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Circular Transformation means developing Supply Loops

Alis Hinrichsen
Alis Sindbjerg
Hinrichsen
Thought Leader & Strategic Advisor

Circular transformation in Supply Chain is about developing Supply Loops. A transformation is needed because the current response to the global climate crisis represents an incomplete picture. The circular economy represents a nature-positive solutions framework, and it brings the answers to interconnected biodiversity and climate emergencies. Leading companies are starting to harness the opportunities it offers. And for some, scaling up circular innovations is now a priority. In this blog post, we will look at how the Supply Chain can harness the opportunities by transforming the Supply Chains into Supply Loops.

Why is there a need for Supply Loops?

Today’s efforts to combat climate change have focused mainly on the critical role of renewable energy and energy-efficiency measures. However, meeting climate targets will also require tackling the remaining 45% of emissions associated with making products. By 2050, the global demand for industrial materials such as steel, cement, aluminum, and plastics is projected to increase by two to four, while global food demand is projected to increase by 42%. This increase in demand will have significant implications for GHG emissions. Even with ambitious strategies to increase energy efficiency and move to zero-carbon energy sources, emissions from the production of steel, cement, aluminum, and plastics will exceed the remaining carbon budget for industry and energy emissions. Addressing emissions in industry and the food system presents a particularly complex challenge.

Our “take-make-waste” linear economy is heavily extractive, resource-intensive, and produces greenhouse gases (GHGs), causing the climate crisis. Companies extract materials from the earth, apply energy and labor to manufacture a product, and sell it to an end-user, who then discard it when it no longer serves its purpose. This linear approach, which relies on fossil fuels, emits GHGs causing a global climate crisis.

To meet climate targets. A fundamental shift will be needed in how the economy functions and creates value. It will require moving away from today’s take-make-waste linear model towards a regenerative economy by design.

In such an economy, natural systems are regenerated, energy is from renewable sources, materials are safe and increasingly from renewable sources, and waste is avoided through the superior design of materials, products, and business models.

The Circular Economy is the answer

The circular economy completes the picture of what is required to tackle the climate crisis. It offers an approach powered by renewable energy and transforms the way products are designed and used. The framework cuts GHG emissions across the economy through strategies that reduce emissions across value chains, retain embodied energy in products, and sequester carbon in the soil. Circular economy principles present unique opportunities to help tackle the climate crisis by reducing GHG emissions.

Applying circular economy principles to transform the way goods and materials are produced and used in the economy would offer significant potential to reduce GHG emissions. Of course, the shift toward circular consumer behaviors is a critical driver of a successful transition to circularity. Circular consumer behaviors increase the number of goods that flow back into the cycle and signal demand to brands for circular products. There is a growing trend of consumers demanding sustainable products, with more than 50% of consumers are willing to pay more for sustainable development.

Circular Economy and Supply Loops

As circularity ultimately revolves around the movement and flow of goods, Supply Chains must be redesigned, and new Supply models must be developed. In other words, Circular Transformation requires the development of Circular Loops. In that aspect, two main challenges arise:

1) How can the company capture end-of-life products and unused items to re-introduce them into the cycle.

2) How to design products flows and cycles in the most suitable, efficient, and environmentally friendly way

To successfully engage both manufacturers and consumers while protecting the planet, Supply Chain must be designed cost-effectively and environmentally conscious.  

Supply Loops, in essence

What are we referring to when we say Circular flows and Supply Loops, and how will they influence the Supply Chain?

It is about designing for disassembly and material efficiency

Products and materials should be designed to be kept in use and regenerated into natural systems. To allow for the increased utilization and circulation of products, components, and materials, circular economy principles should be integrated at the design stage of goods to enable high-value recovery and develop new circular economy business models. This approach requires products to be designed for disassembly, modularity, repairability or biodegradability, reuse, remanufacturing refurbishment, or regeneration.

Design can play an essential role in eliminating waste. By designing for material efficiency, material input can be reduced. While planning for an optimized Supply chain can reduce waste generation. Both offer practical ways of lowering the amount of energy and materials used.

Apart from products, waste can also be designed out of systems. When it comes to Supply Chains, waste generation can be minimized by reducing the amount of material lost during production. For example, half of the aluminum produced each year does not reach the final product but becomes scrap. Using measures such as process automatization and emerging technologies such as 3D printing can reduce GHG emissions.

It is about substituting materials

Material substitution refers to renewable, low carbon, or secondary materials as alternative inputs to new production. These provide the same function but contribute to reducing emissions. The use of renewable materials can be particularly interesting for replacing inputs that are hard to make emissions-free.

It is about recirculating products and materials

The circular economy favors activities that preserve the value of energy, labor, and materials. This means employing reuse, remanufacturing, and recycling to keep products, components, and materials circulating in the economy. Circular systems effectively use renewable materials by encouraging many different economic services before returning safely to natural systems.

Reuse measures conserve the embodied energy and valuable resources used to manufacture products and components. The more a product is utilized, the larger the return on the resources embodied in the development, such as materials, labor, energy, and capital. By keeping products in use, GHG emissions associated with new production and end-of-life treatment are reduced while providing the same benefits.

Recirculation refers to the recycling of materials. GHG emissions are reduced from avoiding new virgin material production and end-of-life treatment, such as incineration and landfill. While measures that increase product utilization contribute the most to retaining the energy embodied in products, recycling still requires much less energy than the production of virgin materials.

If you would like to learn more about the Circular Economy and its impact on business, you can find on-demand webinars here.

How can technology support the Circular transformation?

Many companies realize how integral their network configuration is when embarking on the Circular journey. Also, they know that the increased complexity of a Circular Supply Chain requires visibility and orchestration. For many, the keywords are Supply Chain redesign, Supply Chain transparency, and transportation decarbonization.

Innovating the Supply Chain and creating Supply Loops could be a crucial initiative in order to transform into a more Circular business model. It would mean building reverse logistics solutions cost-effectively, creating new packaging, repair, refurbishment, asset collection, and sorting offerings: building capabilities and capacities for the increased quantity of Circular flows. Low emission solutions should be considered for the diverse set of future flows. 

Supply Chain Design, as a technology, could be a solution to the challenges mentioned. In Supply Chain design, you model your Supply Chain network in a digital twin and continuously optimize it as new questions or opportunities arise. Suppose the Circular transformation requires you to diversify the external supply base or look at localizing or regionalizing your manufacturing network. In that case, Supply Chain design can support you with scenario analysis and calculate the cost, risk, environmental impact, and consequences from a service point of view.

Supply Chain design can also support you if you want to create new Supply Loops, capturing the end-of-life product flows and unused items flow and re-introducing them into the cycle. Accessing end-of-life products will require convenient return flows and collection that incentivize consumers to participate. We must not forget that the volume of return flows will increase because of circularity, which means that return flows need to be well integrated into the existing Supply Chain. Furthermore, when designing specific flows, a decision on the optimal point, such as sorting, needs to be made from a process and a geographical perspective.

Optimal production planning and inventory management require adaptations to be ready for a circular world. Purchase scheduling of material inputs needs to be adjusted to the availability of recycled materials. Moreover, production processes naturally create waste such as leftover materials and wastewater. This, of course, needs to be minimized. Even when production processes are optimized for circularity, the often-remaining overproduction is one of the most significant issues. So what we will possibly see in the future is on-demand or demand-driven manufacturing processes. That would mean only producing when a customer has purchased it.

Sources: Delivering on circularity, Pathways for fashion and consumer electronics

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