Business leaders can capture commercial value across supply chains by closing materials loops and regenerating natural assets.
Despite the virtues of the global economy, production has now outstripped planetary boundaries and the environment is now contending with mass-scale pollution. Decades of effort focused on sustainability and corporate responsibility initiatives have struggled to make a difference.
One area that could have a significant impact on our sustainability is how we think about “goods” and what constitutes a modern supply chain. Today’s supply chains are linear: they consume materials, move products from manufacturing, distribution and selling, and then most often products are discarded after a while and land in the trash. There’s growing consensus that the only way forward with sustainable production and growth is to switch from our current industrial “linear” model to a circular economy, in which we keep resources in use for as long as possible and then regenerate them into something at the end of each service life.
Companies on the forefront of this wave can create new product-to-service approaches, new materials recovery methods, and smarter projections and preparedness for future costs. While it may take years for the concept of the circular economy to take hold, the transition has begun.
The sharing economy
The sharing economy is made up of hundreds of compelling new businesses, including Uber, AirBnB, and Kickstarter, which are transforming how goods and services are created, procured, and sold. The internet, cloud computing, and mobile broadband makes the sharing economy possible. Similarly, content subscription services like Netflix and Spotify are displacing many physical goods with on-demand digitized alternatives. And software-as-a-service (SaaS) models allow companies to forgo owning IT infrastructure, ultimately reducing the footprint of their hardware and electricity use.
The circular supply chain
While this trend is a good start, it’s putting great demands on the modern supply chain. Leaders have to rethink their supply chain economy as a network, not as a collection of single companies. We need to work as one union, choreographing the movement between materials and goods.
Below are considerations for creating a circular supply chain:
1. Outputs become inputs because your goods don’t end their life with their customers, but become an input in your supply chain. This means your accounts payable and accounts receivable processes will form a loop instead of a straight line.
2. Without a digital supply chain, it will be almost impossible to coordinate all the moving parts a circular supply chain requires in real time.
3. Assess your suppliers and work with the top tier for a common vision and goals towards a circular supply chain and ensure your CSR standards are met as you assess reuse opportunities.
4. Figure out the cash flow demands of a circular supply chain, compared to a linear one. Your margins might improve, but your suppliers’ need for cash may change.
5. Make a plan to manage the components like the evidence, materials, production information and components for the entire lifecycle.
Given the changing consumer, business, and government attitudes toward consumption and the environment, the circular economy looks poised to make businesses operate smarter and more collaboratively – while discovering new sources of profit and a competitive advantage by re-designing supply chains.
☛ Christian Lanng is CEO at Tradeshift.