Retailers know they need to respond to calls for sustainability and be part of the Circular Economy (CE). But integrating existing forms of reverse logistics and CE presents huge challenges for business managers.
Past research has concentrated on how to avoid returns, or at least increase the recovery value of returned products. We spoke with 15 large UK retailers about their experiences and perspectives on joining up with CE principles: the clash between business interests and the ideals, the barriers to change and how they can be overcome.
Returns are already a key concern due to their direct impact on the bottom line. The rise of internet and home shopping, combined with more liberal returns policies and shorter product life cycles have led to a sharp escalation in returns. Recent figures indicated staggering costs of £5.75 billion per year for returns across the retail sector, with around 5-20% of products being returned (up to 50% in some areas).
At the same time there are major benefits from a CE approach beyond brand reputations and customer relationships. In 2013 the European Monetary Fund suggested over US$1 trillion a year could be generated by 2025 for the global economy and 100,000 new jobs created during the next five years if companies focused on encouraging the build-up of circular supply chains to increase the rate of recycling, reuse and remanufacture. In its strategy document, Closing the loop - An EU action plan for the CE, the EU pointed to benefits such as protecting businesses against scarcity of resources and volatile prices as well as creating new business opportunities, improving innovation, production efficiency and conserving energy.
A particular finding from the discussions with senior managers in retail businesses was the importance of a cross-functional approach: store operations, finance, trading and logistics, in order to manager the total cost of returns – but also across the relationships between customers, retailers, logistic service providers and contact manufacturers. “There are stakeholders all over this,” said one interviewee. “The challenge is getting everybody’s objectives aligned.” Making this happen required senior management leadership able to communicate the bigger picture and its goals.
Language is a challenge: the lack of understanding and distinctions between CSR, CE and reverse logistics. One interviewee said: “Clearer positioning around where the boundaries are would be helpful and what the relationship is, because most people would go, ‘is this just another extension of the green agenda?’”
There are frequent examples of where managers believe they are embedding CE when they are not – and vice-versa. So retail businesses will push a stream of products into recycling rather than try to keep products in circulation where they have the highest value of utility (compared with recycling at their lowest). One car accessory and bicycle business believed it was using ‘avoidance’ techniques to reduce product returns, a service to fit accessories and provide maintenance for bicycles, which are good examples of CE in action
Managers pointed to the need for a basic alignment between reverse logistics and the making of the product portfolio, going to the root of product design and selection of materials, which all affect durability, opportunities for re-use and recovery options. With this in mind there need to be processes for feedback from the returns experience into the design process.
Here are six principles for aligning reverse logistics with the circular economy:
Principle 1: Cascades orientation
Aims to keep the materials – be they products, components or materials or biological nutrients – longer in circulation and for them to be transformed into different types of products or materials.
Principle 2: Waste elimination
Emphasises waste must be eliminated from the beginning of the product design, and systematically considers, at subsequent circulation stages, how waste can be further reduced and eliminated.
Principle 3: Economic optimisation
Aims to achieve the production and consumption, service and supply of money, so that a resilient economy can be created, e.g. by improving material productivity, enhancing innovation capabilities, or shifting from mass production to skilled labour.
Principle 4: Maximisation of retained value
Aims to retain products or components that over time decline in value, by creating a suitable treatment system so that the values can be prolonged.
Principle 5: Environmental consciousness
Promotes the preservation of environmental resources and reduction of environmental impacts by adhering to environmental regulations.
Principle 6: Leakage minimisation
Upholds the avoidance of loss of opportunities to maximise the cascaded usage period of (a) biological materials and the inability to incorporate the nutrient back into the biosphere due to contamination, and (b) technical materials that are lost due to loss of materials, energy, components and materials are not (or cannot be) recovered.
Dr Benny Tjahjono and Mike Bernon, Cranfield University School of Management. The full framework for combining reverse logistics with CE can be found in the research paper ‘Aligning Retail Reverse Logistics Practice with Circular Economy Values: An Exploratory Framework’.