Creating Sustainable Value Through Circular Economy Practices

Welcome to Part Two in a 7-part series on the top seven supply chain trends for 2024. This content is adapted from our webinar, Top 7 Supply Chain Trends for 2024. Click here to watch.

What is the Circular Economy?

Sustainability has become a critical concern in supply chain management, and Circular Economy Practices are set to take center stage in 2024. Circular Economy replaces the traditional linear model of “take, make, and dispose of” with “reduce, reuse, and recycle.” The goal is to minimize waste, improve resource productivity, and create long-term value for both companies and society. As consumer demand for sustainability continues to grow, companies that embrace Circular Economy practices are more likely to succeed.

The Adoption of Circular Economy Practices

There was a dip in the focus on sustainability during the pandemic. But in 2022, and even more in 2023, companies were seeking to minimize waste, extend product life cycles, and create closed loop systems that foster environmental responsibility.

The adoption of Circular Economy practices brings forth a multitude of benefits balanced with strategic impacts that we’ll want to consider. Aside from the obvious environmental impacts, an additional key benefit is cost savings. By reusing, remanufacturing, and recycling materials, companies can reduce the need for raw resource extraction, lowering production costs and minimizing waste disposal expenses. This not only contributes to the bottom line, but it also aligns with consumer expectations for environmentally conscious programs and practices, enhancing brand reputation and customer loyalty.

Helping with cost savings and waste reduction, these practices promote resource efficiency. So rather than following a linear model of production and consumption, where products are made, used, and then discarded, a circular approach emphasizes the continual use of, and regeneration of resources. This not only conserves valuable materials, but it also reduces the overall environmental impact associated with extraction, manufacturing processes, and disposal.

But, as with any new (or call it reinvigorated) area of focus, there’s a lot to consider in investment adoption. Most new strategies involve an initial investment in both technology and a significant investment in change management. So adopting sustainable processes often involves restructuring supply chains, investing in new technologies, and educating stakeholders, including change management on the floor and education up to the top.

The Effect of Reverse Logistics on Supply Chains

The financial commitments, defining focus, and ensuring the right reporting and visibility are in place to support your efforts are all things to want to consider. And we can’t talk about this without talking about reverse logistics. What we’re seeing in reverse logistics—apart from some industries like pharma, and potentially Food and Bev—is that most brands have seen a rise in reverse logistics as consumers continue to purchase multiple items online and then return what they don’t need.

When considering sustainability, this creates unique challenges with carbon footprint and the management of return goods. Circular Economy practices involve retrieving, refurbishing, and recycling products, which demands a very robust reverse logistics system. We really encourage brands to establish efficient mechanisms for collecting used products, disassembling them, and reintegrating materials into the production cycle, in order to avoid disruption, increased costs, potential brand damage. This means that systems need to be speaking the same language and providing insights into the inventory and status of orders in order to maximize that reintegration model.

Three Circular Economy Methods

1. One way to implement circular economy practices is through remanufacturing or refurbishment of products. This process involves taking an end-of-life product, disassembling it, repairing, or replacing any damaged components and then rebuilding it into a good-as-new product. Remanufactured products often come with warranties and are sold at a lower price point than new products, making them an attractive option for customers who want to save money while still getting a quality product.
   
2. Another way to implement circular economy practices is through closed-loop supply chains. This involves creating a system where materials are reused multiple times before being recycled or disposed of. For example, companies can design products that use recycled materials or make their packaging reusable. This helps to reduce waste while creating a more efficient system that minimizes environmental impact.
   
3. In addition to these methods, companies can also implement take-back programs where they take responsibility for their end-of-life products by collecting them from customers and ensuring they are recycled or disposed of in an environmentally friendly manner. This not only reduces waste but also helps build customer loyalty and trust in your brand.

Conclusion

Adopting circular economy practices in the supply chain is no longer a choice, but a necessity for companies looking to create sustainable value while minimizing environmental impact. By implementing remanufacturing, closed-loop supply chains, and take-back programs, companies can reduce waste, create new revenue streams, and build customer loyalty. As supply chain managers, it is our responsibility to ensure that we are doing our part in creating a more sustainable future for generations to come.

However, while sustainability is something most supply chains certainly should consider, there are many moving pieces to think about in order to get it right. It’s better to have a clear, corporately aligned plan and objectives supported by the right tech, the right reporting, and the right processes. Otherwise, the positive brand equity and the savings you’re looking to build are going to backfire.