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Circular Economy

Start Planning Now for the Circular Economy

April 23, 2021
The world’s largest brands are adopting a circular economy model. Learn why you should, too.

As the need for agility and resiliency increases, supply chains are searching for ways to evolve, become more efficient and more able to endure unexpected challenges. Whether caused by the ongoing growth of e-commerce, adjustments in shopping habits, or a change in product preferences, supply chains are always in flux and they need to be able to flex to accommodate those evolutions. Supply chains can fulfill that mission, and overcome their obstacles, by adopting a circular economy model.

Built to endure everyday challenges, as well as the massive disruptions that have been occurring throughout the world, a circular economy model encourages continuous reuse of materials to minimize waste. It drives demand for natural resource consumption, attracting interest from a wide variety of companies spanning virtually every industry on the planet.

Despite the potential, some may wonder if the circular economy is a near-term development or simply a dream of the distant future. But it is actually here right now. It involves a total shift in the way supply chains think about their business, evolving from traditional supply chains, which extract raw materials, process them into products, and ship them to retailers or consumers. This linear process typically means that, when the supplies reach their end of life, they are discarded like any other item deemed to have lost all value. The circular economy is changing this in a big way, eliminating waste by reusing and recycling whenever possible.

A Strong Business Case for Getting Started

The reason for starting a circular economy may be altruistic but make no mistake: There is a strong business case for adopting a more circular strategy. E-waste adds up to approximately 50 million metric tons of garbage every year. Put another way, that amounts to $62.5 billion in material value—and only 20% is being formally recycled. According to the American Association for the Advancement of Science, the circular economy stands to reduce plastic pollution while slowing down the impact of climate change.

These are important considerations. One report from Accenture found that 82% of U.S. shoppers are open to using brands with environmentally-friendly values and a strong purpose. Another Accenture report revealed that 83% want companies to design products that are meant to be reused or recycled, and more than half want packaging to be eco-friendly—and they might even pay more for it.

Sales analysis confirms this to be true, with NYU Stern Center for Sustainable Business finding that sustainably-marketed products accounted for 55% of the growth within consumer packaged goods between 2015 and 2019. Sustainability also empowers businesses and their supply chains to be more transparent, and that in turn improves responsibility by increasing agility, resiliency and cost-effectiveness.

However, the circular economy is not just about the way products are packaged or how they are perceived by consumers. In a circular economy, the products themselves are designed, manufactured and reused in a more sustainable manner.

Find New Purpose with Old Products

The circular economy requires a change in the traditional use-and-discard line of thinking. Businesses are now considering how the products they manufacture—once designed for a single purpose, only to be discarded later on—can be used to create something new at the end of their lifespan. New versions of the same item may be developed, or the old product could be transformed into something entirely new. Both solutions eliminate waste, improve efficiency and reduce the need for more supplies.

This requires the use of new systems, which must be put into place in order to track product components not only today but over the course of months and years. There is also the need for new forecasting and demand approaches, along with an updated transaction model that allows consumers to effectively rent a product before returning it to the source. As a result of this effort, businesses must then be ready for the many end-of-life returns they’ll receive when the product no longer serves its core function. They’ll be tasked with moving those items back into the supply chain for reprocessing, which is likely something they’ve never done before—but many are catching on, and others are sure to follow suit.

Burger King, for example, will soon offer optional reusable packaging that allows consumers to pay a deposit at the time of purchase and receive a refund when the package is returned. IKEA is buying back furniture to ensure it doesn’t go to waste, and Adidas will happily recycle old pairs of the UltraBOOST DNA LOOP running shoes.

Brands and Supply Chains are Coming on Board

Fashion brands like Patagonia have been especially excited by what the circular economy entails. The company has adopted a framework for extending the life of garments by sharing its message to only buy clothes that are needed, repair when damage occurs and reuse when possible. When all else fails, Patagonia will upcycle its clothes into new products, mechanically recycle them into materials for industrial applications, or chemically recycle the garments in a closed-loop process.

Tommy Hilfiger has introduced a circular economy strategy as well. The company recently revealed its first Jeans Redesign garments, which were designed to be more durable and recyclable. Working in partnership with the Ellen MacArthur Foundation, whose mission is to accelerate the transition to a circular economy by developing and promoting sustainable concepts, Tommy Hilfiger’s Jeans Redesign is part of the Forward Fashion initiative. Launched by Tommy Hilfiger parent company PVH Corp., Forward Fashion aims to transform how clothes are made, used and reused, reducing negative impacts to zero while increasing positive impacts 100%. Forward Fashion’s goal is to improve the lives of more than one million people across its entire value chain.

The Ellen MacArthur Foundation has also partnered with Philips, H&M, SC Johnson, Unilever and numerous others. BlackRock, a multinational investment management corporation, became a partner as well after setting up a fund to invest in enterprises that have employed a circular economy strategy. Holdings include some of the world’s largest organizations, such as Nike, Microsoft and L’Oréal.

Google, yet another Ellen MacArthur Foundation partner, recently joined the Circular Electronics Partnership (CEP) to help end e-waste. CEP is exploring reverse logistics, recycling and other areas to build a circular economy. Other members include Dell Technologies, Cisco, Vodafone, KPMG and Accenture.

These brands are not alone. According to a report by Gartner, 70% of supply chain leaders plan to invest in the circular economy. They are also interested in how digital technology can assist with delivery (46%), customer engagement (45%), manufacturing and remanufacturing (43%), and planning (43%).

Build a More Agile and Resilient Supply Chain

The circular economy continues to grow in popularity, and as more businesses recognize its potential to build stronger, more agile and resilient supply chains, they will follow suit with their own circular economy models. These businesses will become more sustainable by using items that would normally be discarded by consumers at the end of their lifespan. They’ll save money by putting these materials to use—either through reuse or by creating something new. The end result means there will be more agile, resilient and cost-effective businesses and supply chains, creating a better world for all of us.

However, the circular economy cannot be achieved with good intentions alone. To implement their own model, they’ll need to build on the visibility, transparency and intelligent use of data they already have in place, including data from a variety of sources. Those insights will prove to be invaluable in planning a new, circular network. They’ll have to work closer with partners and suppliers alike and ensure that every supply chain participant supports the model chosen to achieve the best, most agile and resilient results.

Adam Bimson is director and co-founder of Vuealta, a provider of scenario planning and forecasting solutions for supply chain, finance and operations.

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