Asset Management An Enabler for a Circular Economy


A circular economy is a shift toward sustainability and regeneration. In the context of asset management, asset-intensive owners and organizations can make existing assets last longer by applying best design practices for products, spares and components that can be refurbished over multiple lifecycles and finally create value chains that offer greater sustainability and regenerative outcomes compared to their competitors.

There is a clear opportunity in the asset management discipline to be more widely recognized as one of the key enablers in significantly reducing the impacts of climate change and supply chain delays, and creating regeneration through the deployment of circular economy principles.

Asset owners can become champions of overarching asset sustainability by working toward regeneration and circularity as inherent design.

When assets reach the end of their useful life, they are often scrapped or recycled because this is the easiest, cheapest and quickest method of disposal. This has been observed as a key contradiction to sustainability goals. Asset owners can become champions of overarching asset sustainability by working toward regeneration and circularity as inherent design. To adhere to circular economy principles, asset owners must eliminate the notion of asset end of life. It’s the “ask of the hour” to shift from a linear economy challenge to new areas, like recycling, reducing, refurbishing, repurposing, remanufacturing, etc.

A typical example for putting forth a strong case

A critical compressor gearbox is demanding a replacement. The original equipment manufacturer (OEM) and other manufacturers can offer considerable discounts on replacement gearboxes if the damaged gearbox is returned in a reasonable condition. The primary benefit of this is the OEM can reuse its own parts with minor refurbishment at a reduced cost compared to procuring/manufacturing new assets. Secondary benefits include ownership of any data generated during operations and an increased understanding of asset performance, which allows for more effective design iterations. This also will promote asset owners’ behaviors for better asset stewardship if some returned condition is built in as an asset-as-a-service model or contract.

Now the question is, how to do it?

How can asset owners embed circular economy principles as an intrinsic building block of asset management practices? A formal application of these principles challenges asset owners to adapt to current maintenance and inspection methodologies. This becomes an entry point to develop asset management practices, strategies and methodologies to maximize the asset value and what additional tools and processes are required to enable this. With assets at the core, asset owners can understand how to start creating and getting value within their asset management system with these boundary layers:

  1. First, start locally by utilizing principles to optimize assets already in everyday operation. Example: An effective way to minimize the environmental, health and safety impact of assets may be to implement a full-fledged risk-based inspection (RBI) program to extend an asset’s life. Some asset owners are already good at it or moving toward this excellence journey.
Good asset management considers different areas of asset criticality and risk, like how much additional risk is acceptable and what are the thresholds and transitions.

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. Today, asset owners no longer run the asset to its end of life. Instead, they determine how asset life can be extended. Good asset management considers different areas of asset criticality and risk, like how much additional risk is acceptable and what are the thresholds and transitions. This new asset breakdown structure (with components and subcomponents) helps retain information at a granular level.

  1. Next, consider the asset lifecycle boundary more widely, where interventions can be based on how the assets are initially designed or renewed. This considers wider asset owner objectives, such as total cost of ownership (TCO), return on investment (ROI), and internal and external stakeholder values.

Activities to consider in this area are adaptation of business models that work toward asset-as-a-service, development and strengthening of strategic partnerships and links with relevant markets and sectors, and the redesigning of assets for life extension.

  1. Finally, from a bird’s eye view, consider the overarching practices that influence how assets are used and their value to not just the asset owner’s organization, but its networks, regulators and customers.

A sustainability strategy should be committed to reusing, repurposing, or redeploying all surplus and waste to a demand-driven replenishment. In doing so, asset managers will take circularity into conscious consideration for replacement vs. repair strategy. Procurement decisions will be partly driven by circularity and not price alone. Leadership and C-suite will be interested and more inclined to take data-driven decisions by circularity into analytics “circulytics.”

Questions to give you a kick start to think and move in the right direction

  1. Where are you in your circularity journey?
  2. What does your circular economy asset management system look like?
  3. What value from the circular economy are you already creating that is currently going unnoticed and needs to be captured?
  4. What are the opportunities and barriers to creating more value from the circular economy for your operations assets?
  5. What is unique to your organization and the assets you are managing?

By addressing these questions and embracing circular economy principles, asset owners can unlock the full potential of asset management, significantly contribute to sustainability goals, and gain a competitive edge in the market.

Conclusion

Asset management has a crucial role to play in enabling the transition toward a circular economy. By embracing principles of sustainability and regeneration, asset-intensive organizations can maximize the life span of their assets, reduce environmental impacts, and create value chains that outperform their competitors. This shift requires a fundamental change in mindset, moving away from the traditional linear approach of asset disposal and embracing practices, such as recycling, refurbishment and repurposing.

By taking a holistic approach to asset management, organizations can achieve better returns on investment, reduce waste generation, and align their practices with the principles of the circular economy.

Through strategic asset management practices, organizations can extend the life of their current assets, minimizing the need for new acquisitions. This includes implementing risk-based inspection programs, optimizing asset criticality and risk assessments, and maintaining detailed asset breakdown structures. By doing so, asset owners can unlock the full value potential of their existing assets while also reducing costs and enhancing sustainability.

Furthermore, a broader perspective on asset management involves considering the entire lifecycle of assets. This encompasses designing assets for life extension, developing asset-as-a-service models, and fostering strategic partnerships with relevant markets and sectors. By taking a holistic approach to asset management, organizations can achieve better returns on investment, reduce waste generation, and align their practices with the principles of the circular economy.

Leadership and data-driven decision-making are critical in this journey toward circularity. Procurement decisions should consider circularity alongside price, and organizations should adopt analytic tools to evaluate the circularity performance of their asset management system. By capturing and leveraging data, asset owners can identify untapped, value-creation opportunities and overcome barriers to circularity.

Embedding circular economy principles into asset management practices is not only an environmental imperative, but also a strategic advantage. Organizations that proactively embrace circularity and make it an intrinsic part of their asset management approach will position themselves as leaders in sustainability, enhance their reputation, and create long-term value. By actively considering the questions posed and reflecting on their circularity journey, asset owners can drive positive change, contribute to a more sustainable future, and realize the full potential of their assets within a circular economy framework.