Sustainability has been on the business agenda for quite some time, and most are familiar with circular economies, though it’s one thing to understand the concept and quite another to make it work.
Right now, when many are wrestling with rising prices of materials and energy and trying not to pass the burden along the chain, circular systems could act as a security buffer. But it’s not as simple as swapping one item line for another, so it’s important to take a whole-company view of these projects, with procurement front and centre.
Dr Vicki Mekler, senior integrated supply chain optimisation consultant at software firm Arkieva, who has more than 20 years’ experience in partnering with organisations on system builds, says the four main stages are process analysis, change management, integrated supply chain planning and optimisation models.
She believes that, on the whole, people don’t understand the impact of integrated planning let alone the importance of early-stage decisions such as setting the right performance metrics and removing departmental silos. And the risk of project failure is very real.
“I’ve seen it first-hand,” she says, “when working on a project to build an integrated supply chain system and the business said: ‘We want no more than five days of supply and inventory’, so that’s what was set as the target. We devised a plan and took it to one of the manufacturing plants, whose response was: ‘We would never do this. We hold 11 days of supply because we run full-out. Our performance metric is utilisation of the plant’.
“You can bet that the same person who set the KPI for the plant is probably the same person who set the target of five days’ supply but they hadn’t connected the dots.” The teams could not agree on a common business process and eventually reached an impass. “It’s a perfect example of spending two years building this model, which was for all intents and purposes functional, but the business couldn’t get the different departments to align so it never reached sign off.
“That’s why it’s so important to have the right KPIs that drive the behaviour you want, and ensure they can be consistently applied throughout the organisation. Otherwise you end up in a situation where teams are focused on meeting their individual goals while the company is stuck in a deadlock.”
Don’t hold on to poor processes
While the intricacies of circular systems will vary by organisation, for instance collecting excess resources from one process to feed another, they generally include replacing messy spreadsheets with digital systems. Ideally, these would connect procurement, production and distribution to bring synchronicity across operations.
“Getting the right data is the first big milestone, and it always takes longer than everybody thinks,” says Mekler. Production systems are very data-driven, she says, but you would be surprised at the number of gaps in information. “It’s important to define a data framework, to be objective when considering what data is required and what it needs to look like. Is this currently available in a good enough condition?”
This is essential because data is what drives the model so you need it to be accurate but also able to be maintained and updated as the business changes. But, Mekler warns, there is risk involved in becoming too focused on technology instead of the operations.
“If I could address one thing, it would be to encourage project managers to spend more time up front on the business process,” says Mekler. You can’t just rely on tools and expect everything to work seamlessly. “If you don’t fix your process, you’ll still get the wrong answer, but faster. So understand what your process is – and what it should be – because a lot of people do things by rote and you don’t want to carry over poor practices.” She recommends mapping out current processes and comparing them to how the new system works to help identify areas for improvement and potential pain points in the transition.
Prioritise change management
When it comes to rolling out new technologies and ways of working, it can be unsettling and even intimidating for employees, so communication is imperative to avoid the project failing. “Companies just don’t spend enough time managing the transition,” says Mekler. “Change management needs to start on day one, with clear communication, senior level support and cheerleading throughout the entire process to make sure people are onboard. I’ve been in many situations where we’re three quarters of the way through the process and implementation, yet some users still don’t understand the purpose of the project and get very frustrated as a result.”
For instance, in the US firms traditionally have supply chain production and energy management teams working separately, despite the overlaps in business impact, she explains. But you can only gain full oversight of the options by working across both, to balance production needs and energy reduction opportunities. “If you just wanted to minimise energy consumption you could shut plants down, right? But you can’t consider these issues in a vacuum. You have to consider all of your objectives.”
Also, there may be psychological aspects to changes, such as how to manage sunk costs, which Mekler says can be “a difficult concept” to embrace. If, for example, a firm has a prepay contract for a certain amount of product but it isn’t all used, natural instinct says use it elsewhere, but there may be additional costs to relocate it.
“I had a project where a digital modelling tool considered this product as free and prompted staff to buy more. But even if it’s free, we don’t want to use it due to the additional costs that would offset the value.” This change of attitude can take convincing, she says, “but it creates a feedback loop to your purchasing people. When juggling multiple operations or sites, it’s a useful tool for purchasing to get a proper view of what’s needed at different locations and renegotiate the contract.”
The wider considerations
Implementing circular economies may require significant changes, in all aspects of working, but the benefits go beyond the process itself and support wider sustainability and cost-saving initiatives, such as influencing material choices and waste management, useful as leverage in negotiations. And the higher the level of granularity the better. But it also calls for a degree of realism – even if the transition is swift internally, suppliers will need time to adapt.
The global shift towards reshoring and nearshoring also have a role to play here, from a stability standpoint but also for sustainability and circularity. Mekler says: “It is now more common to see increased circularity not for ESG reasons but as a consequence of risk management. We can’t expect people to save the planet out of the goodness of their hearts, unfortunately, because companies need to stay in business, so we have to find solutions that are win-win. If people are shortening their supply chains because it makes business sense, but also helps us environmentally, that’s awesome.”