Circular economy enabled by the supply chain

For future business models, the supply chain will play a pivotal role in capturing the value of end-of-life goods and facilitating the adequate reuse of such. Even more, the supply chain allows products to stay at their highest level of value for as long as possible. By doing so, the supply chain will not only take on more and more important tasks and, at the same time, become more local and granular; it will also drive the circular flow of goods, link markets and provide transparency no matter how complex. This makes companies and organisations with strong supply chain capabilities key enablers and forerunners for accelerating the scale-up of the circular economy.

Companies engaged in circular economy will soon face changing and expanding business areas – and new ones can be realised. This also applies to customer relationships, journeys and individual touchpoints within them.

Organisations that are on top of these opportunities will be best placed as value-adding members in the supply chain, including logistics service providers who can easily leverage their central position. With that expertise at hand, innovative supply chain and logistics solutions can be brought to life – assuming that these are socially acceptable and fulfil net-zero ambitions. 

Making it happen… 

• Define the strategic dimensions, such as cost vs profit focus, product vs service orientation, organisational anchoring (business unit vs cross-functional) as well as operating model (make vs buy).
• Set clear guidelines for recovery and remarketing ambitions as well as products in scope.
• Understand the requirements for return management and reverse logistics according to individual product types and needs.
• Understand all stakeholders involved along the supply chain, both internal and external.
• Assess the maturity of existing or planned return management processes.
• Gain transparency into returned products and related demand in secondary markets.
• Strengthen and scale the organisation’s circular approach to leverage market potential.
• Ensure comprehensive digitisation as a basic requirement for product and inventory traceability, supply chain monitoring and information exchange across supply chain participants.
• Run continuous improvements on all dimensions and keep moving.

Dynamic and agility are two important characteristics that will help organisations remain successful. There is no “one way” or “one size fits all” when it comes to becoming – and staying – circular. Return management systems and reverse logistics requirements vary based on individual product (group) and business model attributes – and so do different demands on holistic supply chain setups.

Based on our experience at Implement Consulting Group, we have mapped out a set of characteristics along three dimensions impacting the definition and setup of comprehensive supply chain and logistics systems. These might serve as a source of inspiration for companies and organisations tapping into circularity. Circularity is no longer a question of “if” but “how”.

Regardless of which closed-loop solution is the best fit, all options lead to even greater dynamics in transport and storage that need to be planned and controlled. Hub-and-spoke systems, centralised value recovery setups, synchronised pick-up and delivery services and commercial and service agreements – just to name a few impact drivers. 

All put together, businesses will soon realise that the supply chain and logistics capabilities can act as a “margin enabler” instead of being perceived as a “margin killer”. Collaboration is the basic requirement to manage future needs. For a circular strategy to succeed, all parties involved in the ecosystem, including suppliers and manufacturers, must commit to this process and act as a joint entity. For example, while every company can take the path to digitisation on its own, circular ambitions and concrete actions need to be carefully balanced on multiple shoulders. 

The transformation required by the circular economy requires a rethinking of current material flows and the creation of transparency in the existing infrastructure. A joint commitment to retaining and adding value is the order of the day. From this, new and holistic supply chain and logistics processes must be designed and established to always take the customer into account. Companies that understand and address the role of closed-loop supply chains and the complexities of reverse logistics, in particular, will unleash the power and promise of the circular economy for the benefit of all.

How to get started

Achieving a circular economy requires a fundamental change of mindset within the business, all the way from the strategic decisions made for the company and its value chain, through the tactical ways of managing and setting goals for the company, to the day-to-day operations of designing, developing and applying circularity principles.

At Implement, we help you understand your company’s current circular readiness, which is key to planning a successful transition to increased circularity. We also assist your systematic transition to a circular economy.

The change we need to make is fundamental, and it requires sharing knowledge with and gaining inputs from as many different people within your company and your value chain. Our proven approach is designed to incorporate as many colleagues from your company as possible. In fact, we provide a measure of how inclusive you are in relation to the different functions in your company. We also help you engage with your value chain, turning good ideas and intentions into tangible actions – together, we create “change with impact”.

A manufacturer of polyethylene (PE) film for packaging is offering a circular packaging solution to its customers, including a take-back scheme and reverse logistics after using the packaging. The circular solution includes six steps:

1. Production of PE film: The company produces PE film using sustainable practices, such as recycling materials from previous applications.
2. Sales of PE film to the customer: The PE film is sold to customers who use it for packaging purposes.
3. Use of the PE film by the customer: Customers use the PE film for the packaging of their products.
4. Sorting of the used PE film by the customer: After use, the customers collect the used PE film.
5. Return and transport from the customer to the PE film manufacturer: The collected, used PE film is returned to the manufacturer via a logistics process.
6. Mechanical recycling and return to production: The manufacturer mechanically recycles the PE film, reusing up to 30% to produce new PE film.

The PE film manufacturer has several reasons for favouring this circular solution:

• Sustainability: The solution reduces the negative impacts of the packaging solution’s end of life, such as waste or CO2 emissions related to the incineration of the waste. Besides the impacts at the end of life, the demand for raw material extraction is reduced because the material can be reused. The negative impacts linked to the extraction are reduced, such as CO2 emissions and impacts on ecosystems.
• Material savings: Using recycled PE film reduces the need for virgin plastic, conserving resources. This reduces the demand for oil and breaks dependencies on oil-producing countries.
• Quality assurance: Utilising their own recyclates ensures quality control in production. In the case of plastics, there is a lack of transparency in the supply chain regarding the additives used to ensure the polymers’ functionality. If a company recycles its own plastics, the formulas are clear and do not have to be disclosed to third parties for a proper recycling process.

However, implementing this circular solution poses challenges for customers:

• Increased effort and costs: Customers may anticipate increased effort and costs associated with returning and sorting used film as well as changes in handling processes and storage space requirements.
• Lack of clear benefits: Customers may struggle to quantify the cost and CO2 savings or process changes associated with the circular solution.

In its pursuit to improve sustainable packaging practices, the company has embarked on strategic initiatives. Central to this endeavour is the active engagement of stakeholders throughout the supply chain, including suppliers, customers and partners. By fostering collaboration and open dialogue, the company aims to ensure that all parties understand the benefits of sustainable packaging solutions and invest in the process.

Recognising the significance of addressing human behaviour, the company has implemented tailored change management strategies. Through comprehensive assessments, barriers to adoption are identified, and initiatives are developed to motivate and empower employees and stakeholders to embrace sustainable practices.

The commitment to optimising logistics processes is evident through investments in technology and the forging of close partnerships with logistics providers.

Leveraging tracking systems, route optimisation software and other tools, operations are streamlined, costs are reduced, and the environmental impact is minimised. Furthermore, the company places a strong emphasis on developing closed-loop supply chains that promote the reuse and recycling of packaging materials. This includes educating customers about the advantages of participating in circular supply chains, integrating supporting technologies and implementing initiatives to incentivise the reuse and recycling of packaging materials.

Through the implementation of these strategies, significant steps have been taken to achieve sustainability objectives and deliver more environmentally friendly packaging solutions.