Procurement professionals looking to sell circular economy ideas to stakeholders and the boardroom should emphasise raw materials security.
Sarah Watt, research director in Gartner’s Supply Chain Group, said the circular economy provided an opportunity to create additional value and it could also help organisations hit sustainability targets.
“I think the circular economy represents an opportunity to create additional value to the organisation, to the customer and to give us raw materials security,” she told SM.
“From a procurement perspective, if they were trying to promote this concept within the organisation, they would probably come at it from a raw materials security perspective.”
Gartner said a survey it conducted in 2020 showed 51% of supply chain professionals expected the emphasis on the circular economy to increase in the next two years, following the Covid-19 pandemic. It referred to an estimate from the World Economic Forum that $62.5bn of raw material value was locked away in spent electronic devices.
Watt set out four challenges to the circular economy:
1. Loss of control of a product at the point of sale. Getting the product back at end of life is challenging.
2. Residual value. “Raw materials with very little residual value at end of life are not great candidates for the circular economy,” she said.
3. Business case. It is necessary to know the quantity and quality of material the organisation will get back to make a business case.
4. Product complexity. A product must have high residual value to cover the cost of refurbishing or recycling it.
“Procurement has a key role to play to advise the organisation on selection of materials because we lock ourselves in at product development stage to material choices which can create real headaches for us at end of life,” said Watt.
“Procurement also needs to have oversight of where products and materials are because in essence what we’re doing with the circular economy is creating a products and materials ecosystem.”
Watt said a “digital overlay” was necessary to know where raw materials are at any point in time in order to maximise their value.
“Materials sitting in a warehouse is not maximising their utility and it’s not maximising value to the user or the organisation,” she said. “Digital can give us that visibility and also insight into how consumers are using our products so we design better products to begin with.”
Watt said it was important to understand the impact of raw materials to reduce carbon emissions. She said prioritising carbon reduction policies based on spend was “not a particularly good idea because we may be spending a lot of money with the supplier but the product they’re producing doesn’t have a particularly large carbon footprint”.
Watt said it was necessary to obtain emissions data from suppliers, not based on their entire organisation but specifically for the product sourced from them. She said cotton, aluminium and plastics were materials associated with high emissions.
She said such data collection was at an early stage but in future product-based emissions data would form part of purchasing negotiations in a similar way to quality certifications.
Watt advised procurement teams to create collaborative partnerships with suppliers with mature emissions controls, while “for suppliers with less maturity we need to help them understand what we’re asking for and why”.
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