Industry Trends

How To Fit Your Supply Chain into the Circular Economy?

Over recent years, sustainability in supply chains has evolved from an industry buzzword to a strategic requirement for global companies. Even without large consulting reports, it is now evident that the traditional supply chain model has serious flaws and is harmful to the environment.

As environmental issues become more apparent, both businesses and government officials are working on ways to produce less waste and pollution without sacrificing profits and ROI to investors. . Around 40% of supply chain organizations say sustainability is “very important” to their company, and nearly 30% name it “extremely important”.

Supply chain sustainability comes in a variety of shapes and sizes, Sustainable Development Goals (SDGs) for global supply chains have been established by the United Nations (UN). These SDGs are a set of 17 interconnected global objectives that are meant to serve as a “blueprint for a better and more sustainable future for everybody.” 

The United Nations General Assembly established the Sustainable Development Goals (SDGs) in 2015, with the goal of achieving them by 2030. They are part of a UN Resolution called the 2030 Agenda.

The term ‘sustainability’ has grown into something larger and more sophisticated: a more complex, multifaceted idea, that is now often referred to as the circular economy. In fact, 70% of supply chain leaders are planning to invest in circular economies in the near future. 

What is a circular economy? 

A circular economy is an economic system focused on reducing waste and maximizing resource utilization. Circular systems use re-use, sharing, repair, refurbishing, remanufacturing, and recycling to produce a closed-loop system that reduces waste, pollution, and carbon emissions while minimizing resource requirements. 

The key to constructing this economy is to keep items, equipment, and infrastructure in use for extended periods of time, as well as increase the value of these vital resources. Essentially, it all comes down to reducing waste and disposable products as much as possible. 

To fit this framework, supply chain leaders must evaluate how sustainable each product component is, how it is created, how it is packaged, what happens to the packaging, and what occurs when it reaches the end of its lifecycle.

Circular supply networks give verifiable insights into supply chain carbon footprints, enabling companies to meet net-zero targets. The choice to reuse, refurbish, remanufacture, or recycle goes a long way toward enhancing supply chain sustainability and fostering a circular economy.

Building a circular supply chain

One part of the supply chain that plays a critical role in the circular model is reverse logistics. Returns are becoming increasingly common, especially in the retail, e-commerce, and CPG sectors. It appears that how a business manages returned products directly affects the possibility of building a low-waste supply chain. 

ARC Advisory Group conducted an insightful survey about reverse logistics in the context of the circular economy. Let’s take a closer look at the results, showing what companies actually prefer to do with returned goods:

  • 64% of companies that sell apparel and other non-electronic items just reuse the returned item and sell it “as is” once it is returned.
  • 54% of businesses that sell consumer electronics refurbish the item and then sell it.
  • 27% of companies remanufacture the item, which indicates the item is treated to higher standards than refurbishing.
  • 60% of respondents recycle the item when they cannot restore it to the shelf condition.
  • 40% of respondents disposed of the items when they were irreparable

Evidently, committing to an adequate returns management and recycling strategy is a vital activity for a more sustainable supply chain. 

Despite all the given interest and general requirements, the circular supply chain model is far from common and will continue to be a small part of the overall economy in the near future. Moreover, a few factors complicate the shift from one model to another, making sustainability a rather expensive practice.

Of course, particular businesses and even industries have found ways to capitalize on recycling practices and make them very profitable. For example, aluminum (with 75% of aluminum cans recycled in the UK alone), furniture, and clothing are easy targets for profitable recycling. 

However, supply chains are complex constructs with many stakeholders involved. Building a genuinely circular process requires the participation and commitment of most players. In some cases, it can mean a focus on localizing and centralizing production, working with more suppliers, and superior fulfillment management. 

When the resources are locally available, they are cheaper and easier to obtain than materials from outside, which minimizes the cost of reuse and raises its value. To recycle and remanufacture items or components, collecting systems need to span considerable distances to return from the end of the supply chain back to the production site, or supported by local re-use facilities.

The good news is that technological solutions allow global enterprises and smaller companies to make slow but steady steps towards sustainability and circularity. While it is hard to make a shift right now, setting a circular model as a long-term goal with calculated risks and possibilities will bring fruitful results to companies in the long run. 

How can supply chain technology help fit into the circular economy model?

In recent years there has been a tendency to move away from linear, sequential supply chain models — and for good reason — a transparent, well-integrated supply chain not only benefits the environment but also keeps you up to date with all current activities and helps you to identify problem areas early on.

Circular supply chains are, in fact, tightly linked to the concept of supply chain 4.0 or the new digital generation of supply chains. The digital infrastructure allows companies to see and manage processes simultaneously and in real-time. 

Despite it being impossible to build a circular supply chain without a sophisticated tech infrastructure, only 12% of companies who want to become sustainable have linked their digital and circular economy strategies so far.

According to Sarah Watt, senior director analyst with the Gartner Supply Chain practice, “the circular economy creates an ecosystem of materials. As a result, what was previously viewed as waste now has value. However, those ecosystems are complex and include many interdependencies and feedback loops. 

Digital technology can 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 crucial enabler for their circular economy strategies, but very few are leveraging the technology for this purpose yet.

Stakeholders can react rapidly to interruptions everywhere thanks to the flow of reliable planning data from the raw materials supplier to the end consumer. Collaboration throughout the value chain will eventually result in considerably reduced inventories, shorter lead times, and a global understanding of what’s going on in a given supply chain ecosystem.

Accelerating your supply chain with Agistix 

Agistix is a global supply chain visibility provider that enables businesses to keep a finger on the pulse of their supply chains, reaching true visibility through data centralization. 

Agistix’s solutions support the requirements of today’s quickly evolving data interfaces and formats, enabling a non-disruptive and efficient change for businesses.

Learn more about Agistix’s sophisticated and practical solutions here.

Author

Trevor Read

President at Agistix based in San Francisco. I am an entrepreneur with a passion for data, and technology. I am results-oriented and committed to developing fast-deployment solutions to help customers seize the new opportunity coming from big data in the global supply chain.