Thought Leadership

Ideas that design the supply chain of the future

Transitioning towards the Circular Economy based Supply Chain

In a recent study by Gartner, it was found that, 51% of the supply chain professional across the high-tech, industrial and food & beverage industries feel their focus on “circular economy” and its related strategies will increase multifold over the next two years.

The recent paradigm switch and increased focus on circular economic strategies in supply chain is due to predominantly two factors according to the survey. One being the uncertainty amongst consumers on making big purchases during these troubled times, which has made organizations to rethink the importance of PaaS (Product as a Service) strategies. Another being that, the amount of challenges and disruptions faced by global firms in their supply chain sector has made them realize that “circular economic strategies” can help them improve raw material security from end of life products, thereby mitigating the risks from raw material disruptions.

The pandemic disruptions, seems to not put on hold the sustainable supply chain plans of the global firms, instead it has actually fuelled their vision towards integrating sustainability practices into their supply chain strategies even more. Last year in a similar survey Gartner had put an estimate on the shift to circular economic strategies in supply chain to 10 years, but within these few months of pandemic the survey this year reports the timeline to be reduced to almost two years. As Sarah Watt, senior director analyst with the Gartner Supply Chain Practice puts it "The COVID-19 pandemic has shown that the strengths of globalized supply chains can become a weakness when raw material availability and access plummet during a crisis,”. Rightly put she feels that the circular economy is a great opportunity for global supply chain leaders to improve raw material resilience and decouple material consumption from financial growth.

But before we go to more details about circular economy, let’s just have a brief understanding of what the term “circular economy” encompasses. Circular Economy is an economic model that creates an ecosystem of materials, through a sustainable supply chain targeted mainly at end of life and raw material reuse, thereby minimizing wastage.

Though similar to the linear supply chain model which encompasses (a linear sequence of suppliers, manufactures, distributors and the end-user), still the difference lies in the core of circular economy, which is the changes in the product design, which is now focused more on reuse. To further delve into it, we can say that circular economy adds four more layers to the traditional reverse logistics:

Preservation: Driving convenience for the end customer and improving the longevity of the product by providing on-going serviceability and associated upgrade services near the place of use. It can be provided in the form of on-site maintenance contracts as well.

Reuse: The transfer of a product from one user (or user group) to another through its collection, maintenance, storage at the distributor and delivery.

Remanufacture: The process of reintroducing, a refurbished product model with added new parts and warranty, into the supply chain.

Recycle: Identifying usable parts of a used and non-refurbishable product, which can be used in remanufacturing of new products.

But given the current stage that we are at, these are all still theories that need to be realized at a larger scale in the years to come and perfecting of the models needs time. Still if we can put in our efforts to envision a sustainable future for the supply chain sector, then I think all is doable. And well, the recent reports also suggest the same.

To make it a bit easier, firms have to take decisive steps in changing their operating models. Here’s a look at the core areas where they can start at:

  • Reinventing the product design concept

    Companies have to reinvent their product design strategies as the focus should be made more towards creating robust products that instills product longevity, reduces product obsolescence and enhances product reuse and upgradability. This will create a more sustainable environment with reduction of product disposals in landfills and even reduce carbon emissions in manufacturing new products as frequency will decrease. They should focus on making products which are durable and upgradable. So that most of the products can remain in the market producing value to the economy, and the firm earns revenue with maintenance of the product and replacing or upgrading parts of it. They can even create channels for products which cannot be replaced or maintained further to be returned to the firm, which later can be recycled or reused for creating other products. So the biggest battle to be won in the transition to circular economy is with the steps in restructuring the product design strategies.

  • Digitalization of processes for better visibility

    The complexity of the transition and the processes involved can only be properly managed if a digitalized logistics operating model is in place. Visibility becomes the core element in the success of this model. As lot of processes and teams are involved in executing the best practices of this circular economy, disparity in data from each point of the system can have a domino effect on the whole model. From returned items to parts visibility to maintenance of existing products, all need a highly visible data stream that is readily available to decision makers. A technology based reverse supply chain management becomes highly important to make this happen.

  • Collaboration and Communication

    Collaboration becomes vital in ensuring that the circular economic model is accepted and implemented on a larger system-wide scale. As, the model’s viability depends on the large scale implementations, otherwise the beneficial outcomes become negligible. To realize the benefits of the circular economy, massive infrastructure changes are required from creating proper channels to redesigning the product manufacturing etc., all of which requires collaborations across and within industries. Similarly, the success of the system lies a lot on the proper communication, within the organization and majorly to the consumer segment as well. If consumers are not properly educated about the initiatives taken up by the company for creating a more sustainable future, and if they are unclear or find it inconvenient then the initiatives will likely fail. So proper channels and strategies need to be identified to send clear and understandable communication to the end-customers.

    Transition into circular economy based supply chain from the linear model is not going to be easy as it will have its own set of challenges. Accessing the end-of-life material is proving to be the biggest issue at hand for the firms, and Gartner puts the main reason for it being ownership of end-of-life materials, product complexity, getting the quantity right to balance the investments and even low residual value of certain products.

    But, in spite of the challenges, we still see a large number of organizations focusing on the transition to 'circular economy' and as already said, the pandemic challenges keep fuelling them forward.

    Lets hear your thoughts on this? Do you feel, we maybe few years away from large scale implementations of this model or are we far off?

    If you are someone who believes in a more sustainable future and are interested in taking a step towards the circular economy? A cloud based, seamless and highly customizable reverse supply chain management system, might be the right step towards it. Check out the Highway 905 ® Reverse Logistics System for more information. Some of our largest clients from the global consumer electronics segment are already reaping the benefits of our system in executing their ‘circular economy’ strategies.

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About the author :

Srini Vaidy

President and CEO, Highway 905

Srini Vaidy is the President and CEO of the award-winning, cloud-based logistics technology provider Highway 905. He is an established innovator in the Supply Chain & Logistics space, with an ever-dying passion for coding and technology. For more than 30 years he has been ideating customer-centric and efficiency-driven supply chain execution solutions for the Fortune 500 to help them optimize their logistics costs and strengthen their competitive market position. With one eye on technological trends and the other on the happenings in the logistics space, he likes providing readers with an interesting perspective on the future of logistics industry.