Ep. 10 - Redefining Procurement: Circular Value Chains and the Power of Secondary Materials - with Matthias Ballweg

Ready to embrace sustainable procurement? Discover how circular value chains and secondary materials can revolutionise your supply chain.

In this episode, host Richard McIntosh welcomes Matthias Ballweg, Co-founder of CIRCULAR REPUBLIC, to discuss circular value chains and secondary materials. Matthias reveals the significance of circularity and shares actionable strategies for companies to kickstart their sustainable procurement journey.

You'll learn:

1. What circularity and secondary materials are and why they are important
2. How secondary materials are being used in various industries
3. Strategies for integrating secondary materials into procurement
4. The role of start-ups and innovation in driving circularity
5. The impact of regulations on circular value chains

To start your journey towards circularity, download the whitepaper titled, "Secondary Material Sourcing" – a collaboration between H&Z Management Consulting and CIRCULAR REPUBLIC: https://hz.group/insights/publications/discover-the-future-of-sustainability-with-the-circular-economy

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Get in touch with Matthias Ballweg on LinkedIn: https://www.linkedin.com/in/matthias-ballweg/

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Details about CIRCULAR REPUBLIC:
Website: www.circular-republic.org
Industry: Environmental Services
Company size: 15 employees
Headquarters: Munich, Bavaria
Founded: 2023

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About the host Richard McIntosh:
Richard McIntosh, Partner at H&Z Management Consulting, has spent over 23 years helping procurement leaders succeed. Richard is an avid rugby fan, and a children's rugby coach, with a passion for helping children to become their best selves through sports. He spends his time outside of work with his wife and children.

Get in touch with Richard McIntosh on LinkedIn: https://www.linkedin.com/in/mcintosh-richard/

Transcript

SPEAKER_01 0:02

If I use virgin material, so material digged out of the ground in global in the global south typically, I have basically two important effects. The first one is also driving climate change because I typically need a lot of energy to do that. So if I reduce the amount of virgin material digged out of the ground in global south, I also support the fight against climate change. But another one is around biodiversity. Material use is responsible for some 90% of the biodiversity loss. And the biodiversity loss in itself is a severe crisis, as severe as climate change is. Even if there wasn't any climate change, the biodiversity loss will harm our wealth, our well-being, our economies, similarly to how climate change does that.

SPEAKER_00 0:54

Welcome to the Procurement Initiative Leaders Podcast, the ultimate resource for top-level procurement professionals looking to stay ahead of the curve and drive meaningful change within their organizations. I'm your host, Richard McIntosh, partner at HZ, Europe's leading procurement consultancy. Join me as I sit down with Global Leaders in Procurement to uncover the latest trends, strategies, and insights that are shaping the future of procurement. We tackle crucial topics like leadership, technology, value creation, cost management, supply chain resilience, and many more. Ready to up your game as a leader in procurement? Let's jump into this episode of the Procurement Initiative Leaders Podcast with me, Richard McIntosh. Great. My guest today is Matthias Balvig from Circular Republic. Matthias, welcome to the podcast. It's an absolute pleasure to have you as a guest today. And could I ask you to introduce yourself and of course tell us a little bit about Circular Republic, please?

SPEAKER_01 1:52

Thank you very much, Richard. I'm very happy to be here. So at Circular Republic, we're building circular ecosystems and pilot projects. We're uh basic, basically a living lab for circular value chains. Yeah. Um in in very different spaces, in batteries, in textiles, uh in electronics. We're bringing together established players and startups. That startup focus is especially relevant as we're located in Unternehmertum, that's Europe's most relevant and largest startup center. 720 startups are incubated here every year. A third of the venture capital that's running through Germany is running through this Unternehmerum ecosystem. So it's really large. And our mission is not only to leverage those, this innovation power for circular economy value chains, but also turn this whole ecosystem circular, like not let another linear business model uh flourish here from this ecosystem. Like it won't flourish anyway, but uh don't let another linear uh business model uh grow, neither from the startups nor from the innovation partners. And maybe to also say a word about uh about myself.

SPEAKER_00 3:16

Yeah.

SPEAKER_01 3:18

I founded Circular Republic here in this ecosystem together with uh two two other brilliant people, Susanne and Nicholas, and we all come from very different backgrounds, but all with a large, large network. Niklas, rather from a uh uh industry background, and also has built up a startup incubator focused on circular economy. Susanne has very much a scientific uh background and also led the circular economy initiative Germany for for many years. I personally have a corporate background. Uh I led the strategy department of MAN, that's uh one of the largest truck manufacturers in Europe, yeah, for a couple of years after consulting and also then shifted to sustainability, to systemic, as a sustainability think tank where I globally have led and co-built up the circular economy platform, doing circular economy projects in in many different shapes and forms. And that's what basically also the basis how all this came together.

