Operationalising the circular economy

The circular economy—in which products and their component materials are recycled, reused, repaired, refurbished, or repurposed—is A Good Thing. Everyone knows that.

Nor is it difficult to find impressive examples of the circular economy in action: the automotive, aerospace, and electronics industries all contain shining examples. Even elements of the fashion industry are getting in on the act, returning items of used clothing back into their component fibres in order to produce fresh fabric, re-commerce of second hand clothing also referred to as ‘pre-loved’ clothing.

And for a roll-call of individual companies acting as exemplars, then Apple, Hewlett-Packard, Timberland, Lego, Nike, Dyson and Ralph Lauren all stand out. And there are of course, many more. The push to ESG among investors, rocketing raw material prices, growing scarcities, and the recognition that some key materials are in short supply (think rare earths and metals such as cobalt and lithium, for instance)—all of these influences have played a part in encouraging circular thinking.

Still very much a work in progress

But despite all this, the reality is that globally we are only scratching the surface. A huge amount remains to be done.

Far, far too many supply chains are linear, rather than circular. They extend in a straight line directly from the mine or the cotton field or the petrochemical plant towards the factory, and then the consumer. And then, they stop. At the end of the product’s life, landfill beckons, or perhaps an ‘energy from waste’ incinerator.

It is not without irony that cardboard packaging supply chains have more circularity in them than many of the products that they contain. A friend in England, for instance, buys wine from an online wine store that ships its bottles in boxes loudly proclaiming in bold print “Hello! Have we met before?”  Cardboard fibres, the boxes add, can be recycled up to seven times. Against that measure, it’s clear that products, by contrast, have some way to go.

So what is holding the circular economy back? Governments, businesses, and consumers are all supportive of the notion. And yet somehow, it doesn’t take off.

Two things, I contend, must happen for the circular economy to go mainstream.

Greener by design

The first is one that I wrote about in my book, Product Design and the Supply Chain: Competing Through Design, published in 2018. Product design has a huge impact on the potential for circularity, through designing products that are easier to disassemble, easier to refurbish, easier to repair, easier to remanufacture, and which are made up of materials which are easier to recycle.

To some extent, this is starting to happen. But only starting. And generally, where it is happening, it’s more often at the level of producing products that are easier to recycle. Refurbishment, repair, remanufacture—in the mainstream, these are still under development and research.

Partly, it’s because manufacturers fear cannibalising their own revenue streams: making products that are easier to repair reduces the demand for new ones. Partly, too, there is a lack of high-level direction in terms of this agenda: designers—rare exceptions apart—are too lowly in the organizational hierarchy to see themselves has having the authority to deviate too far from their existing cost-led design agenda.

In short, at the very highest levels, business leaders must stress the importance of the circular economy and more specifically circular supply chains and reverse logistics that way they can be more embracing of initiatives such as Design for Disassembly, Design for Recycling, and Design for Sustainability, Design for Circularity and so on.

How, though, to bring this about? Pressure groups and ESG initiatives will only go so far: something else is required.

Three things stand out as possibilities. First, government inducements, incentives, and mandates. When change is mandated, and incentivised through the tax systems, and generally encouraged, it tends to happen: the EU’s Critical Raw Material act, for instance, and China’s Circular Economy Promotion Law come to mind. Second, a greater realisation within business that recycled materials can be a lower-cost, secure, and resilient way of sourcing materials. Rare earths and scare metals don’t always have to come from far away.

And thirdly, there’s the second enabler of the circular economy—the one that I’m about to talk about next: logistics service providers.

Logistics service providers’ role

In theory, applying reverse flow to a linear supply chain shouldn’t be complicated—most linear supply chains have some kind of reverse mechanism in order to deal with returns.

The problem with applying that reverse flow is two-fold: one, it’s not especially efficient or low-cost; and two, where should that reverse flow terminate?

Terminate at the factory? Hmmm: factories have a linear flow and logic all of their own, and assigning additional recycling and refurbishing responsibilities to them can not only disrupt that flow, but risk raising the factory’s costs. Few factories will necessarily have the spare space available in which to conduct these activities. Nor will they necessarily have the requisite skills.

Which is where logistics service providers come into the mix. They do have—or can create—the warehouse-type space for disassembly, sortation, and storage activities. They do have adaptable labour, and carrying out circular economy activities in remote facilities won’t adversely impact either the flow or the cost profile of the original assembly factory. And the more that Design for Circularity, Design for Disassembly and Design for Recycling initiatives take root, the easier it will be for logistics service providers to carry out a circular economy role.

Economies of scale come into play, too. A logistics service provider providing circular solutions for multiple broadly similar customers—electronics, say, or domestic appliances—will be able to pool stocks of similar parts and materials from those various customers, in those instances when remanufacturing or refurbishment isn’t the intended goal. Likewise, disassembly and small-scale refurbishment activities—that is, those carried out by the logistics service provider—are likely to have economies of scale, too.

For manufacturers, the appeal of using a logistics service provider for circular solutions is obvious: they will already have relationships with one or more logistics service providers, and so reverse logistics could simply become an extension of what is already in place.

And for logistics service providers, the appeal is equally obvious. Forward + Reverse logistics solutions will not only increase revenue but also the brand appeal of providing broader sustainability initiatives, moving beyond decarbonising logistics modes be that ship, road or rail. Circular supply chains is not a major departure for them, and several of the larger players in the field are already dipping their toes in the water.

Moving forward

Roll it all together, and the prognosis for the circular economy looks a great deal sunnier than might otherwise be expected.

Progress towards the circular economy has been made. Policymakers and activists see its merits. Companies are increasingly open to the idea that the presence of recycled, repurposed, remanufactured etc materials in their supply chains comprise a source of resilience.

But moving the circular economy on to the next level requires something extra.

It’s time to think about what that extra something might be, and how best to apply it.

Image source: MHD Supply Chain News