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Asset Management – An Enabler for Circular Economy

The circular economy is a shift towards 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 life cycles and finally create value chains that offer greater sustainability and regenerative outcomes compared to their competitors.

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

When the assets reach towards the end of its useful life, it is 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 towards 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.

Circular economy system diagram displaying several major mechanisms to close the life cycle of assets

A typical example of putting forth the case strongly

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

Now question raises, how to do it?

How to embed principles of circular economy as an intrinsic building block of asset management practices? Formal application of these principles challenges asset owners to adapt to current maintenance & 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 it 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 fledge RBI program to extend an asset’s life. Some asset owners are good at already good at it or moving towards this excellence journey.

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 threshold and transitions. Also, the new asset breakdown structure (with components and sub-components) helps retain information at a granular level.

  1. Next, taking a good feet high view, consider the asset life cycle 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 Investments (ROIs), and Internal and External stakeholder values.

Activities that can be considered in this area are – Adaptation of business models that work towards asset-as-a-service, development, and strengthening of strategic partnerships and links with relevant markets and sectors, redesigning of assets for life extension.

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

A sustainability strategy committed to reusing, repurposing or redeploying all surplus and waste to a demand-driven replenishment. 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 would be interested and more inclined to take data-driven decisions by embedding circularity into analytics “circulytics”.

I would close with some questions to give 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 which 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 assets in operations?

  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.

In conclusion, asset management has a crucial role to play in enabling the transition towards a circular economy. By embracing principles of sustainability and regeneration, asset-intensive organizations can maximize the lifespan 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.

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 investments, 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 analytics tools to evaluate the circularity performance of their asset management systems. By capturing and leveraging data, asset owners can identify untapped value-creation opportunities and overcome barriers to circularity.

In conclusion, 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.

If you have any queries or recommendations about the subject, please don't hesitate to leave a comment and inform me. Your input is highly valued and will aid me in deciding which topics to include in my upcoming blog series. Thank you for your support!

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Consulting Project Manager at AsInt Inc.
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