SPEAKER_00 4:21

Great, great. And we'll come back to um to that circularity point very shortly. But we were we were talking earlier, and and you you were telling me that the the story of kind of what what brought you to this point with the MAN truck um example. Be worth just uh yeah, bring us kind of the tell us the journey.

SPEAKER_01 4:40

Absolutely. And it's nice how things uh then come together. A certain interest for circularity was always somewhere within me. And when I came to MAN, I did ask the question how much recycled content does one of those trucks actually contain? For steel, for plastics, uh, for other parts. And it was especially interested for the plastic part, also motivated from all the ocean plastic and microplastic uh topics flowing around. And the answer uh back then was close to zero. And it really wondered me why can't how can it be that there is zero recycled content in such a truck? Because I was sure that even for some parts, it was cheaper to produce recycled uh content instead of virgin ones. Yes. Um and it took me a while to find the answer. Uh, together with the team, we dug into the different specification sheets and talked with the engineers as well as the procurement guys, and found that there are specifications that define certain thresholds for uh uh for material specifications, for example, for the temperature stability and the variability of the temperature stability that are harder to meet for recycled content than they are to uh than for virgin content. Yes. Um, but they're standardized across the portfolio. So all plastic parts needed to fulfill those specifications, although they are not as relevant for or don't have the same relevance for all of the parts. Parts that are very close to the engine do need uh have a completely different sensitivity to those to fulfill those specifications than parts in the interior, for example, and especially to those temperature specifications. Yeah. And we challenged the engineers and the procurement guys to change them. And after we changed those specifications, we were indeed able to find suppliers that could give competitive quotes for recycled content material. And over the years, we're able to turn more and more material into recycled content. Uh, but before it was it felt like a completely insolvable problem because when you ask the procurement guy, hey, why don't you do more recycled content? He's like, I can't. I try every time. Every time I call the supplier, um, I sent them the spec sheet and beg them for a competitive uh bit for recycled content, I don't get any. Yeah. If so, um, and so it's not that anyone wanted to stop recycled content or anyone wasn't motivated, people even tried, but because the the underlying issues were somehow deeper in the value chain, it just uh didn't work. And that's also that's very much similar to what we found now also at Circular Republic in all the industries. If you're producing t-shirts and wanna use old clothes, old collected clothes as a base material, and you ask your fabric supplier, hey, can you uh please produce some fabric for my t shirt that I that I can see a t-shirt from based on recycled material, that he will come up with a higher quote.

unknown 8:16

Yes.

SPEAKER_01 8:16

And only if you talk to the not only to the fabric supplier, but also to the yarn spinner, to the fiber spinner, to the fiber recycler, and to the collector, and talk about specifications every time, you'll find which share of the recycled clothes or the old clothes is actually suitable, which share, how how shall the processes be defined? And after defining specifications across the full value chain, you're able to build a competitive case. Typically, that's what you find in almost all industries.

SPEAKER_00 8:48

Uh, but it's there's always this complex challenge. Yeah, absolutely. And it and as you say, you've pointed out there that it's not a you you can't just do that from a procurement perspective. It has to be a value chain uh uh view. Yeah, really um, yeah, that's great. And you you mentioned, particularly in the in the introduction, you mentioned circularity. Um, you talked about recycled secondary materials. Can you just give the the podcast listeners a little um background? What what you what do you mean by circularity? That's an excellent question.

SPEAKER_01 9:20

And that's also, I think, needed to get uh all the messages around why that's uh important. With circularity, we talk about material, yeah, like especially in opposite to energy. There is the topic around energy, and people across the globe already got the message why it's important to use renewable energy and not energy from fossil fuels, because fossil, if you if I burn fossil fuels, be it oil, gas, or uh whatever, um, it's uh I produce CO2 that's going to the atmosphere and increasing global warming, that's bad. Renewable energy is good. The message around materials is similar but a little bit more complex. If I use virgin material, so material digged out of the ground in global in the global south typically, I have basically two important effects. The first one is also driving climate change because I typically need a lot of energy to do that. Yeah. So if I reduce the amount of virgin material digged out of the ground in global south, I also support the fight against climate change. But another one is around biodiversity.

SPEAKER_02 10:33

Yeah.

