To Go Circular, First Go Vertical

April 16, 2018

Early last year, the waste management world was abuzz with news of furniture manufacturing giant Ikea’s acquisition of a 15 percent minority stake in the Dutch plastics recycling company Morssinkhof Rymoplast Group. The move was part of the $1 billion the Swedish company had earmarked for sourcing sustainable materials. It was a step towards achieving Ikea’s goal of making its plastic products from 100 percent recycled or recyclable materials by 2020; and it was part of the company’s program to  vertically integrate its supply chain. Ikea has also purchased forests in Eastern Europe and a wind farm in Poland to exercise greater control over the supply chain.

The chemical industry is also integrating recycled materials into their value chains. In 2017 Imerys, a leading global supplier of mineral additives, announced the acquisition of Regain Polymers, building on their platform of supplying additives to the plastics industry and improving the sustainability profile of their Performance Additives business unit.

Also last year Michelin, one of the world’s largest tire manufacturers, joined the vertical integration game with its acquisition of Lehigh Technologies. Lehigh Technologies is a speciality chemicals company that produces highly engineered, versatile raw materials called micronized rubber powder (MRP) from waste tires. By acquiring a company with an innovative method for recycling tire materials, Michelin is reducing its use of natural resources, in line with its “4R strategy” of Reduce, Reuse, Recycle, and Renew. MRP replaces oil- and rubber-based feedstocks in a wide range of industrial and consumer applications, including high performance tires – Michelin’s core market.

Vertical integration helps companies close the loop on their products by giving them greater control over its lifecycle, from beginning to end, and even to rebirth in high value applications. The vertical integration of supply chains is not new, but using it for sustainability purposes is. In the US alone, over 300 million tires are disposed of annually; globally that number is about 1 billion.  Michelin is not only securing its supply chain and driving lower costs, but also addressing the issue of sustainably managing the end-of-life of some of those millions of tires.

Beyond offering manufacturers a secure supply chain, vertical integration of recyclers to both manage end-of-life waste and provide raw materials helps secure demand for recycled materials. One of the biggest challenges for the recycling industry, especially for plastics, is building demand for recycled materials. Vertical integration provides recyclers with a guaranteed customer and in turn ensures stable revenue, allowing them to expand operations and recycle even more waste. In fact, with the added investment from Michelin, Lehigh has been able to expand its circular economy solutions for waste tires globally, in addition to exporting MRP to countries worldwide Lehigh is in the process of building a plant in Navarre, Spain as part of a joint venture with Hera Holdings.

There is growing regulatory (and hence economic) momentum for companies to manage the full life cycle of their products. This year the European Union introduced its Circular Economy Package, an ambitious strategy that seeks to close the loop on manufacturing and reduce waste. The beginning of 2018 also saw China’s National Sword campaign banning the import of certain waste products. As we work towards developing a circular economy that will help us better manage our waste, companies should look to vertical integration, which not only reduces costs and streamlines operations but also ensures the sustainability of their product’s lifecycle.

[Editor's Note: Alan Barton will be speaking at the Chamber Foundation's upcoming 2018 Sustainability and Circular Economy Summit: Translating Value to Ignite Action. He will be speaking on a panel called Getting to Zero: How to Send Nothing to the Landfill alongside panelists from Subaru of America, Cox Enterprises, and Walgreens Boots Alliance. Learn more about the summit and how to register here.]