Sustainability has become an increasingly important consideration for businesses in recent years. Gartner’s most recent CEO survey showed sustainability is the fastest-growing strategic business priority – up 292% since 2021 and now in the top 10. This growing interest in improving and addressing sustainability has prompted many businesses to re-examine their supply chains. In many cases, ideas around how to make supply chains greener have developed in parallel to the circular economy discourse.
Traditionally, most businesses have had a linear supply chain with a straight path from raw materials to production, distribution, and disposal. Increasingly these supply chains are seen as inefficient and costly, as Bloomberg reports. They often account for more than 90% of a business’ greenhouse gas emissions and 50-70% of their operating costs, according to EY. BCG says they are also the main driver of biodiversity loss. For businesses wanting to improve their sustainability, reassessing and rethinking their supply chains is a crucial step.
The World Economic Forum describes the circular economy as ‘restorative or regenerative by intention and design.’ The Ellen McArthur Foundation explains the goal is to stop waste from being produced in the first place. Whereas linear supply chains are based on the ‘take-make-dispose’ model, circular economy supply chains use a closed-loop system based around reuse, sharing, repair, refurbishment, remanufacturing, and recycling. This system is underpinned by circular economy logistics, including reverse logistics, which enable the circular flow of goods and links resources, products, and consumers.
The benefits of a circular economy supply chain
One chief executive officer writing for the World Economic Form described the circular economy as ‘the business opportunity of our time.’ However, according to the latest Circularity Gap Report, the world is currently only 8.6% circular. If there is no increase in circularity and if current consumption levels continue, the World Business Council for Sustainable Development calculated that the ecological resources of 2.3 planets will be needed by 2050. Circular economy supply chains, supported by circular economy logistics, offer a more sustainable path forward and offer businesses many benefits, including:
- Reduced waste and emissions - the Chartered Institute of Procurement and Supply (CIPS) reported that each year 8% of stock worth over 163 billion USD is wasted before reaching end-customers. A circular economy reduces material use, and redesigns materials, products, and services to be less resource intensive. If ‘waste’ is produced, it can be recaptured for new materials and products. By reducing the need for virgin materials and better using resources, it also has the potential to reduce greenhouse gas emissions by 39%, according to the Circularity Gap.
- Reduced resource consumption – a circular economy supply chain closes or slows resource loops, minimising raw material extraction. It optimises materials, resources, and processes, encourages the prioritisation of more durable products or extending life spans through reuse, repair and remanufacture. Circular supply chains could reduce our total material footprint by 28% by 2032, according to the Circularity Gap.
- Boosted resilience – according to Harvard Business Review, 52% of global businesses consider improving supply chain resilience to be a priority. As Professor Omera Khan writes in her book, Product Design and the Supply Chain, circular supply chains improve resilience by using fewer raw materials and tapping into nearshore supply chains of recycled materials, which reduces exposure to increasingly frequent supply chain disruptions and volatile material prices.
- Reduced costs – with a circular supply chain, processes and systems are streamlined and materials and resources are used more efficiently. Professor Khan also points out that circular supply chain products can have lower material costs because they use fewer materials, or they reuse materials that do not need to be purchased. Accenture calculates that circular strategies could generate an additional 35 billion USD in value in consumer goods by 2030 from reduced costs. Because a circular economy limits waste, it reduces a business’ waste management expenses. Products designed to be lighter and packaged more efficiently can also lower transport costs.
Beyond businesses, circularity has potential to make a difference on a global scale. Research by Accenture shows the circular economy could generate an extra 4.5 trillion USD in global economic activity by 2030, primarily through job creation and innovation. The International Labour Organisation (ILO) says circularity could lead to a net increase of 7-8 million jobs by 2030, particularly in the areas of repair, rent, remanufacturing, and recycling. While 71 million jobs will disappear in coming years, the circular economy will create 78 million jobs. Though 49 million workers will find vacancies in other industries in the same occupation and the same country, the rest will need to consider upskilling and reskilling to tap into new opportunities brought about circularity.
What are circular economy logistics and reverse logistics?
China has been one of the pioneering countries in this space. It introduced its Circular Economy Promotion Law in 2008. More recently, the European Union announced a circular economy action plan (CEAP) to transition the European economy from a linear to a circular model. The G7’s Resource Efficiency Alliance has also been tasked with looking at resource efficiency and the potential of a circular economy. For many businesses, transitioning to a circular supply chain is already under consideration. A 2022 Gartner survey of supply chain leaders found 54% were already integrating circular economy products into the planning process, while 74% were expecting profits to increase between now and 2025 through applying circular economy principles.
Circular supply chains cannot succeed without the accompanying transformation of logistics. As EY explains, logistics is the engine of the circular economy. To meet its full potential, logistics needs to extend beyond linear, one-way structures to include new activities and reverse logistics, such as collection and processing. The potential is huge. The reverse logistics market was valued at 635.6 billion USD in 2020 and is projected to reach 958.3 billion USD by 2028, according to Allied Market Research.
Reverse logistics starts at the end consumer and works back to a distributor or manufacturer. The aim is to recoup value and nurture repeat customers. For example, it could be reusable packaging for the food and beverage industry. In the automotive industry, it can be applied to the recovery and reuse of parts and materials from end-of-life vehicles. In some cases, logistics-related businesses may choose to go beyond transport and storage and help with the disabling and processing of returned goods and returning them to market.
Professor Khan argues that businesses transitioning to a circular economy need to ensure their focus is broader than the core product, and that reverse logistics and circular economy logistics need to be considered alongside other aspects of the product, including design and packaging. Some questions, she suggests considering include: is it possible to make the product lighter? Does it produce fewer harmful effluents or pollutants in manufacture, transport, and use? Can it be packaged more efficiently? Considering all aspects of the product together helps ensure the circularity of the product is optimised.
Pushing ahead with circular economy supply chains
The imperative to move towards a circular economy, supported by circular economy logistics, is present worldwide, through the shift is happening at different speeds in different industries and different countries. The ‘take-make-dispose’ model is being challenged and there are huge opportunities for businesses embracing circular supply chains. The transition is not without challenges and requires the evolution of all stages of the supply chain. However, as the United Nations Economic Commission for Europe (UNECE) states, circularity is not a choice, it is an urgent imperative. The current model, dominated by linear supply chains, is ‘no longer fit for purpose’.