So, you’re starting a circular business model? Is it a model where no inventory is sold, but inventory is needed to offer a service? Supply chain does that. Or is it about finding a new type of secondary material that’s high in quality and cost-competitive when compared to current, virgin materials? Supply chain does that! Or perhaps it’s a take-back program to remanufacture and resell items? You guessed it! Supply chain does that, too. Supply chain integration is a critical success factor in circular business models. Read on to explore the role supply chain capabilities must play in successfully designing, launching, and sustaining circular business models at scale.
The circular economy is based on three principles: design waste out, circulate materials and resources, and regenerate natural systems. The underlying premise behind the circular economy is that businesses that are strategically anchored in these three principles will be profitable, hedge their risk on raw material pricing, and add trillions to the global economy by 2030, by decoupling financial growth from limited natural resources historically required for growth. However, for these business models to be successful, the supply chains that support them must be ready, recognized, and expected to offer their capabilities in a new way, and at scale.
The circular economy is based on three principles: design waste out, circulate materials and resources, and regenerate natural systems.
Ultimately, the circular economy is about inventory—extending its life, reusing it, repurposing it, or eliminating the need for it altogether. Supply chain is responsible for inventory, and a global, circular economy requires supply chain innovation beyond its current scope in the linear economy.
This brief guide provides starting points for leveraging the capabilities and problem-solving prowess of your supply chain colleagues.
Supply Chains Possess the Capabilities You Need to Go Circular
Let’s explore supply chain capabilities that support the circular business models referenced in the following infographic. This section shares stories about real supply chains delivering real capabilities for circularity, today.
Supply Chain Capabilities: Physical & Digital Infrastructure for Inventory
Move inventory close to the customer. Lean supply chains move inventory and decisions as close to the customer as possible. Proximity reduces the time between inventory decision and actual customer need. Because more inventory is typically required to buffer against uncertainty, decreasing the time decreases the uncertainty, which decreases the need for inventory.
Edwards Vacuum, a leading developer and manufacturer of industrial vacuum pumps, strives to locate their remanufacturing shops close to their customers’ factories. This reduces waste in transportation, translating to reduced contamination risk, reduced risk of damage, and a lower carbon footprint.
Create and share data about inventory. Ah, data. Everyone’s favorite topic. Data about inventory—materials, costs, partners, locations, timing, quality, demand—these are all gathered and managed by the supply chain. The right technology platform is important, but the data itself is critical.
CHEP operates one of the world’s largest circular supply chain systems. Their business facilitates the circulation of over 300 million shipping pallets and containers across 60 countries. Their platform acts as an “invisible backbone” of global supply chains, allowing their customers to participate in the circular economy in two ways.
First, the customer can reuse shipping pallets (there are nearly 3 billion pallets in circulation in supply chains in the United States alone). Second, CHEP pallets generate critical data that allows supply chain managers to effectively aggregate it and gain insight into inventory—data that is critical to supporting circular business decisions. Large quantities of data are available to CHEP as a result of their business model and the company is working to make this data even more useful to customers. In the future, data will be available not only through the logistics company, but also from the pallet itself.
The multinational chemical and consumer goods company, Henkel, has heavily invested in their supply chain’s “digital backbone.” With thousands of sensors measuring consumption in order to optimize operations, they use data to inform decisions about circularity—leaning out operations to reduce required inventory.
Not all data is the same! Edwards Vacuum finds that “data is meaningless unless you can turn it into insights.” This requires domain expertise. Because of this, data sharing has become less secretive as trading partners acknowledge they rely on the knowledge of others to make sense of data.
The data in the supply chain can also be used to facilitate Product-as-a-Service (PaaS) models. Chakra, a business focused on digital solutions for the industrial world, sees this as they help their clients develop business models and go-to-market strategies for PaaS offerings. Their offering has been so successful that Chakra has launched Ventures Ecosystem, a value exchange platform that will enable these new business models to scale.
There are many discussions of artificial intelligence and machine learning in the circular economy. Entercoms, a supply chain control tower company, specializes in services and after-sales maintenance, which is a key part of extending the life of items and materials. Using data science and machine learning algorithms, they connect data across supply chains and apply data science, facilitating better forecasts and lower waste across the industrial spectrum. This strategy for improved asset recovery also translates into more savings for a company.
Managing Inventory Around the World
Reduce & eliminate resource requirements. Henkel’s supply chain began their zero waste journey over 15 years ago. Since then, they have reduced their footprint and impact by over 50 percent. The supply chain does this! Their manufacturing facilities prioritize optimizing boilers, compressed air, and other manufacturing processes. “Zero waste to landfill” has been adopted by two-thirds of their 180 sites with the short-term goal of 100 percent globally. This requires clever solutions and new partners (found and developed by…? The supply chain!).
