Circular Economy: Characteristics, Drivers and Application on Johnson Controls

This report discusses the concept of circular economy, its characteristics and major drivers. It analyzes both theoretical and practical concepts of the circular economy framework. The report applies the concept of circular economy on Johnson Controls and discusses the environmental, social and economic benefits of using this model into company’s operations. Subject: Managing Operations and Supply Chain

Running Head: CIRCULAR ECONOMY 1
Managing Operations and Supply Chain

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Introduction
In a circular economy, economic activities build and rebuild overall system of the company. This
concept identifies the significance of the economy requiring working effectively at all the scales
for small and large businesses, for companies and individuals locally and internationally.
Circular economic model is categorized as an economy that is regenerative by design with the
objective to retain as much value as possible of the materials, parts and products (Ballou, 2007).
The major objective of this report is to discuss about the concept of circular economy, its
characteristics and major drivers. The report analyzes both theoretical and practical concepts of
the circular economy framework. Theoretical aspect includes the concepts and characteristics of
this model. In the next section, the concept of circular economy is applied on the chosen
organization i.e. Johnson Controls. Furthermore, there is the discussion regarding the
environmental, social and economic benefits of using this model into company’s operations.
Organizational Background
Johnson Controls is a multinational corporation that is headquartered in Cork, Ireland and
manufactures automotive components like electronics, batteries and HVAC stools for the
buildings. It is an international diversified technology and multi-industrial leader. The company
is serving variety of customers in over 150 nations. Currently, Johnson Controls employs
approximately 170,000 employees in over 1300 places across six continents. As of the year
2016, the organization was listed as 242nd rank in Fortune Global 500. Firstly, it was
headquartered in Wisconsin, United States. In 2017, it was shifted outside US so now it is not
eligible for Fortune 500 (Johnson Controls, 2018). By using effective growth strategies, the
company is able to increase its market share and deliver the value to its stakeholders and making
the customers more satisfied. The major customer segment of Johnson Controls includes car
nuts, automotive enthusiasts, gear heads, upper and middle class people etc. Johnson Controls is
one of the organizations that has adopted circular economy model to support the environment
and society.
Theoretical Perspective
In order to understand any particular concept, it is essential to recognize its theoretical aspect. It
is an important part of the methods which can be implemented to manage the situations in firm’s

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internal and external environment. It covers different assumptions and opinions about a single
concept. The conceptual perspective of circular economy and its different aspects are discussed
below:
Concepts and Characteristics
Nowadays, organizations are developing different ways to constantly reintroduce and re-gain
these assets to market instead of disposing them after one product cycle. Considering this
requirement of business and environment, companies are implementing the concept of circular
economy in their business operations. Circular economy is the concept that is regenerative and
restorative by design. Basically, this concept is about the maximization of value circulation, not
just the elimination of waste generation (Geissdoerfer, et al, 2017). It is a development cycle
which safeguards and improves the natural resources, maximizes the resource revenues and
reduces the risks by managing the stocks and renewable flows. This concept goes beyond the
waste elimination and reduction to promote the social, organizational and technological
innovation across the value chains.
The circular economic model is completely opposite of traditional business model i.e. linear
model that works on different principles of producing, using and ultimately disposing the goods.
It shows that manufacturing process of company works effectively and utilizes the waste
material as valued source for economic benefits (Pan, et al, 2015). As per the report of European
Commission, using assets and resources efficiently helps in attaining a considerable growth and
employment opportunities with eliminating harmful emission from company’s factories. Today,
there are several large scale organizations like IKEA and Johnson Controls are able to grab many
opportunities by adopting circular economy concept. They apply this concept to strengthening its
resource efficiency.
Some of the major characteristics of Circular economy concept are stated below:
 One of the major characteristics of circular economy is that it helps and improves the bio-
diversity by using the human capital and processes. The organizations implement this
model with the principle to overcome the difficulties in the process.

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 Under circular economy concept, production cycles target to close the loop across the
complete value chain. It uses fully recyclable, renewable and biodegradable resources
which can be used in sequential lifecycles to decrease the costs and increase the control.
 The major emphasis of circular economy concept is on increasing the product life across
the entire life cycle of product. It can be done by maintaining and enhancing and
maintaining the products via repairs, refurbishment, upgrades and reproduction. The
effectiveness of this characteristic is affected via design process with the emphasis on
modular design and durability (Tukker, 2015).
 This type of economy allows the firms to mitigate the risks and issues related to
environmental pollution and wastage emission. It offers a life cycle that preserves and
enhances the environment and natural resources.
Main Drivers of Circular Economy
There are many factors which drive the circular economy in the business processes. These forces
help the company to transform the business framework into reality.
(Source: Swink, et al, 2017)