SPEAKER_01 10:34

Material use is responsible for some 90% of the biodiversity loss. And the biodiversity loss in itself is a severe crisis, as severe as climate change is. Even if there wasn't any climate change, the biodiversity loss will harm our wealths, uh, our well-being, our economies, similar similarly to how climate change does that. Yeah. Um, and the beauty around circular economy, like circular economy can be defined about about uh the art to reduce virgin material use. Yeah, yeah. Um, the is that it tackles both of these effects, the biodiversity loss and the climate change at the same time. That was always what triggered me, like why why only work on reducing fossil fuels? I don't even tackle uh biodiversity loss. I can, if I work on reducing primary material use, I'll uh address both of these uh these topics. And a couple of non-ecological ones as well. Resilience is a huge topic because material from the old Tao is typically uh running through China and especially in Europe, that's a huge dependency topic. And then circular economy classically comes with a tool set or a set of strategies. How you do that? So, how do I leave out primary material? I still want to do business, um, and there are powerful strategies. Rethink they're typically called or refuse of just leave out the material and still fulfill the customer need. Spotify is a good example. Customer wants to hear music, no one wants to stack up compact disks, CDs, as we did uh in previous times. Yeah, uh, but the customer need is hearing music, and I can fulfill that without material. And digital technologies empowered a circular business model. Yes. Um, same goes for different kinds of sharing solutions. They're uh by now very successful companies sharing drilling machines, for example. Not everyone needs a drilling machine in their own cellar. You use it once when you renovate your apartment and then it's in the cellar for 20 years. Renting can drastically reduce the amount of material use, but can still be a super good business for the uh for the company doing the rental business. So it's not there's not less money earned or less economic benefit uh in those businesses. In opposite, there's typically, typically more. There are other businesses that also help reducing or other practices or strategies to reduce the virgin material footprint. Lightweight material is already one. Repair models, how can they keep material longer? Um, and also with repair that you can earn a lot of money. Or the very classical one, recycling. Taking any product at the end of the use time and uh disassembling it and taking the parts or materials to produce new products.

SPEAKER_00 13:41

Yeah, yeah. And that's really that's that's a really interesting one. So we it's almost that cascade down to uh of of of how we eliminate and then and and then down to how we reuse. Um and and that that's worth us just talking about because I think the the the listeners from a procurement perspective will be, I think, working in that in that area. So perhaps if you could maybe give some examples of the you know how how we can think about the use of secondary materials. So instead of instead of verging, you know, the perhaps some examples and and um of you know kind of the use cases. Absolutely.

SPEAKER_01 14:21

It's a natural starting point for a circular economy, right? If I'm a any kind of company and I'm producing a product, like to completely shift my business model to not producing it anymore, but really renting it out or something that would that's it's a quite drastic shift. But what I can do typically right now is call all my suppliers and ask, hey, can we uh work with secondary material? There is one nice example, for example, that how such a journey also started, or how it also enabled a journey. Lorenz, that's a company in uh southern Germany, they're producing smart meters, water meters. Those uh these are these brass balls that you have in the cellar of almost any house that is measuring how many cubic meters of water are flowing into the house. They were heavily under pressure because of brass prices increasing, especially in the first 10 years of this century. And and they were fighting. There were Chinese suppliers that did similar products just with uh with plastics and with much lower costs, and they felt in a race to the bottom because they tried to use less brass, they tried to lay off people to save costs at many points, and and it was really clear they wouldn't they wouldn't become a leader with this strategy until they realized they can start collecting the old ones. So they asked all the plumbers they worked with where they sell their products to, hey, bring us the old ones. Whenever you exchange one, bring us the old ones, repay a certain price for it, uh, and started to use uh uh use this used brass for their new products. And first it was a secondary material sourcing strategy, yeah. Uh, and over time it evolved, right? Then they not only used the raw material, but even used the full product uh and started to introduce uh full parts uh and not only not only raw material, and it's also a nice example how you can you can evolve from a strategy that it's just about about secondary material sourcing towards more and more loops and high and higher levels of collectivity.

SPEAKER_00 16:39

Absolutely. So it's just a great example of changing that that linear value chain. Um and I guess step one is is secondary material, but then then then moving to actually changing the system so it it it it returns, you know, it it it's it's coming back round into the into the business. Yeah, great, great example. Um and and yeah, I guess thinking about the wider context um of what's happening here, you know, what what what's what's driving it? You that one was uh an internal sort of business driver, but um you know, is that is there regulation coming coming towards us for this?

