This waste dump in Mexico has become a workplace despite the danger. @Aidee Martinez/Eyepix Group/Barcroft Media via Getty Images
This waste dump in Mexico has become a workplace despite the danger. @Aidee Martinez/Eyepix Group/Barcroft Media via Getty Images

Are you using closed loop supply chains? And if not, why not?

posted by Tom Holmes
10 December 2021

Traditional supply chains have focused on linear models – of continually sourcing raw materials to pump out goods to consumers. But this approach doesn’t consider the value leaking out of the back door through reliance on virgin materials. Could treating waste as a resource improve supply security and lower costs?

You don’t have to look far these days to see how we as a species are impacting the planet. Climate change, carbon footprints and sustainability have become woven into the fabric of everyday life, whether that be through awareness of the need to mitigate and manage environmental damage or, indeed, if you inhabit a part of the world where that damage is already being keenly felt. But regardless of where you live, of your work and social position, climate change should be on your agenda in some form.

And although meting out blame is far from an easy task, and at times it can even be an obstructive one, it does help us identify those core areas of where to direct our global efforts. What’s undeniable is that in their attempts to satisfy voracious demand, businesses of the past used natural resources like there was no tomorrow while consumers, true to their name, latched on to a culture of continuously purchasing products designed for obsolescence, driving the business incentive to keep making more. And while, of course, these are all neatly packaged generalisations used to paint a picture, in doing so they spell out a clear message: traditional business as usual is both inefficient and wasteful.

It’s a truth born out by research. In 2019, the United Nations Environmental Programme (UNEP) published a report which stated that resource extraction had more than tripled since 1970, while the same period saw a five-fold increase in the use of non-metallic minerals and a 45% hike in fossil fuel use. On that trajectory, the report forecast that by 2060, global material use could double to 190 billion tonnes (from 92 billion), while greenhouse gas emissions could increase by 43%.

The problem stems, in part, from designing for obsolescence and how we perceive waste and value. Less than 9% of the items we produce are returned and recycled, which means that worldwide 91% of all goods – be that cars, phones, clothes or cosmetics – are discarded when they are perceived to be of no meaningful use.

That we live in a throwaway society has become a motif of modern life, certainly in developed nations; and while consumers should bear much of the responsibility, movements such as the Right to Repair highlight that business itself has made it easier to discard and replace than to make do and mend. At supply chain level, the statistics don’t get better.

Resource extraction and processing that supports the supply chain is responsible for 90% of water stress and biodiversity loss, and a whopping 50% of GHG emissions. Under the weight of such foreboding evidence, one could be forgiven for thinking that the situation was a bit of a lost cause, but as it turns out supply chains are at the heart of efforts to reverse environmental damage.

Changing the supply model

If you reduce traditional supply models to their basic operations, the issues with waste are laid bare. These models are linear and follow a very simple pattern – harvest, make, deliver, discard. It is wasteful precisely because it fails to factor in the amount of materials, goods and resources left on the factory floor or after use; it views waste as just that, rather than a vital resource. And therein lies the solution.

Fine dining from waste

Over the past five years or so, we’ve seen a number of companies adding a reverse logistics leg to the product cycle, thus closing the supply loop. The reverse leg collects and processes returned goods, parts or materials, or items no longer considered fit for purpose. In doing so it eradicates waste by preventing

that content from going to landfill, while allowing the business to extract extra value by reusing materials or reconditioning and repurposing parts or products.

Elegant in its simplicity and far reaching in its impact on the business and the environment, the system works. It applies to all industries and sectors and has given rise to variations that successfully harvest value from or repurpose “waste”, as Catherine Weetman, founder of Rethink Global, explains.

“We’re starting to see more closed loop supply chains, and variations of them,” she says. “You have a closed loop, which means recovering your own products and materials to go back into new products and materials you’re going to make. And then you have open loop, where the products are going into the same sector, which is typically for end-use plastic packaging going back into more packaging.

“And then we’ve got open loop cross-sector. That would be your waste going into a completely different sector supply chain. That would cover lots of what we call industrial symbiosis examples. That might be plastics that get downcycled into materials for roads and pavements or ecobricks and things, it could be plastics that get upcycled into, say, chopping boards and things that are going to last for longer. It could be waste coffee grounds going into fertiliser, being used as a basis for growing mushrooms. Essentially, it’s a way of making the business more resilient.”

An iterative process

Killing two birds with one stone will appeal to most businesses – and so it is the case with efforts to introduce more sustainable practices to the supply chain. Driven by the need to improve business processes while also satisfying the desire to be good global citizens, those engaged in sustainable initiatives are finding that precious third reason is actually a major factor: value.

Value is of course a bit of catch-all which means different things to different companies, though it tends to identify itself quite readily on the bottom – either as profit or additional revenue. In fact, it was with that aim that early efforts to make supply chains more efficient were started. That they reduced impact on the environment was a happy consequence.

