The Future is “Made in Germany”

11.12.2024

Circular Economy:
A Guarantee for Sustainable Production and Business Success

"Made in Germany" – an outdated model? Foreign low-cost competitors are putting significant pressure on German industry. To counteract this downward trend and remain competitive globally, manufacturers should look to new business opportunities within the circular economy.

For decades, the “Made in Germany” label has provided companies with considerable advantages in international markets. German-made products were known for their high quality and durability, which often gave them a competitive edge over foreign counterparts despite higher prices.

In today’s fast-paced world, however, it’s precisely this durability that can be a disadvantage for German products. Household appliances, washing machines, or cars, for instance, are rarely used until they stop functioning. Consumers are partly responsible, but regulatory requirements for energy efficiency, safety, and fire protection also often demand early replacement.

This trend has far-reaching implications for German industry: if products no longer need to be highly durable, top-tier quality becomes less critical. To keep up with low-cost products from abroad, German companies would need to produce more affordably – which is hardly feasible under current conditions. Overbearing bureaucracy, high energy and labor costs, and the skilled labor shortage present almost insurmountable challenges for German industry. According to a recent ifo survey, nearly all sectors see their competitiveness at risk.

What are the Core Principles of a Circular Economy with Sustainable Production?

One opportunity to escape this downward spiral is to shift production towards a circular economy. Companies that manufacture sustainably and resource-efficiently can once again leverage the “Made in Germany” label and tap into new business potential.

A circular economy is a regenerative system aimed at maximizing resource efficiency while minimizing waste, emissions, and energy usage. To ensure long-lasting material and product life cycles, items should ideally be reused or recycled, with recycling as a secondary option.
In contrast, the traditional linear economy, often called a “throwaway economy,” involves discarding or incinerating a large portion of raw materials when a product is no longer used; only a small percentage is recycled.

Linear Economy vs. Circular Economy

What Are the Environmental, Economic, and Social Benefits of the Circular Economy?

The advantages of the circular economy can be illustrated using a simple example of a washing machine. In the past, a quality washing machine would last at least 20 years – often longer – functioning reliably. Today, these appliances are typically replaced within the first ten years, either due to costly repairs or because they no longer meet energy efficiency standards or lack state-of-the-art features. Thus, the product lifecycle often ends prematurely, even though most components remain functional.

Under a circular economy, the manufacturer no longer sells a washing machine but rather the function and benefit of washing clothes. The customer receives the appliance for a defined contract period, paying periodically for its use while the manufacturer ensures the appliance remains functional and up-to-date. If the machine breaks, becomes outdated, or if the customer wants an upgrade, the manufacturer retrieves or replaces it.
The returned washing machine is refurbished, with only necessary parts replaced or reconditioned, and is then made available for another customer.

A Circular Economy in Sustainable Production: The Washing Machine Example:

Circular Economy with Sustainable Production

According to circular economy principles, a washing machine isn’t disposed of but disassembled. Faulty parts are replaced, and technical components and features are updated, essentially creating a “new” washing machine.
While the total number of washing machines sold does not decrease, production itself becomes more sustainable as part of it now involves reconditioning. Thus, the circular economy significantly influences manufacturing processes and resource management within companies.

The circular economy offers immense benefits to all stakeholders – manufacturers, customers, and society. It saves costs and resources, reduces waste and emissions, and protects the environment and climate. Additionally, it supports local value creation, contributing to long-term job security. Companies that operate sustainably can build a positive image and appeal to environmentally conscious consumer segments. Customers benefit from improved product and service quality without a price increase, enjoying guaranteed access to a device that stays current throughout the contract period.

What Actions Are Necessary to Implement a Circular Economy in Production Processes?

The specific actions required to transition to a circular economy vary by company. Not all of a manufacturer’s products may be eligible for the switch. However, companies generally need to demonstrate resilience, innovation, and a clear strategy for reorienting their production and business models.

Moreover, modern IT solutions are essential to support and manage these new processes. For washing machines, IoT and AI solutions can facilitate production planning, control, and customer relationships, while analyzing the data generated. Subscription-based business models are another crucial component, enabling manufacturers to efficiently model, bill, and manage the recurring fees for washing machine usage.

How Can XEPTUM Support Your Company in Adopting Sustainable Production Processes?

Are you interested in transitioning from a linear to a sustainable production model? XEPTUM can comprehensively support you in strategically designing the necessary processes and IT solutions and seamlessly integrating them into your organization, business operations, and IT landscape.

Benefit from our extensive SAP process and technology expertise, as well as our in-depth knowledge of innovative trends like IoT and AI! We also provide expert guidance in the design, planning, and successful integration of suitable subscription billing solutions. We have in-depth experience with SAP-based subscription and usage-based business models and maintain a close collaboration with Zuora, a leading provider of subscription and monetization solutions.

Get in touch with us! Combined with modern IT solutions and processes, the circular economy can help maintain your competitiveness and ensure that “Made in Germany” remains a successful model for the future.

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