Supply Chains and the Circular Economy, Part 2

Stephen DeAngelis

July 27, 2021

Much is being discussed and written about the “new normal” as the world struggles to emerge from the Covid-19 pandemic. Khaled Soufani and Christoph Loch, professors at the University of Cambridge’s Judge Business School, believe the new normal will (or, at least, should) include a greater focus on sustainability. They explain, “It is widely accepted by now that the ‘normal’ supply chains of material use — producing materials, using them, and then discarding them into landfills, other countries, or rivers and seas — are wasteful and damaging to the environment. … It’s easy, therefore, to see why consumers and policymakers have become interested in the concept of the ‘circular’ supply chain, in which at least a large fraction of materials is recycled and reused in the product.”[1] They conclude, however, “Despite the interest, we are a long way from achieving anything like circular supply chains.” In the first installment of this two-part article, I discussed why circular supply chains are a good idea — even if they are difficult to implement. In the concluding part of the article, I want to discuss some specific things experts suggest supply chain professionals can do to make their supply chains more circular.

 

Vicki Folmar, an expert in business process design, data analysis, and decision support applications involving optimization in the supply chain management and energy industries, explains that sustainability and circularity are different, but complementary. She explains, “Almost every company these days has a sustainability page on their website. Some use the term circularity. You can think of circularity as a subset of sustainability. Sustainability refers to safer, greener, more responsible operations as they relate to people, the planet, and profits (i.e., the triple bottom line (TBL)). Circularity does this as well but focuses on the resource cycle and waste specifically.”[2] Circularity is more difficult to implement.

 

The Way Ahead for the Circular Supply Chain

 

Design

In a summarization of an Oxford Economics study, entitled “The Sustainable Supply Chain Paradox: Balancing the Bottom Line with the Green Line,” Richard Howells (@howellsrichard), a Vice President over Solution Management for Digital Supply Chains at SAP, writes, “Sustainability was a major focus pre-pandemic, and it is clear from the study that this will be the same post-pandemic.”[3] Howells observes that a sustainable supply chain begins with design. “Companies need to think ‘sustainable’ from the start of a product’s life,” he writes, “by designing products and packaging that are biodegradable and environmentally sustainable.” Markus Zils, a Professor for Circular Economy and Management Science at the University of Exeter Business School, agrees products need to be designed from the get-go to be sustainable. He explains, “The circular economy aims to eradicate waste — not just from manufacturing processes, as lean management aspires to do, but systematically, throughout the life cycles and uses of products and their components. Indeed, tight component and product cycles of use and reuse, aided by product design, help define the concept of a circular economy and distinguish it from the linear take-make­-dispose economy, which wastes large amounts of embedded materials, energy, and labor.”[4]

 

Plan

Planning also plays an important role in making supply chains more sustainable. Howell writes, “The saying goes, ‘If you fail to plan, you plan to fail.’ This is true of a sustainability initiative. Businesses need to:

 

  • Drive planning processes that strive to reduce emissions and satisfy demand with sustainable, ethically-sourced supply.
  • Increase forecasting accuracy to reduce obsolete inventory.
  • Predict end-of-life scenarios and support circular processes.
  • Simulate the CO2 footprint of the plan through procurement, production, and transport.
  • Report actual results to compare to the plan to identify successes and areas for improvement.

 

Folmar adds, “Achieving full-scale sustainability and circularity cannot happen without end-to-end alignment, hierarchical connectivity, integration of all parts of your supply chain (forward and reverse), performance metrics, and business processes. And this alignment needs to be part of your existing supply chain before you can take it to the next level.” Achieving that kind of alignment takes a lot of planning and great execution. Folmar writes, “To begin thinking about transitioning to a circular supply chain, consider these 7 Phases of a Circular Supply Chain: 1) Identify Waste – Measure as a ratio of material into material out; 2) Intensify the Circles – Maximize material utilization; 3) Narrow the Circles – Reduce the number/amount of resources needed (e.g., Kaizen, Lean manufacturing); 4) Predict – Determine when, where, how, and what resources are ready for others across the supply chain network; 5) Slow the Circles – Extend the life of your products; 6) Close the Circles – Defines the ability to source only secondary or regenerative materials; and 7) Capture the Circles – Locate and transform secondary materials (e.g., ocean plastics, product takebacks).”

 

Implement

Chris Cunnane (@ccunnane), a Senior Analyst with the ARC Advisory Group, writes, “More and more companies are looking to reduce waste and turn their supply chain operations into a circular economy. There are a few ways companies are able to achieve this goal using reverse logistics and returns management. … The decision to re-use, refurbish, re-manufacture, or recycle goes a long way to improving sustainable supply chain operations and building a circular economy. However, it is clear that more work needs to be done. For those items that cannot be salvaged, close to 40 percent are still be discarded rather than recycled. To truly build a circular supply chain, companies need to make the commitment to re-using, refurbishing, re-manufacturing, and recycling. Otherwise, nothing is going to change.”[5] According to Soufani and Loch, implementing a circular supply chain is impossible unless all stakeholders are on board. In order to do that, they write, “[Companies must be] able to unlock and share enough value from recycling so that each participant in the supply chain benefits and chooses to participate.” Unfortunately, they note, “There are systemic reasons in our economy that make this hard to achieve.”

 

They believe circular supply chains will only become a reality when they become more localized. They explain, “In the majority of human supply chains, product parts have proliferated and production has been centralized in order to achieve two critical goals: performance via specialization of parts (many specialized materials and designs that add functionality) and economic efficiency via economies of scale (large plants that share fixed costs and deliver to a wide area with an elaborate distribution system). Because most supply chains have optimized for these goals, adopting circular business models is prohibitively expensive, certainly in the immediate future.” Deborah Dull (@circular_nomad), Founder of The Circular Supply Chain Network, agrees that circular supply chains must be more localized. She tweeted, “A short supply chain is a happy supply chain.” Soufani and Loch conclude, “The bottom line, at least for the foreseeable future, is that making cyclical supply chains widespread will require that business gives up some of the economies of its large manufacturing plants and cut back on the specialization (and thus the feature performance) of parts.”

 

Concluding Thoughts

 

Folmar is not quite as pessimistic as Soufani and Loch, although she does admit, “Circular supply chains are small supply chains, where waste is not waste; it is a resource.” Can companies be tempted to reduce the size of their supply chains? According to Folmar, economics may convince them. She writes, “We know that companies that embrace sustainability and circularity are outperforming traditional business models more and more. It is no longer something to do just to look good or be nice; it is financially better as well.”

 

Footnotes
[1] Khaled Soufani and Christoph Loch, “Circular Supply Chains Are More Sustainable. Why Are They So Rare?” Harvard Business Review, 15 June 2021.
[2] Vicki Folmar, “Sustainability & Circularity in Your Supply Chain Planning,” Arkieva Blog, 18 May 2021.
[3] Richard Howells, “Sustainable Supply Chains: Balancing the Bottom Line and the Green Line,” SAP News, 17 May 2021.
[4] Markus Zils, “Moving toward a circular economy,” McKinsey & Company, February 2014.
[5] Chris Cunnane, “The Circular Supply Chain: A Push for Sustainability,” Logistics Viewpoints, 16 June 2021.