“Complete closed loops are very hard to achieve in practice,” procurement consultant Jim Goodhead says. “Many companies are using reverse logistics to recover end-of-life products, saving both cost and the environment. This is nothing new.”

Around 20 years ago, when embedded carbon wasn’t as high on the corporate agenda as it is today, Goodhead was working for Lucas automotive which supplied parts to Ford Daytona. The parts would arrive at Daytona HQ in cardboard boxes on wooden pallets, which were difficult to dispose of.

“We proposed to Ford that they help us to invest in dedicated tooling so we could buy returnable packaging. And although the returnable packaging was PVC – which as we know isn’t good for the environment – it meant that we weren’t buying cardboard for single use. Our reusable packaging came back to us, was sanitised and used again and again. In that sense, we closed the loop on our packaging.”

It’s a nascent example of why closing the loop on seemingly innocuous parts of the supply chain makes both business and environmental sense. According to Goodhead, the returnable packages had a shelf life of 10 years, and so for a decade the organisation saved on single-use cardboard – reducing cost and impact on the environment.

He cites another example, of where logistics can be optimised through greater visibility to reduce carbon footprint. An undisclosed company he worked with was using dedicated vehicles to receive deliveries from Europe. The vehicles were paid for by the supplier, and deliveries were made duty paid (DDP) to that supplier’s client – as such, Goodhead’s client had no visibility over where its goods were.

By shifting the delivery terms to ex-works where the buyer arranges transport and export documentation, they took back control of the logistics. They were also able to close the supply loop in an innovative way. “We were more in control of where goods were moving,” he says. “We know where they’re going to be, when they’re going to turn up and, if they’re late, why they’re going to be late – and that works to our advantage. The logistics chain for this specific product can’t be reversed, so to close the loop on that particular supply route we sold space on the reverse leg and any reusable packaging.”

It’s worth making the point again that the overall philosophy of sustainability makes good business sense, too. Business works by leveraging resources in whatever form they come in order to make a profit. It stands to reason therefore that both eliminating waste and/or repurposing it offers a path to greater success while preserving finite resources.

But is such a cynical reason really why we’re seeing a greater uptake of sustainability models like CLSC among the business community. And if that is the case, does it matter if that driving force has a positive knock-on effect?

“The bottom line is that it’s the right thing to do,” Goodhead says. “Companies should be tackling environmental problems because they’re global citizens, and as a global citizen you have responsibilities. But I’ll say this candidly, environmental policies need to have a strong business case behind them.”

He’s right for a number of reasons. In the 1980s, efforts to lean out the supply chain had a desirable effect on the environment by reducing waste. It was a strategy wholly predicated on generating more profit – and back then why wouldn’t it have been?

Today, the picture is very different. There is a genuine and growing desire from consumers to buy from ethical and responsible companies, and it is incumbent on those companies to meet those expectations. But far from pandering to consumer pressure, the desire to change is reciprocated by businesses which now not only recognise their responsibilities but are actually highly successful while meeting them.

Taking control

To what extent does procurement play a role in meeting those responsibilities? And where does it begin? Initiatives that fall under the environmental, social and governance (ESG) umbrella are moving further up the pecking order, but they are not the sole preserve of the department any more than they are its sole consideration. Like every other project that requires a sound business case, it’s best to start small and scale.

Re-using plastic refuse as building materials

“Procurement teams have a lot of opportunities to get involved in recovering value from the supply chain, whether that’s assets or equipment or consumables you’ve bought that aren’t being used,” Weetman says. “I’d always start the process by looking to create opportunities where waste exists and looking at how we can take value out of that instead. That doesn’t have a natural home in a lot of businesses, but it’s an area procurement should be taking ownership of.”

Closed loop systems are mainly used to describe what an organisation does, but if we look at them from the perspective of procurement and the variety of risks the supply chain faces, there’s an opportunity for procurement to take the initiative. Take computer chips – the global shortage means everyone in any electronics business is trying to secure them. Yet in regions like the UK and Europe, where a lot of finished products are imported with all the tech and materials inside them, there’s an opportunity to collaborate and reduce the risk in the process.

“Joining forces and creating your own recycling network for end-of-life products that contain materials and parts that can be reconditioned makes perfect sense,” Weetman adds. “Not only are you reducing your dependency on overseas suppliers, you’re reducing your risk of material shortage and the geopolitics that surrounds them. If somebody decides to switch off the tap or ratchet up the price, you are exposed to that. The more you can close the loop on your own resources so that you’re not dependent on these complex overseas supply chains, the more resilient and future-fit you are.”

You don’t have to look too far to see this in action. In the last six months Primark, Unilever and PepsiCo have all announced plans to tackle waste in their supply chains, joining the likes of Apple, AB InBev, Nike and Adidas, which all have relatively mature programmes up and running. Moreover, the list of startups and SMEs is growing and they’re leveraging their agility and ability to scale to partner with the big players and accelerate closed loop practices.

