The benefits of a circular economy are well documented, but most businesses are reluctant to put the theories to practice. According to Gartner, about 70% of global supply chain leaders intend to invest in the circular economy but only around 12% have actionable plans in terms of linking digital and circular strategies. Supply chains play a vital role in the transformation, and manufacturers and the entire production ecosystem must bring about a paradigm shift to achieve the goals of building sustainable businesses.
The transition from the ‘take-make-dispose’ attitude of linear supply chains, to the ‘take-make-recycle’ mindset of circular supply chains (Figure 1) faces roadblocks, including:
- Cost: Manufacturers must stretch their logistics networks to bring back used products and components for recycling and refurbishing. They will have to reach out to the extended supply chain involving the suppliers of their suppliers and customers of their customers.
- Complexity: Breaking down products into components is a cumbersome and complex process, especially when large numbers of small components with high economic value are involved.
- Change: The shift from linear to circular supply chains requires holistic change, starting from the way the networks are managed and operated. Manufacturers need to completely overhaul their operating models.
The growing global circularity gap
Today, the global economy is only 8.6% circular — just two years ago it was 9.1%, according to data by impact firm Circle Economy. The negative trend was caused by high rates of extraction, ongoing stock build-up, and low levels of end-of-use processing and cycling.
Figure 1: The ecosystem of a circular supply chain
Embracing circular supply chains
Manufacturers understand that circular supply chains are the future. However, total transformation requires step-by-step planning, due diligence, a proven governance model, and long-term vision. Here are some cost-effective approaches that can help manufacturers to start their journeys towards embracing circular supply chains:
a) Reduce waste: Poor planning and execution result in a lot of waste. Organizations must upskill and reskill their employees and train their suppliers to reduce waste in production and the overall supply chain. Digital technologies such as the internet of things (IoT) can identify the location, condition, and availability of raw materials. This real-time data can be fed into machine learning systems to predict failures, thus minimizing waste. Moreover, suppliers can be incentivized through rating programs to adopt best practices.
b) Reuse materials: Using renewable materials in packaging gives organizations a good start to adopt circular practices. For example, using corn-starch packaging, recycled cardboard and paper, and aluminum cans reduce cost while also saving scarce resources. Manufacturers can also consider biodegradable bubble wraps, blankets, and corrugated paper rolls for packaging different kinds of components and products.
c) Upcycle goods: Reverse logistics can be used to recover items from disposal and realize value from them. Every link in the supply chain must have collection points for recycling. The collected products can then be refurbished, renewed, and returned to the market. Manufacturers must directly get involved in the cycle. Several leading global players including Unilever, L’Oreal, and The Coca-Cola Company are already using reverse logistics to align their business processes to achieve circular supply chains. While Levi’s accepts used clothes and shoes from any brand for recycling, Dell collects damaged and used electronics to reprocess plastics for use in new products.
d) Invest in technologies: New-age technologies such as blockchain give digital identities to products. These bring transparency to the production process and improve traceability of goods in the supply chain. Manufacturers can also deploy digital twins, advanced analytics, cloud, and real-time data collection technologies to improve the efficiencies of the supply chain. Advanced forecasting algorithms using artificial intelligence and machine learning minimize errors and keep optimal inventory buffers along the supply chain. Better demand planning and demand sensing strategies help organizations reduce fluctuations of demand and supply in the extended supply chain. This would also lead organizations to avoid waste and emissions caused by overproduction.
While the pace of change maybe slow, embracing circularity is inevitable. Manufacturers realize that customers are becoming more aware and are concerned about the impact of businesses on the environment. On the other hand, regulatory agencies are also mandating the move towards sustainable business operations. In order to meet sustainability goals, manufacturers must start small, scale at pace, and begin to embrace circularity throughout their supply chains.