In today’s rapidly evolving business landscape, sustainability and responsible sourcing have become key priorities for organisations across the globe. One of the most effective ways to achieve these goals is by implementing a circular supply chain.
In this article, we will explore what exactly a circular supply chain entails, its numerous benefits, how to successfully implement it within your procurement process, and the challenges you may encounter along the way. So fasten your seatbelts and prepare to embark on this exciting journey towards a more sustainable future in procurement!
What Is The Circular Supply Chain?
Based on the concept of the circular economy, it’s a closed-loop system of production, distribution, and consumption designed to minimize waste and maximize resource longevity.
Waste from production and post-purchase consumption is recycled, reused, or repurposed rather than being sent to landfills. Carbon emissions are reduced, giving the atmosphere a much-needed breather (absolutely, pun intended).
That’s a simplified definition; circularity is a highly nuanced topic. But it’s a good starting point. To fully understand the circular supply-chain, it’s important to grasp the overarching concept of the circular economy.
What Is The Circular Economy?
The circular economy (CE) is a business model that seeks to minimize damage to the environment by extending the lifespan of the materials used in production.
The central idea is to keep products, components, and materials in use for as long as possible. When a product reaches the end of its life, it can be remanufactured, broken down, reused, or recycled.
The circular economy is a powerful model that can help tackle major global issues. Companies are already using it to address climate change, biodiversity loss, excessive waste generation, contamination of natural habitats, and social inequality. However, old habits die hard, and adoption can be a challenge.
Importance of Circular Supply Chains
In the circular supply chain, all the raw materials are recycled and used again in manufacturing. This way, the raw material is repurposed in the production process and used to manufacture a different product. Such reuse and repurposing of the material eliminates waste and reduces the carbon footprint.
The initiative to support the circular economy by reusing, refurbishing, repurposing and recycling material enables the building of a sustainable supply chain.
Lately, green operations have become a priority for nearly every industry.
Considering that the amount of waste generated is increasing every year, it is now imperative, for the industry and the consumers to choose products that have the smallest possible environmental footprint.
Consumers, increasingly, are conscious of their purchasing decisions, and according to a report, a majority (66%) of them are even willing to pay a premium for sustainable products.
Therefore, companies must also become conscious of the environmental impact of their operations and should be aligned with the sensibilities of their environmentally conscious customers.
In any business, the prices of raw materials affect the total cost of goods manufactured and, by extension, on company budgets. Businesses perpetually find it challenging to manage their budgets, especially with the prices of raw materials experiencing volatility.
In circular supply chains, firms can manage their budgets efficiently and keep costs under check by keeping track of the amount of recycled material that can be repurposed in the manufacturing of new products.
More and more governments are now making policies that expect businesses to implement circular supply chain management requiring the recycling of material and efficient waste disposal practices. Governments are also incentivizing ‘green’ initiatives by firms to reduce the environmental impacts of their production and distribution activities.
The Circular Supply Chain: A New Business Imperative?
Adopting CSC practices is particularly helpful for procurement teams since the vast majority of pollutants a business generates are byproducts of the supply chain. Given procurement’s ability to dictate resource allocation and usage during the manufacturing and distribution process, CSC models present a spectrum of opportunities for sourcing and purchasing teams.
Businesses Face Pressure to Embrace Sustainability
As concerns about climate change grow, consumers have become increasingly vocal about their expectations that businesses will embrace sustainable practices.
Survey data from 2021 indicates that 60% of global consumers consider a brand’s sustainability practices an important factor in their purchase decisions. As younger generations establish themselves as the largest consumer demographic, this sentiment will continue to grow.
The call for change generates anxiety among many C-suite executives. But when we dig deeper into the data, it’s clear that forward-looking brands use these consumer preferences to create a competitive advantage.
Clever Brands Turn Risk into Reward
Consumers don’t just sit and complain about the lack of sustainable business practices. They take action.
A 2021 survey conducted across 17 countries revealed that 57% of consumers are willing to pay more for a product from a brand that works to address social and environmental issues.
Moreover, McKinsey surveyed over 550 executives and institutional investors about ESG and its impact on business valuation. Here’s what they found:
- Respondents would be willing to pay a 10% premium (median response) when acquiring a business if it had a positive ESG profile.
- 25% of respondents would pay a premium of 20 to 50%
- 7% would pay a premium above 50%
Value Creation and Cost-Saving
Consumers’ willingness to pay more for sustainable products is forcing fundamental changes in how businesses function. One common misconception is that it costs more to produce sustainably, but that’s not the case.
In the circular supply chain, you purchase fewer resources because you reuse previously sourced materials. But what about the costs associated with recycling materials?
One study found that effective ESG programs can counterbalance rising operational costs and generate a 60% boost in profits. When you connect these data points, adopting a circular supply chain starts to make sense.
Circular Supply Chain Benefits
A circular supply chain offers numerous advantages that can greatly benefit procurement processes.
- One key benefit is the reduction in waste and environmental impact. By implementing circular practices, companies can minimize resource consumption, promote recycling and reuse, and decrease landfill waste.
- Additionally, a circular supply chain fosters innovation and collaboration. It encourages businesses to think creatively about product design and find innovative ways to extend the lifecycle of materials or products. This can lead to new revenue streams and partnerships with suppliers who specialize in recycling or remanufacturing.
- Another advantage is improved resilience in the face of disruptions. Circular supply chains are inherently more resilient because they rely on diversified sourcing strategies and local networks. By reducing dependence on single suppliers or regions, companies are better equipped to handle unexpected events like natural disasters or geopolitical crises.
- From an economic standpoint, embracing circularity can result in cost savings over time. By reusing materials instead of purchasing new ones, companies reduce their procurement costs. Additionally, embracing sustainable practices often leads to enhanced brand reputation and increased consumer trust, which can drive customer loyalty and market growth.
FAQ: Circular Supply Chain
What return on investment can be expected from a circular system?
A well-implemented circular economic system can yield a variety of returns on investment. These include lower production costs, greater resource efficiency and reduced waste, improved brand reputation and customer base, access to new markets and customers, and a variety of tax incentives.
How will this drive sustainability and what are the long-term benefits?
It will drive sustainability by reducing the amount of waste generated. Reusing existing resources will reduce the volume of materials we must procure, generating significant cost savings. Plus, it will improve our brand reputation, generate customer loyalty, and open access to new markets and customers. Finally, we’ll become eligible for a variety of tax incentives.
Does a circular system provide advantages in terms of risk mitigation?
A circular system reduces risk by creating a self-sustaining system that is more resilient in the face of market volatility and environmental pressures. It will allow us to become less reliant on factors outside our control and put more control over the entire supply chain into our hands.
Conclusion
The circular supply chain is a game-changer for businesses looking to make a positive impact on the environment while also benefiting their bottom line. By implementing circular supply-chain practices, companies can reduce waste, reuse materials, and recycle products, leading to a more sustainable and efficient business model.
Not only does this help protect the planet, but it also opens up new opportunities for innovation and cost savings. So why not join the circular supply-chain revolution? Embrace sustainable practices with Qodenext, collaborate with like-minded partners, and reap the rewards of a greener future for your business and the world.
