Increasing sustainability awareness and tighter environmental regulations are driving the consumer demands for more recyclable or reusable materials and sustainable solutions. Developing companies’ value chain by the way of circular mindset would enable businesses to pursue sustainable growth and profitability.
Circular economy was first coined by Pearce and Tuner since early 1990s. The classical linear economy is based on traditional production model, focusing on manufacture of products, economies of scale, and the growing customer demands.
Meanwhile circular economy is paying attention on new needs related to resources and waste distribution, to material and products recycle as well as recovery.
Consequently circular supply chain promotes transformation from linear to circular model of flow of products. In the conventional linear supply chain, business takes, produces and discards; in circular supply chain model, resources and material are used for as long as possible, leading to minimized waste and harmful impacts.
The end-to-end supply chain management involves numerous actors. Therefore, the cooperation between internal and external stakeholders facilitates the evolution from linear to circular supply chain.
Internally, company leads the process of product development, production and distribution which empowers itself to be a critical actor in the supply chain, as its strategy and decisions will have a cascading effect on all other actors. Externally, from relational structure angle, we discuss about actors such as suppliers and customers.
Embedding circular supply chain strategy in full range of activities in value chain, we present Design, Source, Manufacture, Logistics and Sales as key stages. External actors suppliers and customers are discussed in Source and Sales stages.
Design – There are two main pillars for application of supply chain circularity: one is maximizing the cycle of recycling, reproduction and renovation; the other one is extending the period of time which the materials are in use. Both aspects rely on circular product design guidance.
Product design is the first step towards a mindful choice regardless of industries and businesses. Swedish furniture group Ikea has developed Circular Product Design Principles to guide the development of every product, committed all products will be circular by 2030.
Technologies such as augmented reality technology (AR), 3D printing are applied to eliminate programmed obsolescence; similarly, the rapid development of network has enabled advantage of less intermediaries and better efficiency.
Source – Typical problems to consider in sourcing process are sources qualification, location and routes.
Responsible companies often concern working standards and conditions not only for themselves but also for their suppliers.
Pharmaceutical company Novo Nordisk has requested all 60,000 direct suppliers to provide goods and service using only renewable power by 2030.
Fast-fashion cloth retailer H&M work with organizations such as WWF and Swedish Textile Water Initiative (STWI) to help supplier mills to improve sustainability performance.
As for the location and routes problem, it is reasonable for all companies to favour less trips and shorter routes regarding costs and emissions. So, it’s recommended to choose local suppliers close to the operation markets to reduce costs of transport, warehousing, inventory carrying and duty costs in the circular supply chain system.
Moreover, choose sustainably sourced materials can reduce impact on intense water and chemical use. H&M guaranteed that by 2030 at the latest, it will only source recycled or other sustainably sourced raw materials.
Manufacture – The Economist recently estimated that, with bold action, renewable electricity such as solar and wind power could rise from the current five per cent of the world’s supply to 25 per cent in 2035, and nearly 50 per cent by 2050.
“Solar has become an increasing viable option through technological advancements” according to Judith Swales, Fonterra Asia Pacific CEO. From Kaitaia in New Zealand’s Far North to Malaysia’s capital Kuala Lumpur, New Zealand diary company Fonterra has adopted solar power at production sites to help with energy needs and tread a lighter path.
Novo Nordisk recently announced that it has achieved goal of using 100% renewable electricity – wind, water and solar - across global production by 2020. Its ambition is to have zero CO2 from operation and transport by 2030.
Logistics – Both normal logistics and reverse logistics are fundamental to the application of circular supply chain.
Logistics companies and inhouse logistics department have been on the journey of sustainable logistics for a long period from costs as well as emissions perspective.
For example, Ikea has started collecting packaging materials and reused them as packaging materials again more than 10 years ago, and more recently using them to up-cycle into valuable products (example: SKRUTT desk protector). Ikea has removed all wooden pallets and replaced with paper pallets, enabling an increased volume of products in each shipment. The result is a reduction of CO2 emissions and approximately 50,000 less trucks on the roads in Europe alone.
Reverse logistics encourage the return of material which require the design of circular business models, including remanufacturing, reuse, repair, refurbishment and recycling.
Significant investment in resources and collection system are involved in this close-loop organization.
Technology can be a major enable of reverse logistics. The integration of Industry 4.0 by using Internet of Things (IOT) and identification technologies (RFID, NFC, GPS and etc.,) is easier to identify, locate, track and communicate with components and products. The product life cycle management is facilitated by those real-time data collection tools.
Sales – In traditional linear economy, customers are playing a passive role as the final point in the supply chain. Yet in circular supply chain, customers are expected to take an active part in recycling of materials and recovery of products.
As a result, it is crucial to consider customers other than commercial relations beyond sales in diverse industries. Implementing campaigns educates customers for sustainability; proper rewarding programs motivate green consumptions and collection of wastes or products.
The circular mindset should be integrated in each step of the closed loop covering Design, Source, Manufacture, Logistics and Sales. As end-to-end supply chain expertise, we Forizons has improved clients economic performance by optimizing costs and socio-environmental performance by operating sustainable supply chain.
We support clients’ transformation with circularity in all supply chain steps.
We are living in a fast-changing and innovative time. What we understand about circularity and sustainability today, is sure to evolve. We together with our clients are in the journey towards a circular supply chain.