Circularity means using materials and products in a way that keeps them in the loop – through longer use, repair, refurbishment, or recycling. For a resource-poor country like Germany, the circular economy is a question of future security. And for small and medium-sized enterprises (SMEs), it offers, in addition to necessary risk management, a potential economic advantage. Materials such as aluminium are becoming more expensive, certain critical raw materials like neodymium for magnets are subject to extreme uncertainties and price fluctuations, and supply chains are fraught with high risks. Companies that tap into reliable secondary raw material sources and develop circular-ready products reduce their production costs, create new revenue streams, and become more independent.
What does circularity mean in concrete terms?
Circularity comprises four pragmatic principles:
- Make products usable for longer
through durability, repair, and upgrades. - Keep material flows usable
by using materials in a way that they are identifiable, separable, and recyclable. - Develop take-back and service concepts
such as repair services, leasing models, or “product-as-a-service”. - View end-of-life products and waste as a resource
through resale, reuse, or recycling of high-quality components.
This makes circularity a lever for savings and new business models.
Why is this a success factor for SMEs?
- Material costs decrease – When the circular economy is consistently implemented, a typical German manufacturing SME can realistically expect, depending on the industry and business model, at least a 10% reduction in production costs. In energy-intensive sectors or where material use is high, the savings potential can be even greater.
- New revenue models emerge, e.g. second-hand markets, refurbished products, and repair services
- Less dependence on volatile raw material prices
- Competitive advantages in tenders and with major customers, up to and including preservation of market access in highly regulated areas
- Lower waste costs, especially when process costs for handling and wasted value creation are included alongside actual disposal costs
- Better ESG ratings and, consequently, loan conditions with banks
Circularity is therefore the most cost-effective sustainability strategy because it reduces waste.
Key Levers – With Examples from SMEs
Example 1: Retail – Returns as a Source of Value Instead of a Cost Factor
A household goods retailer (medium-sized, 80 employees) was struggling with rising return costs. Many returned products had previously been disposed of.
The company set up a small refurbishment unit:
- Employees clean, inspect, repair and package returns
- Clear processes and quality standards
- A dedicated area in the warehouse
Results after 12 months:
- 70% of returns are sold as refurbished
- Waste volume –40%
- Additional annual revenue in the mid six-figure range
- Lower disposal costs
A cost block was turned into a profitable business model.
Example 2: Construction Company – Reuse Instead of Disposal
A construction company systematically introduces “material passports” for renovation projects. These document which components and materials can be reused or resold during deconstruction.
Among the items that can be reused are:
- Doors and windows
- Metal beams
- Cable ducts
- Sanitary ceramics
- Certain insulation materials
Results:
- 15–20% lower material costs
- Lower disposal costs
- Sale of reusable components as an additional source of income
- Perception as an innovative, sustainable construction partner – new contracts
Example 3: Mechanical Engineering Company – Spare Parts as a Subscription Model
A mechanical engineering company analyzed frequently recurring repairs of its products and developed a new service offering:
- Replacement and wear parts are supplied via subscription
- Old parts are taken back and reconditioned (remanufacturing)
- Customers reduce downtime, the company reduces material usage
Benefits:
- Predictable, recurring revenues
- Lower production costs through reconditioning
- Stronger customer loyalty
Conclusion
Circularity means economic resilience and competitiveness. SMEs should not postpone this topic, as raw material and energy prices are volatile and rising, and regulatory and customer pressure is increasing. A circular economy reduces material, energy and disposal costs. It preserves market access and even opens up new business models. It is advisable to identify initial quick wins and gain experience – only then should the longer-term transformation be tackled with a well-thought-out strategy.
Further Article
Basic article: ESG as a success factor
Author
Ivo Mersiowsky
Dr.-Ing. Ivo Mersiowsky is a consultant and coach for sustainability in product management and corporate management. As an environmental engineer with a focus on innovation coaching, he has been working in the field of sustainability management for over 25 years, with positions in the chemical industry, a testing organization and various international consulting firms.
Questions? Feel free to reach out by email (i.mersiowsky@terra-institute.eu)
