With much of the world’s economy on hold as a result of the novel coronavirus outbreak, a lot of attention is being paid to economic matters. One of the few advantages of the economic slowdown has been a noticeable decrease in air pollution. Since the novel coronavirus affects pulmonary systems, cleaner air helps. Many companies were contemplating how to become more sustainable before the outbreak and, hopefully, they will continue to pursue sustainability when things get normalized. One area of interest is the circular economy.
I started writing about the circular economy half-a-dozen years ago. At the time, it was being promoted mostly by environmentalists and they didn’t receive much press. Today that is changing. Georgia Wilson predicts the circular economy represents the future for the supply chain. She reports, “In the next 18 months, 70% of supply chain leaders are planning to invest in circular economies.”[1] She notes, however, “Only 12% have linked it with their digital strategies.” You can’t have a future that is both circular and digital without linking the two together. Wilson quotes Sarah Watt, senior director analyst with the Gartner Supply Chain practice, who stated, “The circular economy creates an ecosystem of materials. What was previously viewed as waste now has value. However, those ecosystems are complex and include many interdependencies and feedback loops. Digital technology has the potential to provide visibility and enable improved decision making when it comes to raw materials and services. Already, 35% of companies believe that digital technology will be a key enabler for their circular economy strategies, but very few are leveraging the technology for this purpose yet.”
Fundamentals of a circular economy
MIT academics Alexis Bateman, Eva Ponce, and Inma Borrella, explain, “Circular supply chains are at the heart of efforts to tackle the massive environmental problems created by waste and end-of-life products.”[2] Jonquil Hackenberg, a Managing Partner at Infosys Consulting, insists, “If we’re serious about reducing the billions of tons of plastic and other waste that gets sent to landfill or pollutes our rivers and seas, we need the corporate world to come up with creative solutions that will enable us to enjoy our products — without further contributing to the environmental apocalypse.”[3] A big part of the solution is implementing a circular economy. Wilson notes, “A circular economy is an economic model that encourages continuous reuse of materials to minimize waste, as well as driving demand for natural resource consumption.” She cites a Gartner study that concludes, “The circular economy starts with good design, end of life and raw material reuse in mind.” The Ellen MacArthur Foundation, a leading proponent of the circular economy, defines it this way:
“The circular economy refers to an industrial economy that is restorative by intention; aims to rely on renewable energy; minimizes, tracks, and hopefully eliminates the use of toxic chemicals; and eradicates waste through careful design.”
Former McKinsey analyst Markus Zils adds, “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]
Creating a circular supply chain
From the definitions noted above, it’s clear supply chains rest at the heart of a circular economy. Citing a Gartner study, Wilson reports, “The study showed that there is no ‘all purpose technology’ that will enable an organization to develop a circular economy, it is a combination of technology that leads to this. In particular supply chain leaders are using advanced analytics, 3D printing, the internet of things (IoT) and machine learning, with 38% looking to explore the use of blockchain in the next five years.” Hackenberg notes, “[The] principles of reduce, reuse and repurpose — usually overshadowed by the other ‘R’, recycle — will be absolutely critical in this battle. And that will require fundamental and far-reaching changes in our supply chains. Where once the supply chain was linear and ended with the customer — or, more realistically, in landfill or the oceans — tomorrow’s supply chain will be circular, designed to foster more reduction, reuse and repurpose through secondary, sustainable business models.”
Morgan Forde (@morgan_forde_) writes, “To successfully transition to a circular model and manage increased complexity, Navigant Research recommends manufacturing companies map out their current resource consumption and waste to identify areas of risk or regulatory exposure. Digital technologies that improve visibility and decision making about raw materials and service channels could be key to enabling this process.”[5] If supply chain visibility is challenge number one, reverse logistics has to be challenge number two. Watt notes reverse logistics is currently getting less attention in digital transformation and circularity efforts. She stated, “The difference in emphasis between delivery and reverse logistics is intriguing. On the one hand, we observe organizations using technology such as analytics and alternative vehicles to optimize their routes and reduce emissions … [but] reclaiming materials at the end of life requires reverse logistics for pickup and return to either the organization or a third party. Optimizing delivery can improve sustainability, but removing waste from the returns and material recycling processes will be key to moving the needle toward true circularity.”[6] Bateman and her colleagues suggest there is a baseline challenge that must be overcome before any action is taken — changing people attitudes. Drawing from discussions at a roundtable, they believe companies can do three things that will play key roles in making the mental shift to circularity. They are:
1. Work to change entrenched attitudes. “Thinking in circles involves questioning — and when necessary, rethinking and reformulating — established paradigms. For example, don’t think of a material or product that has reached the end of its life as trash; perceive it as a starting point for a new process that harvests its value. The concept was summed up neatly by a participant who suggested, ‘Waste is just excess material in the wrong person’s hands.’”
2. Harness buy-in internally. “Consumers do not always drive the need to shift towards circularity in the supply chain; pressure for change can come from within an organization. A leading athletic consumer goods company at the roundtable explained that its program to reuse end-of-life products was started by employees concerned about the waste the company was generating. Staff members reverse-engineered a process to disassemble used products and reuse the salvaged materials. Another attendee from the apparel industry highlighted how a product made of manufacturing scraps inspired its employees. The experience not only taught the team much about how materials can be repurposed, but it also opened their minds to other circular possibilities.”
3. External collaborations to create joint value. “Creating a successful circular supply chain is not a journey that companies should make alone. Companies at the roundtable that are invested in circular supply chains highlighted the importance of core partnerships with suppliers and downstream third parties. Sometimes it is necessary to seek out new partnerships to achieve a particular goal. For instance, a beverage company realized that recycling its tea packaging using methods it was already familiar with was unrealistic. The enterprise worked with a new supplier to create a solution that involves compostable packaging. The material breaks down into dirt for farming purposes.”
Concluding thoughts
Bateman and her colleagues insist, “The move towards circularity will become a business imperative.” Consumers, of course, must play an essential role if the circular economy is to achieve its desired goals. As Hackenberg notes, “As a species, we simply haven’t learned how to wean ourselves off our addiction to plastic and other waste generated in the supply chain. Much as we might want to reduce our waste, not many of us are quite ready for bamboo toothbrushes and home-made washing powder. … In theory, there’s nothing to stop us buying products like shampoo in our own personal bottles which we fill up from a tap in the supermarket. But if we are to move from landfill to refill, the corporate world will have to rethink their entire approach to supply chains, moving from linear to circular models.” And consumers will have to buy-in to these new approaches. Hackenberg concludes, “If we are to create truly circular supply chains, it will require a thoroughly holistic approach; one that brings retailers, manufacturers and customers together in a fully integrated way, so that each one understands their own unique responsibilities in winning the war on waste.”
Footnotes
[1] Georgia Wilson, “Circular economy: the future of supply chain,” Supply Chain Digital, 27 February 2020.
[2] Alexis Bateman, Eva Ponce, and Inma Borrella, “Linear to Circular: Reshaping Supply Chains for a Sustainable Future,” MIT Center for Transportation & Logistics, 21 January 2020.
[3] Jonquil Hackenberg, “How Circular Supply Chains Will Take Businesses From Landfill To Refill,” Forbes, 19 December 2019.
[4] Markus Zils, “Moving toward a circular economy,” McKinsey & Company, February 2014.
[5] Morgan Forde, “Gartner: Circular supply chain investments must focus on reverse logistics,” Supply Chain Dive, 27 February 2020.
[6] Ibid.
