The environmental and social impact of corporations first became a key consideration roughly four decades ago. Since then, the term “sustainability” has witnessed an exponential increase in use on annual business reports. Companies have tried to incorporate sustainable practices into their business strategy as many governments have drafted laws mandating them to adopt a greener method of operation. One of the ways that is often overlooked by many firms is by altering their supply chain management strategy.
The rapid globalization of the world and, subsequently, higher consumer demands have put enormous stress on a firm’s supply chain. Along with this, there are many potential vulnerabilities caused by trade deficits or geopolitical tensions that can impact logistics. To tackle two birds (increasing sustainability measures and supply chain burden) with one stone and develop a sustainable supply chain, embracing a circular economy model is the best solution. But how does a circular economy do so?
Adopting a circular economic model for a sustainable supply chain presents many benefits.
Lower waste of resources and energy are key benefits, but there are some drawbacks as well.
Circular Economy Explained
As defined by United Nations Trade and Development (UNCTAD), a circular economy is one that prioritizes the reuse of products as opposed to scrapping them and purchasing new materials. A natural circular economy is the biodiversity of an area. All the organisms in the area work in harmony with each other to maintain balance and ensure the continuity of life.
Most of the world follows a linear economic model. In this model, the raw material is transported to the manufacturer, who then develops the product. After completion, it is then shipped to the distributor through whom it reaches the consumers. They then use the product and throw it away.
In a circular economic model, this raw material-to-production-to-consumption line is closed to form a closed loop. This works on the principle that “everything can be transformed.” Manufacturers are encouraged to design their products and processes around the concept that their waste is recovered and regenerated to be used in another product.
Circular Economy for a Sustainable Supply Chain
Sustainability in the supply chain can be developed with the three key principles of a circular economy.
- Eliminating waste and pollution: This is where anything that is harmful to human health or the natural ecosystem is designed out of operation. It starts with considering all waste as a design flaw instead of simply being a by-product.
- Constant use of products and materials: The planet holds a finite number of resources. These must be kept in the production cycle for as long as possible. This is done through reusing, repairing, and remanufacturing.
- Reviving natural systems: This focuses on doing more ‘good’ and not only trying to do less harm. This can be done by using renewable sources of energy or by transferring organic waste back to the soil as nutrients instead of ending up in landfills.
Barriers to Implementing a Circular Economy
Before committing to rejigging a supply chain to a closed-loop economy, there can be some barriers.
Legal Hurdles
The regulations regarding recycling and reusing waste materials may be restrictive by governments. This can make it difficult to implement or even transport goods.
Rejection by the Consumers
Goods made in a circular economy are recycled products where customers can be disincentivized to purchase them as opposed to “new” products. Concerns can stem from hygiene issues or the use of low-quality materials, as the primary focus would be on environmental impact.
Expensive to Make Change
This would involve high initial costs as machines and logistics must be altered along with building new manufacturing and distribution centers. Employees will require new training in handling used products.
Actions to Overcome Barriers
Barriers may limit the possibility of inculcating sustainable practices in the business landscape, but they do not eliminate it.
Amending Product Design in Initial Stages
The raw materials at the start of the production cycle determine the level of refurbishment the product can take at the end of its life. Therefore, material selection plays a crucial role. By working with the design team to carefully select the partners supplying raw materials, the objectives of the circular economy can be better met. The response of the customers must be considered when deciding.
Prioritize Customer Engagement
Disposal of products post-use by customers to eventually make it back to businesses must be streamlined by curbing the steps in between. Creating sustainability metrics that are showcased to the customer helps present a favorable view of the company. Elongating the product life through better R&D or providing sufficient product repair opportunities further incentivizes users to stick with the firm.
Build Cooperative Partnerships
Embracing a circular economy is not a one-man job. It requires the collaboration of multiple entities to attain economies of scale. Initially, negotiations between partners will be challenging and costly. However, with each member contributing their expertise (and enough capital), it is possible.
Conclusion
The circular economy model is an emerging strategy for developing a sustainable supply chain. There are significant barriers to entry, which can be a deterrent for many organizations. However, it also presents positive environmental and social impacts while securing economic profit for firms with increased production and lowered costs.
