Trends & Issues

Circular Supply Chain Meets the Circular Economy and Everyone Wins

Take the principles of the circular economy and apply them to the supply chain, and the result is a stronger corporate sustainability effort. Still in its early stages, the circular supply chain takes the next steps beyond the linear supply chain.
&mdash By Sharon Ross

The principles of a circular economy are a driving force behind sustainability as a component of corporate social responsibility. First promoted by the Ellen MacArthur Foundation in 2014, the circular economy was visualized as a restorative and regenerative system in which the elements or components, products, and materials are either safely returned to the natural environment or are remanufactured, repaired, refurbished and/or recycled. The production process also incorporates sustainability best practices, such as the use of alternative energy sources and water recycling. A circular economy can only be realized when the supply chains of the world are also circular.

A circular supply chain is a closed loop system in which outputs become inputs rather than product end-of-life waste. Suppliers are key partners in making the circular supply chain possible.

Defining the Circular Supply Chain
The circular supply chain has some specific features. The supply cycle will safely return biological ingredients to the biosphere (regenerative), while manmade or technical ingredients are designed for recovery (restorative) in some manner. Recovery may be through remanufacturing, repair, refurbishing or recycling.

Like a circular economy, there are restorative and regenerative cycles, and a goal of zero-waste. Its foundation is to support the transition to renewable energy sources and contribute to economic, natural, and social capital. The concept of circular supply chain management (CSCM) has emerged over time, with each definition building on the previous ones.

One of the most comprehensive definitions that incorporates all of the foundational circular economy principles was developed by a global group of researchers from Auckland University of Technology, Jinan University, University of Essex, and Donald Huisingh. It reads, “Circular supply chain management is the integration of circular thinking into the management of the supply chain and its surrounding industrial and natural ecosystems. It systematically restores technical materials and regenerates biological materials toward a zero-waste vision through system-wide innovation in business models and supply chain functions from product/service design to end-of-life and waste management, involving all stakeholders in a product/service lifecycle including parts/product manufacturers, service providers, consumers, and users.”

Moving Away from Linear
The circular supply chain is also founded on principles of innovation. It takes new technologies and ideas and turns what is considered waste in the traditional supply chain management process into useable items or materials. It also enables the use of waste items or materials in new ways, i.e. cooking oil becomes biodiesel.

Thus the circular supply chain contributes to corporate social responsibility in a number of ways. It contributes to resource efficiencies, which prolongs the ability to produce goods. Greenhouse gas emissions are reduced through less waste decomposing and releasing methane gas in landfills. Suppliers must collaborate to create a more environmentally sound, lower-cost product flow in order to meet customer requirements, so there is a ripple effect. Businesses also meet increasing consumer demands for products produced in a way that has minimal environmental impact.

The traditional supply chain is linear (take-make-dispose). There is a beginning (in which the supply chain extracts resources from the earth and atmosphere) and an end (in which there are wastes that must be disposed of in some manner). The waste usually ends up in landfills.

The linear supply chain is very wasteful in terms of labor, energy usage, and materials usage. It also frequently violates social equity, in that the extraction of resources is often damaging to poorer economies and/or local communities, i.e. stripping the Amazon rainforest of trees, or mining for minerals using cheap labor desperate for work.

The circular supply chain is also a step beyond the lean and green supply chain.

A lean supply chain is one that focuses on improving operations, and also minimizing waste from the perspective of the customer. It concentrates on delivering products as efficiently as possible to the customer. A lean and green supply chain also focuses on improving operations and minimizing waste, but from an environmental perspective. It does not endeavor to produce zero waste, like the circular supply chain – only to minimize waste.

The Right Mindset
Managing a circular supply chain is different from managing a linear or “lean and green” one. The procurement function works with other process managers to shift their focus to matching availability of resources to the supply chain requirements.

What this means is that materials or components are sourced that minimize waste, enable regeneration or recovery after end-of-use, and use optimal energy and water resources to produce. Suppliers are selected that meet the performance objectives that also include resource efficient production, sustainable packaging, environmentally sustainable waste disposal, and take-back and buy-back programs.

Moving toward a circular supply chain is an important business and environmental sustainability step. One of the first steps in changing the corporate mindset is requiring internal buy-in to a new business model. Instead of thinking in terms of the “way it has always been done,” decision-makers need to think in terms of innovation.

A lean supply chain is one that focuses on improving operations, and also minimizing waste from the perspective of the customer. It concentrates on delivering products as efficiently as possible to the customer.
The Netherlands company Dutch AWEARness chose to become a leader in the textile industry by shifting from linear to circular production of uniforms. The company uses the Circular Content Management System, an online track and trace tool that offers transparency. Customers can see what materials have been used, who manufactured the garment, and the environmental impact of the garment’s production process. The workwear is returned to the company, which repurposes the eco-friendly materials. The mindset change is crucial to achieving transparency.

Right Thing to Do
Once a new mindset is developed, each step in the product lifecycle is evaluated in terms of environmental and social sustainability. Everything is assessed – type of materials, sources of materials and products, product designs, types of energy used, water usage, impact of sourcing and production on human lives and communities, and waste production and removal.

This is a process that must include external collaborations with suppliers and partners, and can even lead to replacing or bringing in new suppliers and partners. Not all existing suppliers may be able to meet the desired results, i.e. compostable packaging or alternative energy.

Processes must then be redesigned to improve sustainability at each step with the end goal of closing the loop. To close the loop, businesses need to identify the ways to regenerate or recover materials for reuse, recycling, remanufacturing, or repair. Finally, they must establish a reverse logistics system, so that end-of-cycle products are returned.

Changing to a circular supply chain is complex, but businesses can transform step-by-step. It does not have to happen all at once. The important thing is to begin the process because it is the right thing to do.