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Conversion of Products
It is the biggest factor that drives circular economy in the company’s operations. It is right to say
that all the products and materials cannot be renovated and restored completely; most of them are
produced by using similar parts which have a considerable value. Moreover, these materials have
implantation capacity that makes it more valued in comparison to primary product. It forces the
firms to implement circular economic model in production and operations.
Next-life Materials and Products
It is also one of the primary drivers of circular economy. It states that when a business entity can
enhance and reposition the raw materials after the use and place them in market to earn money
again. There are several firms which are using this theoretical concept for later life products and
raw materials because it declines their production costs (Mangan, Lalwani and Lalwani, 2016).
Challenges related to price and supply
Additionally, today’s companies face some challenges related to prices and supply which can be
overcome by using circular economy concept. They believe that traditional model can cause
these types of risks to the companies. Moreover, it may confront the problems associated with
the supply of resources. Thus, these threats force the entities to develop this model in its business
processes.
Social, Economic and Environmental Benefits
After discussion about the features and major drivers of circular economy, it is obvious that this
model is very significant for the firms as it offers various advantages to society, economy and
environmental resources of the nation. It can be analyzed that the primary advantage of circular
economy is for the environment and its related sources like air, water, land etc. By adopting this
model, the companies are able to reduce the waste emission and decline the dependability on
materials’ importation (Robinson, 2016). It is very much different from linear business model
and traditional framework of waste disposal. This concept focuses on the limits of natural
resources by enhancing the renewable and recyclable sources with the decrease in the resources
and raw materials’ utilization. Adoption of circular economy model enables the companies to
eliminate the emission of harmful waste from the factory premises which can decline the
negative effect on environment. In addition to environmental impact, this concept can resolve the
issues related to society and economy. It assists increasing employment opportunities for the
country’s people as the companies need to hire more people to engage in recycling and repair

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activities. It enhances the effectiveness of ready products (Swink, et al, 2017). Furthermore, this
model can assist the companies to reduce the production and related costs.
Circular Supply Chain Supporting Restorative Processes
In today’s competitive business environment, the enhanced significance of reverse supply chain
as a value source has directed the organizations to implement circular supply chain method. It
reduces the wastage, gives the sources of inputs and takes the benefits of investment in forward
supply chain. The concept of circular economy is based on the reutilizing and re-launching the
products in the value chain. Thus, making unending loops, where the results become inputs. The
role of supply chain is to avail the firm with the end-of-life products to be utilized in developing
more significant value. This type of supply chain supports the adoption of circular economy
model in the production company (Rushton, Croucher and Baker, 2014). It allows the company
to develop a smooth and better restorative process. Additionally, it will enable the organization
to enhance the transparency in procedures and decline the transaction costs. Thus, there are many
companies which implement circular supply chain system by aiding the circular economy. It
enables the companies to fulfill the demands and requirements of end users.
Application of Concepts
After gaining the knowledge about the theoretical perspective of circular economy model, this is
the stage to implement it to the real world organization. For this, Johnson Controls Organization
is chosen that has successfully implemented he circular economy model in its manufacturing
process (Benzaken, 2018). Application of circular economy on Johnson Controls is explained
below:
Business Model
As a major leader in the automotive industry, Johnson Controls has moved towards circular
economy by creating an efficient business model. Looking at the market trends and concern of
society towards environment, this company has involved in the different circular economy
processes like producing, refining, storing and development. In addition to this, the firm is
committed into various environmental and eco-friendly initiatives. It is moving from traditional
model to circular economy framework. It has adopted it as a sustainability strategy and Johnson
Controls is threatening the perception that its products cannot be reused by evolving the

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opportunities to recycle and reuse them (Crosby, 2017). The company has developed its business
model with the innovations and created a model that is completely emphasized on environment
and society. Under this model, it has set various quality standards with the safety, environmental
safeguarding, sustainability, social responsibility and trustworthiness.
Key Partners
 Investors
 Tyco
International
(Merger)
 Suppliers
 Manufacturers
 Different
partners in joint
ventures
Key Activities
 Manufacturing
parts and
automotive
batteries
 Research and
development
 Distribution
 Automotive
experience and
power solutions
 Developing
efficiency
Value Proposition
 Innovation
 Cost reduction
 Battery
recycling
 Management
systems
 It offers over
one-third of
lead-acid
batteries in the
world.
Customer
Relationships
 Well-
behaved
staff
 Sustainab
le and
comfortab
le
 Automati
on
Customer
Segments
 Residential
 Data centres
 Health care
High-profile
automotive
companies
 Industrial
operators
Key Resources
 More than 130000
employees
 Intellectual
properties
 Extensive
distribution
network
 Facilities
Channels
 Regional and
local offices
 Company’s
website
 Distributors
 Sales Force
Cost Structure
 Raw material
 Software development and maintenance
 Product development
 Technology Development
 Taxes
 Automotive components and parts
Revenue Streams
 Sales of batteries
 Operations services
 Climate and environmental controls
 Consultation fees

