Understanding Circular Supply Chain: Key Concepts & Benefits
The concept of a circular supply chain is gaining traction. Businesses are increasingly seeking sustainable models that minimize waste and maximize resource efficiency. This approach contrasts sharply with the traditional linear model. The latter follows a ‘take-make-dispose’ pattern. Instead, the circular supply chain focuses on reusing materials continuously, ensuring that products and resources maintain their utility and value over time.
In recent years, we have all experienced the economic turmoil caused by global crises – from the Covid-19 pandemic to the Russian invasion of Ukraine and the multiple disruptive impacts of climate change. As a result, vulnerabilities in global supply chains have been exposed and questions have been raised about the resilience of the international trading system
Amelia Kuch, Policy Insights Manager, Ellen MacArthur Foundation
What is a Circular Supply Chain?
According to the Supply Chain Worldwide Survey, 70% of the companies surveyed perceive their supply chains to be highly complex.
A circular supply chain integrates various processes and stakeholders to design out waste and keep resources in use for as long as possible. This model includes recycling and rethinking how resources are used throughout the supply chain—from raw material sourcing to product design, manufacturing, and beyond.
Key Concepts of the Circular Supply Chain
Sustainable Sourcing
The journey starts with sustainable sourcing materials. This means they are either renewable or made from waste materials. Companies are increasingly turning to suppliers who can provide materials that can be perpetually recycled. Alternatively, businesses prefer suppliers who implement practices that reduce environmental impact.
Design for Longevity
Products are designed for a longer lifecycle, with consideration for future reuse or recycling. This might involve designing for easy disassembly to facilitate recycling. In some cases, materials that can be easily refurbished and sold again are chosen.
Return Systems
Effective return systems are crucial for recovering end-of-life products. These systems ensure that materials are returned to the supply chain rather than disposed of. Companies might use buy-back schemes, leasing models, or simply encourage returns through customer incentives.
Remanufacturing and Recycling
Once products are returned, they can be remanufactured or recycled. Remanufacturing involves refurbishing a product to a like-new condition, while recycling involves breaking down a product to its raw materials to produce new items.
Benefits of a Circular Supply Chain
Transparency
Driving supply chain transparency brings various benefits and opportunities. It enables new business models and value propositions, strengthens relationships between companies, suppliers, and customers, and allows for monetization of collected data.
Achieving transparency involves increasing visibility, traceability, and sharing information with authorized stakeholders. It helps stakeholders make better-informed decisions and addresses the objectives of multiple parties, such as business leaders, partner organizations, regulators, and consumer groups.
Transparent supply chains promote ethical and sustainable practices, reduce risks and costs, improve response capabilities, ensure product quality, and enhance communication and performance management within organizations.
Reduced Environmental Impact
By reducing waste and encouraging the reuse of materials, circular supply chains can significantly lower the environmental footprint of manufacturing and consumption. This reduction is crucial in battling climate change and resource depletion.
Cost Savings
The initial costs of setting up a circular system can be offset by the savings generated from reduced material and waste disposal costs. Over time, businesses can achieve greater cost-efficiency by reusing materials and optimizing supply chain operations.
Enhanced Brand Image and Customer Loyalty
Implementing a circular supply chain can enhance a company’s brand image and attract customers who are conscious of environmental issues. This can lead to increased customer loyalty and new business opportunities.
Challenges to Implementing a Circular Supply Chain
While the benefits are clear, the transition to a circular supply chain is challenging. These include the need for significant upfront investment, restructuring procurement processes, and developing new business models that prioritize long-term gains over short-term profits.
Having the right mix of capabilities is fundamental in achieving true supply chain and realizing its value potential.
Here Are Some Steps for Businesses to Consider
- Think strategically about supply chain changes: With global supply chains always shifting, it’s crucial for businesses to adapt smartly. This means understanding how different industries are connected and realizing that raw materials are always in demand worldwide. Instead of seeing these changes as obstacles, businesses can view them as chances to improve their responsible sourcing strategies.
- Put responsible sourcing first: Even with geopolitical tensions and a trend towards less global trade, it’s important for businesses to prioritize responsible sourcing. Following international standards for sustainability and ethics, such as cutting emissions and respecting workers’ rights, is not just a good idea—it’s expected by both regulators and customers.
- Get involved in collaborative sourcing efforts: Joining forces with other stakeholders in initiatives that promote responsible sourcing across different places and sectors can make sustainable practices even stronger. These collaborations show how working together on a global scale can lead to better responsible sourcing. Example:
- Strategy: Create a future-proof strategy built on long-and short-term objectives
- Procurement: Focus on accurate supplier mapping and assessments
- Sustainability: Drive positive social and environmental impact across the value chain
- Data & Analytics: Disclose and use real-time and data-driven information to enable decision-making
- Technology Solutions: Integrate and embrace technical capabilities and solutions i.e. blockchain
- Customer & Innovation: Use innovative technologies for a customer-centric supply chain
- Keep up with global sourcing standards: As responsible sourcing expectations become more predictable, especially in uncertain political times, it’s vital for businesses to keep their sourcing strategies in line with global norms. This not only reduces the risk of damaging your reputation but also helps position your business as a leader in sustainability and responsible sourcing.
The Future of Circular Supply Chains
As technology evolves and more businesses recognize the benefits of a sustainable approach, circular supply chains will likely become more prevalent, since is essential for addressing uncertainty, managing risks, and mitigating disruptions. Innovations in materials science, IoT technology for tracking resources, and greater consumer awareness will drive further adoption of this sustainable business model.
Read our case efficiency for a smart supply chain management.
Visit our circular economy design and delivery services page to learn how we integrate circular principles in our projects and help businesses transition towards more sustainable practices.
Interested in transforming your business with sustainable innovations? At INDEED, we specialize in developing and implementing circular supply chains that preserve the environment and enhance business efficiency.
See our success stories to discover how we can assist you in this transformation and ensure your operations are future-ready. Join us in pioneering a sustainable future. Let our skilled experts at INDEED Innovation help you develop impactful solutions customized to your business requirements. Stay updated on the latest insights and innovations by subscribing to our newsletter from the INDEED Innovation team.
Larissa Scherrer
Marketing Strategy
Brand Positioning
Social Media Strategy
