Closed-Loop Manufacturing Models Benefit Heavy Users of Steel
Sustainability has been a topic of much discussion in manufacturing circles in the last few years, with disciplines like zero waste to landfill and closed-loop systems being mulled if not practiced. Closed-loop resource planning, also known as closed-loop manufacturing resource planning (CLMRP), is a model built on the presumption of returned or recycled products as part of the supply chain. With no new raw materials entering, the life cycle resembles a continuous loop.
Part of a broader movement that is often referred to as the “circular economy,” CLMRP is a concept promising a wide range of benefits, from cost savings to greener and cleaner operations to regulations compliance to alleviating raw materials shortages.
A compelling reason for closed-loop manufacturing is resource security, or the assurance of a supply of materials that is insulated from global unrest (political problems, war), price spikes, shifting import tariffs and other unknown factors. A recent survey of manufacturing companies conducted by UK manufacturing trade organization EEF found that more than 80 percent of CEOs indicated that increasing global shortages of raw materials were posing real risks to their operations. They’re not alone: Many economists agree that resource efficiency and security are critical if the global economy is to continue growing.
As global demand for manufactured goods continues to rise, pressures on raw materials chains are likewise increasing. While expanding the production of raw materials isn’t always possible — whether it is due to physical scarcity, government quota ceilings, environmental regulations, transportation difficulties or labor disputes — many manufacturers are beginning to turn to resource efficiency, which can help insulate a company against uncertainty.
In fact, McKinsey & Co. research has found that by 2030, 30 percent of the world’s demand for resources could be met through resource efficiency improvements. This could deliver global benefits of as much as $3.6 trillion a year. The pursuit of resource efficiency has led many manufacturers to launching closed-loop manufacturing programs.
Some of the industries assiduously pursuing closed-loop manufacturing are those that rely heavily on steel. The steel industry has seen a variety of raw materials shortages and cost fluctuations as of late, including extreme volatility in the iron ore market. Companies are thus boosting their use of scrap steel.
Recycling in the steel industry, of course, isn’t a new concept — it goes back at least 150 years. It’s cheaper to recycle steel than to mine virgin iron ore and send it through the production process to form new steel. Recycling is becoming even more critical now that up-and-down fluctuations in the prices of both finished steel and feedstock materials have made many manufacturers queasy.
The iron ore industry is particularly volatile and likely to remain so. A new report by international metals and minerals research company Roskill, titled “Iron-Ore: Market Outlook to 2020,” found that global economic uncertainties — including China’s escalating demand for iron ore along and that nation’s slowing economy, the troubled Eurozone and its impact on iron ore demand and availability and a disruption of the iron ore supply in India (mining operations there have seen moratoriums due to environmental regulation non-compliance) — will make the iron ore industry unstable over the better part of the next decade.
That volatility, of course, will have a stone-in-the-pond effect on the steel industry, putting extra uncertainty into the long-term production plans of every company that relies on steel as a raw material.
A closed-loop manufacturing system, for starters, begins on a computer, not on a factory floor. A CLMRP system is actually a software application that helps a manufacturer keep track of inventory and use that knowledge, along with other production variables, to adjust operations.
The closed-loop system encompasses all aspects of the business, including materials sourcing, production processes, sales, and the recovery processes and recycling that make up the entire life cycle of a product. Any material that isn’t consumed in the manufacture of the product is designated as an input for a process in the system. Any waste element that can’t be eliminated is either recaptured and reused, biodegraded or biocomposted or sold to an industry that needs it.
A closed-loop system not only reduces the environmental impact, it reduces current manufacturing costs, stabilizes raw material procurement, saves energy and water and allows companies in different industries to benefit from one another in cases in which one company’s waste is another company’s raw material or fuel. In other words, the ability to keep using an input material that is continuously being produced as a byproduct of the goods-making process minimizes uncertainties.
Why Steel Has the Advantage
While a closed-loop system can benefit a manufacturer in any industry, the pursuit of CLMRP is particularly lucrative for the steel industry. Experts have estimated that recycling 1 ton of steel saves 1.5 tons of iron ore, a half-ton of coal, 40 percent of water, 75 percent of energy needed to make steel from virgin material and 1.28 tons of solid waste. It also reduces emissions by 86 percent and water pollution by 76 percent, according to a report by the World Economic Forum.
The steel industry may have an easier time than others with one of the harder-to-control elements of the closed-loop manufacturing model: consumer recycling.
While recycling has been on the rise globally, thanks to an increase in curbside and office recycling programs, it’s still estimated that about 90 percent of the materials contained in consumer products wind up in landfills. Steel is different, however. Consumers obviously can’t simply throw away their cars or old kitchen appliances into their garbage, and steel is, in fact, the most recycled product in North America, with about 70 million tons of it recovered to date in 2012, according to the Steel Recycling Institute.
Recovered steel comes primarily from automobiles (about 18 million tons recovered from vehicles alone) and appliances, but it is also sourced from construction waste and steel cans and drums. Steel also has an advantage in that, unlike other recycled products, it does not lose integrity or drop in quality with each life cycle (as does plastic and many other commonly recycled materials). And it’s easy to recover out of mixed waste thanks to its magnetic properties: A quick pass with a magnet recovers springs, nuts, bolts, nails and other small components from trash.
Steel companies pursuing closed-loop models are finding it easier than ever to find reliable sources of scrap steel. While the price of scrap isn’t 100 percent constant — the high fluctuations in costs for virgin steel are bound to affect the market for scrap steel — scrap is considerably more price stable and its sources are generally local, unlike virgin steel, which may be sourced all over the globe, often from politically unstable regions.
Ultimately, more manufacturers will be forced to go to the closed-loop model as raw materials become costlier and scarcer, and as environmental regulations stiffen and competitors cut costs with better resource planning. For those companies that choose to lead with a closed-loop system, it’s likely that the benefits will come earlier and be more long-lasting.