SPEAKER_01 17:19

It's there are several drivers and they often come together. Exactly for Lawrence, it was a business driver. The costs for virgin materials were rising, they were looking for alternatives, yeah. Um, and it was very profitable in the end. They really increased profitability quite a bit. Yeah um regulation is a driver in the textile space. Uh the EU uh uh started a lot of regulation, you're not allowed to burn uh old clothes anymore. Uh in the battery space, also a lot, where the previous regulation was only that some 50% of a car needs to somehow get into any form of recycling, and even incineration was counted as recycling uh there. Right, right. Um, because you use the energy out of it. Uh it's now coming becoming much stricter. From 2031 on, there are also quotas for the amount of recycled content used in new products. So, for example, a new product brought to uh brought to use in Europe needs to contain at least six percent of recycled lithium, yeah, which is a huge challenge for the OEMs because as you can imagine, in 2031 there are 10 times more new batteries or vehicle batteries on coming to market than 10 years ago. Uh so and as batteries live a while, uh you need to basically take really all the batteries that we've put to uh the market in the in the past years uh and get like 100% of the lithium out of them to at least get to those six percent of lithium that we uh that we need.

SPEAKER_00 19:04

Um and this isn't this isn't far away when 2031 is is immediate.

SPEAKER_01 19:10

Exactly, exactly. So it every product designer in the automotive space is aware of that, and that is a hot is a topic. Um, and that's coming in more and more industries, and it's coming together with a natural motivation as an entrepreneur, as also as an entrepreneur in a large uh company, to be a good citizen and don't do a business that is harming the planet, right? So even without any regulations, more and more leaders do have that motivation. That's one, and with that resilience argument. So, for example, if you read the the rationale that the EU uh posted when they um when they published that this this battery regulation, yeah, there is hardly a word on the ecological effects of digging out lithium in the Atacama desert and and anything. They were clear that their motivation for doing this is to enable European businesses to be resilient and more independent from Asia and the global South.

SPEAKER_00 20:24

And and I guess you're you know, we're talking there about the the the manufacturer, but uh you know interesting to what you're seeing um at Circular Republic, the that um you know the the providers, the the startups that are uh presumably supporting this now.

SPEAKER_01 20:43

Yes, um the whole value chain is now orienting towards these uh these cases. Yeah, and and also in our projects, people come with different motivations. Some are trying to change their products and switch shift to more recycled content from a sustainability motivation, yeah, some from business case motivation because they uh see that it's coming together nicely, especially if you think in scale processes. A lot of that is immature by now, but it's maturing quickly. Yes. Uh and many also with this resilience argument that they just want to see the risk and want to have a future-proof uh business.

SPEAKER_00 21:31

Uh absolutely. The example you gave of the of the yeah, cheap China supply chain versus um yeah, the secondary material localized, great, great example. Um yeah, but it really interesting. And do you see you get you gave a couple of ex of examples there, but are there are there certain sectors that are lead leading the way here and and and and driving this?

SPEAKER_01 21:56

Um absolutely. I mean, uh automotive, especially. Driven through regulation is quite ahead. Yeah. There is a lot being done in food-based and also in build environment. Yes. Although, also there the issue is huge, right? So especially build environment is just a mess. There is in terms of circular economy. I see a lot of startups coming up here with cool solutions. But the majority of the market doesn't uh doesn't care too much. Electronics is more uh is more and more, especially consumer electronics. Um Apple, for example, is very actively advertising that their new frame is 100% recycled aluminum and that they're able to dismantle old iPhones and everything, and many other consumer electronic producers are following. Also, naturally, from all those different motivations, they also realize uh that with consumer electronics, you're especially dependent on China and Southeast Asia and finding ways to build your supply chains a little bit more diverse is helping them.

SPEAKER_00 23:13

Yeah, yeah, absolutely. Great. And then if if we if we think about uh yeah, organizations um who are uh realizing, okay, that I I need to do something now, whether that's because it's uh it's regulation or whether it's the the business cases is becoming clear. I mean, where where did where do they typically start?