CHEP in Sub-Saharan Africa (SSA) developed circular approaches because they operate in regions with expensive base resources. To address compromised electricity infrastructure, they use natural and automated lighting, power correction devices, and energy-saver air conditioners. To conserve water at their reusable plastic crate plants, they not only harvest rainwater, but also use purification systems to clean and recirculate runoff from pallet wash bays. This way, no drop is wasted—it’s all repurposed. Sustainable supply chain operations make this possible.
Circulate inventory. To make the best use of existing inventory and reuse items as many times as possible, a business must know a lot about that inventory. If they can’t virtually “see” their inventory, or if they lack the ability to easily move it, they often end up buying or creating more to buffer the system. CHEP SSA addresses this. They offer businesses the ability to see and move their inventory. For example, in the rapidly developing smart farming industry in South Africa, the supply chains of growers can use CHEP to see their bin locations (orchard or de-greening room, loaded or unloaded). This allows them to make smart choices about how and when to circulate their bins.
At the end of the useful life of a bin or pallet, CHEP engages a “wider loop.” Instead of sending this timber waste to landfill, they chip it and the material has a second useful life by other companies. This is the heart of the concept: first reduce, then monetize. If lean management is about finding and eliminating waste, circular economy is about finding and monetizing waste.
This is the heart of the concept: first reduce, then monetize. If lean management is about finding and eliminating waste, circular economy is about finding and monetizing waste.
Extend the life of inventory. Entercoms helps their customers re-use parts and assets by eliminating the need to manufacture a new part. This can be tricky because there are often several suppliers for the same spare part, leading to excess inventory. Entercoms uses unique substitution logic to help customers avoid buying new parts and rebalance stock levels across locations. This requires data from different sites to “talk to each other,” taking into account forecasted needs and the cost of transfer.
Edwards Vacuum continuously maintains the products they produce. For example, an entire product may get taken apart once every year for maintenance to extend its life up to 20 years. The remanufacturing facilities improve efficiency, and thus reduce costs, through targeted scheduling of skilled labor, components, and needed consumables. Technological investments are critical. The Internet of Things (IoT), domain expertise, data science, and the right platforms predict product performance and proactively maintain assets, ensuring customer satisfaction.
Maintain multiple product generations. Products go through several “generations.” Edwards Vacuum have found their customer base falls along the generational spectrum of these products—some want new models; others are happy with refurbished products—so Edwards keeps 2–3 generations of product in their install base. As these generations mature, the supply chain capabilities inform product design. Over time this leads to modular products with lower variability, reducing response times and lowering costs. In addition, the installation period for upgrades is streamlined.
Creating Inventory Around the World
Locate and transform inventory. The next generation of miners is emerging—instead of extracting resources like traditional miners, they locate resources that are already “detached.” They look for plastics in the oceans and—I predict—will eventually “mine” landfills.
In order to recirculate items, the inventory must be located and transformed. In Australia, the team at Far North Queensland Plastics designed one product—a twin wall panel called ReGenWall® made from 100 percent recycled HDPE plastic—that has multiple uses. As a supply chain, Far North Queensland Plastics produces a single stream resin that can be recycled again. The extrusion line was manufactured by Telford Smith Engineering, and the mold tooling itself was built specifically to extrude continuously, creating more strength. Additionally, the byproduct of the manufacturing is captured and reused.
Getting Started with your Supply Chain
Three easy ways to get started leveraging supply chain capabilities. These are fairly painless, but likely require meeting new people:
- Locate and meet your supply chain team.This team covers procurement, planning, sourcing, transportation, storage, manufacturing, remanufacturing, contract management, supplier management, inventory management, and more.
- Include members of your supply chain in design sessions. Supply chain professionals are trained to design waste out of operational systems. Including them in all steps of the design and management process means listening to their perspectives, insights, and ideas.
- Pose a challenge to your supply chain. Ideally, give the team time to solve a problem, and be dazzled with what they come up with. Do yourself a favor and avoid presenting crises to your supply chain—your solutions will be better for it.
A hearty thanks to several individuals who shared their perspectives and expertise to make this article based in reality rather than based (solely) in opinion: Alan Ifould and Alex Smith (Edwards Vacuum), Joshua Holmes (Vanden), Peter Desmond (African Circular Economy Network), Jenny Froome (SAPICS), Catherine Weetman (Rethink Solutions), Dirk Holbach (Henkel), Lesley Van Staveren (Far North Queensland Plastics), Susanne Yvonne Karcher (EnviroSense), Luke Smaul and Amalia Frank (Chakra), Sally-Anne Käsner (Circular Vision), Sharon Smorenburg (CHEP), Lance Johnson (Entercoms), Sarah O’Carroll (Ellen MacArthur Foundation)
This article is part of the Paradigm Shift publication series on solutions from the leaders of the transition to a circular economy. See the full collection of stories and upcoming webinars with the authors here.