Supply Chain Professionals Have a Critical Role to Play in the Transition to a Circular Economy

THEME: Circular Economy, Sustainability

As we have continued to navigate through the variants that have prolonged this pandemic and now, begin to emerge from two exceptionally long years, there has been much talk about the timeline of when we will be able to return to ‘the way things were’.  But ‘the way things were’ has, in both the local and the global context, laid bare our vulnerabilities to external forces like pandemics.

For fifty years professionals and experts like economists, biologists, entrepreneurs, engineers and other thought leaders have been gathering data, strength and capacity to help shift gears from our existing linear economic models to circular economic models.  The voice of supply chain and logistics is included in this group of experts.  Their insight and experience has been critical to the development of models, providing real-world examples and ‘proofing’ of new initiatives.

Our current linear economic model (both in business and in government) is one of the by-products of the post-war era of rapid economic recovery and expansion.   It is based on extraction of raw resources (which includes energy) for manufacturing of single use or short-lived products that a consumer will use for a limited time or for a singular purpose before considering the product as waste and disposing of it.  This model is often referred to as the Take-Make-Waste way of doing things.

The pre-war and now emerging (for a repeat performance) circular model is one where resources for making products or providing services do not have to be virgin, where consumers use products for longer and in multiple ways and the products they are using are repurposed or reused, with disposal being a very last option.  In more modern terms, a circular economy is one where the full value of materials and energy is maximized through the entire life of the product.  A circular economy is one where the goal is continual use of energy and material, and the idea of waste is reconsidered entirely.  Waste material and energy is regarded, first and foremost, as a critical and efficient input for other production processes.  Complementary or embedded concepts to the circular economic model include Cradle-to-Cradle, Industrial Ecology, Biomimicry, Performance Economy, Multi-Modularity, Parts Harvesting and Regenerative Design.

The benefits of a circular economic model are significant and intuitive.  Benefits are typically aligned with one of four categories:

  1. Sourcing – the cost savings and reduced risk derived from identifying and sourcing alternative materials and/or alternative sources.  Examples of sourcing benefits include:
    • Reduced risk that comes from a more diverse supply chain or variety of sources.
    • Greater security of key materials that come from using discarded, refurbished, or recycled product.
    • Cost savings from identifying geographically closer materials or alternatives.
  1. Environmental – reduced environmental impact of a product that comes because of increased circularity within that product’s value chain.  Examples of environmental benefits include:
    • Reducing waste by remanufacturing, refurbishing, recycling or extending the life of a product.
    • Reducing pollution by reducing the need for extraction of virgin materials.
    • Lower greenhouse gas emissions by shortening transportation / distribution distances or improving the efficiency of transportation methods or routes.
  1. Customer – the benefits related to customer experience, interaction and retention that result from incorporation of circularity into a product value chain.  Examples of customer benefits include:
    • Ease of product ‘disposal’ by customers through product take-back programs.
    • Creation of customer loyalty by long term engagement in continual service / product access instead of direct product ownership (such as service contracts and lease agreements instead of direct, one-time sale).
  1. Informational – those benefits that result from a company’s ability to collect and/or control critical information through participation in a circular business model.  Examples of informational benefits include:
    • Product use data gained by analyzing used and returned ‘waste’ product from customers (through product take-back programming).
    • Product use data available through remanufacturing and refurbishment processes.
    • Increased control over proprietary materials and processes by limiting access to ‘waste’ or used product.

While the future is bright for circular economy initiatives, as with any major transition there are challenges that will need to be addressed to see economy and system wide movement to closing the material and energy loops.  The most significant and cross-cutting are all dependent on one another, and include:

  1. Culture change is required, regardless of the context or organization involved.  Companies must support a culture that allows for reconsideration of traditional thinking, models and supplier relationships.  Consumer culture must also shift to one that recognizes superior value in used, refurbished, borrowed and remanufactured product instead of direct, single ownership of only new product.  National governments must shift thinking on what waste means to better enable international trade in inputs to the circular economy.
  1. Profitability and/or cost savings must be realized by all participants in a circular economy for changes to occur.  Profitability is limited by the things in this list such as consumer acceptance, technical feasibility to make production changes and the availability of material and economic data to validate changes to business models.
  1. Technical feasibility to make required process changes, substitute materials, redesign products and deconstruct used/waste goods must exist.  While tremendous advances in chemistry, biology and engineering have allowed for many of the required technical changes, there are many more developments that must be made.
  1. Availability of data is a lynchpin to success in even the smallest loop of a circular economy.  Availability of and access to data are needed by decision makers at all levels.  Examples of critical information include remaining ore deposits, progressive costs of mineral extraction, composition and location of ‘waste’ products that can be used as process inputs, types of industrial processes that could be uniformly changed, and identification of renewable and abundant biological inputs that could be used or mimicked for substitution.

As with all things in business, identified challenges and gaps become opportunities for those individuals and companies with the foresight and skill to address them.  A brief internet search can introduce you to some companies that are working hard to address the challenges noted.

Supply chain engagement with a circular or closed loop model will have several touch points.  Supply chain and logistics professionals may have the opportunity to identify or source materials or products from manufacturers, distributors or suppliers that help maintain value within their value chain.  Remanufactured, used, and refurbished materials may be available that meet all necessary quality and other specifications of new or virgin material.

Supply chain professionals may also be able to identify substitutions for non-renewable, expensive and hard to source materials, replacing them with natural cycle (or mimicked) alternatives (renewable, low impact, abundant).  This group can also support engineering and management teams by identifying markets for production and consumer waste.  Distributor and supplier networks are critical to developing these types of partnerships.  Logistics professionals may be able to support reduced energy use (which is a goal of a creating circularity within a system) by identifying different geographical and regional sources that are closer to the manufacturing base or point of use.

The role of the supply chain professional in the inevitable transition to a circular economy cannot be overstated.  This group is very often the first to see the inefficiencies, material security risks and potential for overall reduction in materials consumption.  This group understands and connects with local value chains and understands how to identify and create valuable supplier partnerships.  For this group, their next step in this exciting shift is to become more informed on the key elements of a circular economy and understand how their skills, experience and connections can bring added value to their organizations and reduced environmental impact to their communities.

Written by: Tanis Ostermann, Owner & Principal, CanSustain