SPEAKER_01 23:36

Um it's uh it's not often that those business that those businesses can be changed immediately. Because also many uh procurement people might listen to to this. If you ask your suppliers, hey, can you provide the same amount and the same specifications just from recycled content? They'll get many no's, right? Even if they can for certain specifications, uh uh, but not for the full volume, uh and so on. That's um so, which is also part of the reason is that the suppliers are immature. It's oftentimes startups that are uh young companies that are just building up uh the volumes, building up the processes from tech recycling technology is one of the largest investment pillars also of venture capital Europe-wide or worldwide in the last two years, but it's taking some time uh to scale. So, what organizations should do this is also what we're recommending uh in the white paper we've recently written on that, is to experiment a lot, start collaborations uh with innovation platforms, uh with startups, uh do pilot projects for pilot products, and uh also help to build their own supplier base um why and also learn how to reduce the costs for those. Yes. Uh uh leverage those products where you have a little bit of a higher margin, where you might even have uh the chance to get a premium for fully recycled content and engage by that. Ideally, we do have a little bit of time.

SPEAKER_00 25:28

Yes, yeah. Yeah, really, really interesting how you see that happening in uh well in inside a procurement function, you know, where we're always sort of rather typically focused on our current supply base. Um but actually what you're talking about there is creating that innovation um uh function or or center of excellence within there to you know absolutely pull pull the pull the innovative new suppliers into it. It's both, Richard.

SPEAKER_01 25:57

It's it's pulling in new innovative suppliers, but also giving your existing supply chains also the chance to innovate. Yes. They are proud companies as well, your suppliers, and they are also responsible entrepreneurs, and they probably don't want to be forever a company that is relying on some fossil-based uh material. They might have a strong vision to also become or shift their business models to uh supply regenerative products. Yes. And probably also have innovation products that they can offer you. Uh yes, yes, yeah, yeah, yeah.

SPEAKER_00 26:37

Um yeah, I'm sure they don't want to be the the the the last man standing with uh the old old situation declining. And I and and and I'm making an assumption here that it's a the challenge will come from the scale up, the you know, the move from uh an innovative uh circular value chain to actually scaling that up so it can have a an impact at the higher at higher volumes.

SPEAKER_01 27:04

Yes, indeed, because it's investment. It's typically an investment case and it's only paying back if you're you're selling enough recycled content or using enough recycled content to fully leverage a full plan or whatever it's then uh it needs in the end. Those investment cases I'm pretty sure they'll come because the direction is clear for I typically look at venture capital, uh not growth uh like or not not private equity invested, yeah uh, but the trend is similar. The amount invested into recycling technology is is growing double digit in the past 10 years. And even though the overall venture capital was declining in the past uh two years in Europe and Germany, uh the amount invested in recycling technology was still growing double digit. So there is there is a tendency towards investment, yeah, and and eventually that'll pay off.

SPEAKER_00 28:13

Yes, yeah, yeah, great, great. Um that's fantastic. That is um there's the really interesting and a lot of inspiring uh uh content there. So um where where can the podcast listeners find out more? So uh on many levels about circularity, you mentioned recycled materials, white paper. Um where where do they where do they start?

SPEAKER_01 28:40

Obviously, we as Circular Republic are in the middle of that, and we are very happy to engage with anyone in industry uh who wants to learn more about that or even is already motivated uh to that shift. Circular minus republic.org is our uh website. Uh part, as I said, part of this unternehmertum ecosystem, and we're a platform for business makers. Um, and very happy to be contacted by by anyone uh hearing that. Also uh happy to advertise here a little bit the white paper uh that we did together with HSET uh that's specifically focusing around that secondary material sourcing. Uh within that white paper, we do frame the overall opportunity of circular economy, but also give specific advice what could be the first 10 steps if you want to engage more with secondary material sourcing and especially the procurement expertise of HNZ was very helpful here.

SPEAKER_00 29:43

Uh great, great. And we'll put that um, we'll we'll put a link to that paper in the in the podcast notes so that that's it. Right, great. Um, and then of course, where where can listeners get hold of you?

SPEAKER_01 29:55

We'll present the white paper if you're around uh in Germany in Hamburg in September at the Sustainability Summit. Uh that will be one stage that's already clear. Other stages uh are uh in discussions and uh beyond that uh through Circular Republic through LinkedIn uh obviously you'll uh you'll find me and I'm uh yeah looking forward to get connected in that space.

SPEAKER_00 30:20

Great, great. Um that's that's fantastic. Um can I say uh uh a big thank you? Really interesting, and it's been an absolute pleasure to have you on the podcast and talk about um circularity. Thank you, Matthias. Great. Thank you, Richard. Thank you for joining us on the Procurement Initiative Leaders podcast. I really hope you enjoyed it. Looking for more procurement insights, tips, and developments from leading procurement professionals? Join our procurement initiative community on LinkedIn. Just open LinkedIn and search for the Procurement Initiative. And be sure to hit that subscribe button to never miss another episode. Thank you for listening.