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This organization is using circular economy model since many years. It has recycled its first
battery in Germany in the year 1904. Then, it has assisted to develop a recycling system which
makes sure a large number of batteries are accurately recycled (Grady, 2016).
(Source: Crosby, 2017)
Under the above business model, conventional automotive batteries of Johnson Controls have
been manufactured so 99% of their materials can be used again. Every time, a customer requires
a vehicle battery replacement, he/she can return the old battery to the same supplier offering new
battery. Then, the person of Johnson Control collects the old batteries and transforms them into
new batteries (Johnson Controls, 2018). The circular thinking of this company united with a one
for one exchange of product of old product for new one has allowed it to set one of the best
examples of circular economy. By using circular economy model, the company is able to manage
designing a battery which is 99% recyclable. It is an incredible initiative for a product that is
hazardous and chemically complex. By inspiring the customers of traditional batteries to recycle
and renew, Johnson Controls has received sufficient material to preserve millions of batteries
from disposing in landfills (Lombardo, 2018).

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(Source: Benzaken, 2018)
Thus, the business model of company indicates that Johnson Controls is looking for the different
ways through which it can offer various supply chain solutions. The major idea is to bring back
the batteries and recycle its materials into new batteries. Thus, the business model of this firm
demonstrates that circular thinking of Johnson Controls is emphasized on community and
environment. The circular supply chain of the company assisted it to push the recycling rates for
the traditional batteries to 99% in North America, Brazil and Europe in 2015 (Lieder and Rashid,
2016). It allows the company to manufacture the batteries containing over 80% recycled
material. Some of the major benefits which Johnson Controls’s circular economy model:
Economic Benefits
Circular economy model of Johnson Controls Company is a key driver to develop a strong
economic environment. This model helps the company to generate more profits and revenues
than it makes investment in its business processes. Circular economy of Johnson Controls allows
a more manageable, resilient and considerable source of raw material supply. The raw materials
which company uses come from the geographical areas where it operate and have diversified
supply sources. Reverse logistics network and closed loop supply chain system decreases the
requirement for extra transportation every year (Govindan, Soleimani and Kannan, 2015).
Moreover, it helps the company to reduce the costs related to manufacturing, operations and
other activities.

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Social Benefits
The use of circular economy can provide various benefits to the society and its people (Walicki,
2017). At Johnson Controls, recycling of batteries develops various opportunities for
employment and it offers economic development to communities, suppliers and operations. It
can be stated that recycling batteries in the circular supply chain system reduces the chances of
human health risks related to inappropriate battery handling and disposal. Additionally,
company’s employees are involved and motivated by its work on circular economy. In this way,
circular economy of Johnson Controls has good effect on the community people.
Environmental Benefits
The major objective of Johnson Controls behind implementation of circular economy model is to
provide different benefits to environment and natural resources. The data of the company
indicates that reutilization of the metals from already used batteries results in 99 percent fewer
greenhouse gas discharges than producing chief ore from the mines. Furthermore, the usage of
recycled plastic uses 90% less energy than handling new fresh plastic made by natural gas and
oil (Saidani, et al, 2018). Ultimately, it eliminates the waste and hazardous emission to big water
resources. The company is able to reduce the pollution to environment and related components
like land, water and air.
Role of Circular Supply Chain at Johnson Controls
At Johnson Controls, circular supply chain begins and ends at the same place as it has adopted
circular economy model. The company requires a fundamental shift to look at the end of life
product not as wastage like a major source of new products’ supply. It is totally committed to
encourage the environmentally sustainable manufacturing and other practices that combine the
restoration and natural environment protection. To attain circular economy, the products are
manufactured with the raw materials which can be responsibly and economically repurposed or
recovered (Jawahir and Bradley, 2016). By focusing on the life cycle of material as opposed to
final products, Johnson Controls can benefit both socially and financially. This company is
making efforts to manage the logistics and timing of supply chain in an exclusive manner.
Conclusion
Thus, it is hereby concluded that nowadays, circular economy is a required concept for all the
organization whether it is in manufacturing sector or in service industry. Johnson Controls is one

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of the companies which are successful in implementing this business model in its supply chain
operations. In the future, the company has set a vision to recycle 100% of its batteries. It is
working effectively with the suppliers, customers and logistics partners. It has created a circular
supply chain that assisted to recycle most of its batteries. Circular economy of Johnson Controls
is beneficial for all like society, country’s economy and environment.

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