Digitization: A New Opportunity for the Resource Cycle

Natural resources have a major disadvantage – their quantity is limited. It is hardly a surprise then that access to resources is extremely important these days – it is a decisive factor in the progress of national economies and companies and of course, the prosperity of individuals.

It is clear that primary raw materials cannot be the only source for this. However, secondary raw materials only make up around 20 percent of those used by the German production industry, which shows that resource cycles are still a long way from being complete.

In fact, this raises the question of whether we can actually talk about it as a cycle at all. Although on the one hand this may not sound particularly positive, on the other hand it points towards growth, which is reinforced by additional opportunities due to new or current trends.

The core of the business model at recycling companies is gaining access to high-quality resources, to generate the best value from them, and then to sell the end product at an optimum price. In other words, the aim is to complete the resource cycle. Although this sounds relatively simple, it does pose some challenges. For example, material quality has a significant impact on the margin. Whether or not companies succeed in this sector is determined by the purchase process and, of course, the quality of the purchased goods. It is only possible to determine the true material quality of the goods that have actually been purchased upon receipt of said goods.

Changing Environment

The volatility of the markets doesn’t make it any easier to operate successfully in this sector. In order to achieve a minimum level of certainty despite fluctuating markets, companies use real-time connections to commodity exchanges, long-term purchase agreements, or even hedging. In addition to this, tracking and forecasting are relied upon for internal company processes. This means accurate data from production, as well as from warehousing and logistics, is needed to evaluate the materials within the company.

Other aspects which affect the entire industry are the stringent legal requirements that often vary greatly from region to region or country to country. Transparency is essential to meet the documentation requirements needed to achieve the necessary legal certainty.

New technologies and the fact that recycling of end-of-life products is becoming a focus of public perception are resulting in some new trends. Sooner or later, their effects will have an impact on the entire industry. For example, urban mining is already exploiting urban areas as (secondary) sources of raw materials.

Recycling-friendly product design and subscription models from car manufacturers are also pointing towards a shift from the customer to the manufacturer in terms of control over material disposal. In the future, it could be the case that automotive companies decide where and how the valuable resources from their vehicles are recycled. The resulting potential will also be of particular interest to providers within the digitization sector.

The central foundation for digitizing the value-creation chain is a corresponding technological platform. Important elements in purchasing are flawless contract and quotation management, including the integration of trading platforms. IT-supported reverse logistics and stock management elements regulate these value-adding processes. There are also industry-specific elements such as container management, scale functionality, waste classifications, or transportation planning that are needed.

With regard to business activities across multiple sites – possibly even internationally – further modules are added, such as consolidation or the interlinking of intercompany processes. These modules form a foundation, which enables the value chain to be mapped consistently. When put on a platform, there are fewer restrictions in place for future extensions. The platform approach enables the integration of trading platforms, mobile apps, vehicle onboard units, or even self-learning algorithms for forecasting in the form of artificial intelligence.

Despite all the technical possibilities, one central factor must not be forgotten: Digitization only works when people cooperate. In other words, a digitization solution should not exist for itself, it must be designed with the user in mind.

The movement in the industry has an enormous potential. Those who are quicker to react to changes give themselves a competitive advantage. New business models allow new companies to come while others fall by the wayside. Digitization will help to complete the resource cycle. Thinking beyond existing IT strategies leads towards a platform approach. The technology needed already exists, but how and whether it is implemented is a decision for forward-looking corporate leaders.