do this with digital tools.

And again, starting with circularity in mind. And one of the things I hear around circularity is it's really great for the greenfields, but what about all of our installed base? I want to share with you another example, which is Polypack. This is a customer that does packaging and they have an existing factory that they're looking at.

They really wanted to do two things. They wanted to really use more circular materials from the beginning, but also optimize and be much more efficient with the amount of material that they're using. Here they implemented some advanced manufacturing engineering systems and APS systems and were able to increase their use of recycled material to 90%, both promoting circularity, but also minimizing the impact. And at the same time, they were able to keep that flexibility to adapt to those customer needs.

We talked a little bit earlier about how important resilience and flexibility continue to become. And this was really something they were able to achieve within an existing idea, within an existing product portfolio that they already had. So our time is almost up. I think we've gotten a good overview you of circularity.

We've heard about several examples, also business models. But before we go, I was wondering if the two of you could look into your crystal ball, make a prediction, what you think we might be seeing next as a new milestone on the horizon for circularity. Erin, would you like to begin? Sure.

I think from our perspective at Siemens, it becomes a bigger part of our DNA. We're putting circularity criteria as part of our sustainability criteria into our design process. We're testing business models that drive circularity like our sustainable repairs and spares. And I really think it just becomes more and more a part of our DNA.

I don't know if that's a big milestone or a evolution more than a revolution, but I definitely see that happening. I think some of those milestones are establishing, as I mentioned before, some of those first circular material models. I believe the business models can easily follow when you have the material model figured out. What about you, Katya?

Great question. Looking into the crystal ball is always my favorite. From a methodology point of view, I think collaboration and more and more collaboration also between industry peers and across industries and across technology players will become more and more important. So really the ecosystem play.

Now, from a technology point of view, we believe that AI will really be a game changer. The key to circularity, like we said before, is the ability to oversee the full lifecycle of goods and assets through lifecycle analysis, lifecycle data transparency solutions that capture and analyze the data across the end-to-end value chain and across all stages of circularity from design to end-of-life. And AI can actually help to enable this lifecycle view. There are initial applications being developed now.

They're kind of like point solutions and examples, but I believe and I'm sure there's much more to come. And as the business case for circularity gets clearer and the benefits are more visible, this will definitely boost the market even further. Just to add on to what Katia just said about ecosystems being so important and about AI being a key lever there. Siemens has recently partnered with Makersight to do AI-powered machine learning models for lifecycle analysis.

This is a key part of really understanding what a product's impacts will be on the environment across its lifetime. And this is one of those important steps for companies to get more transparency earlier in their design process. Sounds exciting. We have a lot to look forward to.

Perhaps we'll be able to meet in a year or so and see where we are and how far the business models have come. I'd like to thank both of you, Katya and Aaron, for your insights, for bringing me and our listeners up to date on circularity and also how that relates to digitalization. To our listeners, if you would like more information on what we spoke about today, go to siemens.com slash circularity.

Thank you for joining us today and stay tuned for our next episode Goodbye!