A strong example of this is HP. As lockdown started, the tech giant couldn’t meet the demand for new laptops caused by the volume of people working from home. To circumvent the problem, it partnered with Circular Computer, a supplier of remanufactured tech, and sold refurbished laptops on its site alongside the new products it had. And far from competing with Circular Computing, HP has reaffirmed its commitment to circular networks.

It has massive potential for procurement, and the notion of starting small and building is a commonly heard advice among experts. Goodhead advises exploiting low-hanging fruit such as understanding your value chains, knowing carbon footprints, or extending the lifecycle of packaging for materials and boxes of product lines with a five- to 10-year lifecycle.

Weetman echoes his words, and suggests starting with a small cross-section of customers, one market or one product line, in the way that proved successful for Ikea: “They offered vouchers for people to bring back Ikea products. They started it with a trial last Black Friday in 20 or so countries, offering 30-50% off, depending on the condition.

“That allowed them to see what people would return, what kind of things they would bring back and what condition they were in. From there, they could determine what could be resold and what needed to be refurbished and recycled. And it obviously went okay because they’re now rolling out pilots in about 11 countries.”

Starting small and scaling has proven successful for businesses of many sizes because it affords time to see what’s achievable and get people on board. This approach worked for Mars when it set out on its sustainability journey in 2009.

Mars chief sustainability office Barry Parkin says: “We got started with sustainability in terms of overall commitments. First we made our greenhouse gas commitments, next we looked at our own operations, then science-based targets, net-zero and wider operations. And we put together a more complete programme across the whole value chain in 2017.

“Then we developed our sustainable regeneration plan, which covered all of the issue areas, so environmental, land use, greenhouse gas reduction, water use, packaging, socio-economics, income, human rights, gender, and commitments and targets against all of those areas across the whole value chain. We’ve been working at delivering against those and I think what we’ve done really well over the last couple of years is to link all of our different targets together.”

Rolling out change across a multinational company is a major challenge and while Mars has access to resources smaller companies can only dream of, Parkin says the level of investment is relative – the more they invested in sustainability, the greater the reward. “We announced then [2017] we would spend $1bn in the first three years to kickstart this. Now we’re ramping up towards spending about $1bn a year.”

Too good to ignore

Ikea successfully trialled recycling reclaimed furniture.

There’s no two ways about it, our use of materials is increasing faster than GDP per head worldwide, and by quite some speed. And if you think about it, product lifetimes are becoming shorter. We expect and accept that smartphones, laptops, cars and everything else we own will need to be updated more quickly. Everything’s getting faster and we’re making things cheaper so they’re less recyclable, and therefore our use of virgin resources is increasing sharply too.

“That’s going to be the biggest driver for supply chains to evolve,” Weetman says. “But swapping to better recycled content doesn’t slow that pipeline down. It amounts to small, random acts of greenness for a bit of PR.”

To be effective, businesses will need to enact multiple loops that consider full lifecycle value chains of their goods and link their goals, as Mars is doing. Together the loops would lower use of virgin materials, increase use of reclaimed waste and recycled materials, to use more renewable energies and tackle carbon emissions for a more layered, meaningful approach.

SMEs and start-ups are likely to benefit from their size when challenging the way their business works. They are more agile and not as tightly coupled to traditional operational models, which means they can scale fast simply because they can offer customers what they want. If more companies find ways to make circular economy models work for them, it could be as disruptive as digital for your business.

“It will affect every bit of your business,” Weetman adds. “And it’s not just product design and business models, but procurement, the whole of the supply chain, marketing, sales, finance, everything. And you’ve got to take it as seriously as digital and if you just think it’s not for us, we’re about making this, then you’ll have missed out.”

Environmental efforts have in the past been viewed as a tick box exercise but meaningful action by both major companies and SMEs means those that don’t move will be left behind. But this is about far more than that. The global shift in attitude has led to platforms for change, as with the launch of the Sustainable Procurement Pledge, a community for sharing the knowledge and tools required to help organisations embed responsible practices into business as usual. 

It’s about building better supply chains. It’s about finding where you’re leaking value from your linear supply chains, or finding gaps in your circularity that could be exploited by a competitor. It’s about procurement leaving less on the table. Look around and ask, what are you paying for now that will be discarded in a fire sale five years down the line because nobody has considered what to do with it? This approach is set to become the standard for procurement.

Parkin says: “It became obvious to us that the vast majority of our issues, our impacts, are embedded in the goods and services we buy, and in particular in raw materials. So if procurement doesn’t act, you don’t make progress. You have to change what you buy or where you buy it, or how you buy it if you’re going to materially change your sustainability issues. That’s why we put procurement and sustainability together under one person (me) because we knew procurement was key to becoming a sustainable business.”

Weetman concludes: “There’s a huge role for procurement to play, both as catalyst and enabler. In fact, I believe that circular procurement could be the biggest lever in the move to a circular economy.”

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