In recent years, it has become increasingly urgent for business leaders to deliver real action on sustainability by adopting circular supply-chain models. So much so, that over half of executives believe circularity will be the norm for all companies by 2032.
The good news is that embracing sustainability through circular supply-chain models doesn’t necessarily mean you have to take a profit hit. For example, McKinsey & Company analysis has shown that consumer goods companies have the opportunity to shift to circular value pools worth more than €500 billion in annual revenues by 2030 in Europe.
Even so, if the thought of moving to a more sustainable supply chain model seems overwhelming after enduring the supply chain bottlenecks and disruptions of recent years, you’re not alone.
It’s why we’ve created this guide to help you get a headstart on the next normal of circular supply chains.
Why all the focus on circular business models and supply chains?
Company supply chains reflect their business model. Traditional business models have been described as ‘take, make, waste’. Circular business models, on the other hand, have been likened to ‘turning trash into treasure’. Instead of accepting waste as an inevitable consequence of selling goods, circular business models strive to eliminate waste or recover discarded materials to use again.
Why are circular business models and supply chains gaining traction in the business world?
According to the Global Footprint Network, our annual consumption of Earth’s resources is about 75% more than its capacity to regenerate. In response to these environmental pressures, consumers are increasingly choosing products that reflect their values regarding sustainability.
According to Joe Donnachie, Supply Chain Finance Manager at Octet, shifting consumer demand is an important driver of business model transformation and the move away from linear supply chains.
“The overarching sentiment is that it’s no longer acceptable for businesses just to carry on and disregard measures to make them more sustainable,” says Mr Donnachie. “Consumer ethics are really coming into play, with some demonstrating that they’re willing to pay more for a product, knowing that it has been delivered via a more sustainable supply chain.”
Of course, transforming from a linear supply chain to a circular model is easier said than done, and so businesses face a number of challenges.
Complexity of supply chains. There is significantly more complexity and size involved in a circular supply chain than in a linear one. For example, you may not currently oversee the recovery of materials at the end of a product’s life cycle. It may be necessary to develop a reverse logistics strategy. In the same way, durability and recyclability might need to be accommodated during the initial product design phase.
- Complexity of supply chains. There is significantly more complexity and size involved in a circular supply chain than in a linear one. For example, you may not currently oversee the recovery of materials at the end of a product’s life cycle. It may be necessary to develop a reverse logistics strategy. In the same way, durability and recyclability might need to be accommodated during the initial product design phase.
- Lack of integration between all supply chain stakeholders. In order to create a circular supply-chain model that works, every upstream and downstream stakeholder in your supply chain needs to be on board. This requires a great deal of collaboration, communication and investment in supplier relationship management.
- Cash-flow pressures. Initiating a circular supply chain can put a strain on cash flows as a company transitions to a new business model. One common circular business model involves providing consumers with products as a service, such as on rent or rent-to-buy agreements, rather than purchasing them outright. This requires a larger working capital buffer because of the longer payback period involved.
Mr Donnachie says that it’s possible for circular business models and supply chains to be more profitable than linear models, but it requires a perspective change.
“Circular models require a significant rethink in how waste is handled across the organisation’s entire supply chain.”
In order to transform into a circular model, Mr Donnachie says that boards and executives will have to actively communicate and champion the change.
“The transformation needs to be explained effectively to investors and customers, especially around the changing mindset. It should be clear that while financial returns will not be the same during the teething period, the business will be on its way to a financially sustainable model. Also, it can’t just be top-down messaging. It is imperative that everyone buys into the change and gets on board.”
How to improve sustainability in your supply chain
Despite the challenges associated with fully transforming to a circular business model, you can improve your supply chain’s sustainability in the short term.
According to a recent IBM survey, more than 500 chief supply chain officers identified these actions as their top priorities in the next three years to progress their circular supply goals:
To reduce waste and re-use materials, 47% of companies are implementing full life-cycle design of both materials and products.
- 44% aim to make their products and services more energy efficient.
- 35% expect to use renewable energy components to launch new products and services.
- 30% intend to develop “new zero-waste products and services”.
Of these actions, circular economy experts recommend starting with the simplest option. In this case, improving energy efficiency is the most straightforward course of action while you work towards the longer-term goal of full life-cycle design.
Mr Donnachie says another option to get started on circularity is to assess your business’s end-to-end waste generation.
“Remember to think about the waste generated from packaging and manufacturing products. After your initial assessment, identify if there are any targets or goals you could implement within your business to incorporate more sustainable measures. It’s like getting your house in order first before addressing the wider supply chain ecosystem.”
According to a PwC Australia report, it can be helpful for your leadership team to consider the following questions when reviewing end-to-end waste generation:
- Would it be possible to incorporate waste into your value proposition rather than reporting it as an expense?
- Who’s responsible for waste resource strategies?
- What impact would becoming more sustainable have on your brand?
- Are you missing out on a chance to create value?
It can also help to investigate your competitors’ actions in order to develop more ethical and sustainable supply chains.
Circular supply chain examples in action
Here are some real-life examples of circular supply-chain and waste-reduction initiatives that you can use as inspiration for your own projects.
JB Hi-Fi Group commits to reducing e-waste
In 2021, JB Hi-Fi Group launched eMeals in partnership with the social enterprise PonyUp for Good. As part of the eMeals recycling program, unwanted technology is picked up from consumers and sent to Australian-based recyclers.
The initiative covers any unwanted technology items, not just those purchased from JB Hi-Fi or The Good Guys. eMeals not only helps reduce e-waste but also supports food-waste reduction. With every waste collection booking, PonyUp for Good donates the equivalent of five meals to SecondBite, a food-rescue charity.
IKEA aims to transform into a circular business
Furniture giant IKEA has committed to transforming its business to become circular by 2030. To do this, they are working to ensure all their products are designed so that they can either be “reused, refurbished, remanufactured and eventually recycled”.
To date, they have:
- developed a circular product design guide
- assessed the circularity potential of more than 9,500 items in their existing product range against their new design guide
- created roadmaps to achieve circular product development by 2030
Since action on the product roadmaps started in 2021, IKEA says that they are on track for their 2030 goal. According to their website, “the average fulfilment rate was 76%, and the lowest-performing product rate was 36% (FY20: 28.6%).”
Power your transformation to a circular supply chain with Octet
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Disclaimer: The following comments are only our views and should not be construed as advice. You should act using your own information and judgment. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgment as at the date of publication and are subject to change without notice.
