Circular economy enabled by the supply chain

The economic and ecological value of regenerative business models

21 June 2024

First movers around the world have captured the economic and ecologic value of business models that are restorative and regenerative by design. Rethinking value creation by applying a circular approach is gaining traction. The conventional way of thinking in which raw materials are extracted, processed into products and then disposed of as waste at the end of their lifetime is a phased-out model.

In view of global challenges and the need for climate neutrality and sustainability, today’s linear economy is no longer tenable. Yet the linear “take-make-dispose” economy remains pervasive: disrupting linear production and consumption patterns and establishing circular models requires multi-stakeholder action and effort – now and in the future. Collaboration is key. 

Going forward, we need to respect planetary boundaries by increasing the share of renewable or recyclable resources while reducing the consumption of raw materials and energy. The future belongs to the circular economy. Organisations and economic leaders need to replace the “end-of-life” concept with restoration. If implemented thoroughly and considerately, future economic growth can be decoupled from resource consumption. 

In view of global challenges and the need for climate neutrality and sustainability, today’s linear economy is no longer tenable. Yet the linear “take-make-dispose” economy remains pervasive: disrupting linear production and consumption patterns and establishing circular models requires multi-stakeholder action and effort – now and in the future. Collaboration is key. 

Going forward, we need to respect planetary boundaries by increasing the share of renewable or recyclable resources while reducing the consumption of raw materials and energy. The future belongs to the circular economy. Organisations and economic leaders need to replace the “end-of-life” concept with restoration. If implemented thoroughly and considerately, future economic growth can be decoupled from resource consumption. 

The big(ger) picture

Put together, this change brings an end-to-end transformation of entire supply chain systems where it is about more than just separated forward and reverse flows, waste management and adherence to minimum regulations – the circular economy must be viewed holistically and as a closed-loop system that retains value.

  • Re-imagined product design: Products and their packaging need to account for repair and refurbishment, easily adding them back into the value cycle. Production and manufacturing processes will become more modular with shorter product cycles.
  • Transparency and complexity: The responsibility of companies will grow beyond simply selling a product. The ability to return will call for more detailed information about the materials to meet a growing number of regulations surrounding decarbonisation and emissions.
  • Collaborative ecosystems: Making the complexity of circular economies profitable requires agility and perseverance, as found in nature. All parties involved need to adapt to change effectively and cooperatively to achieve sustainability goals.

For future business models, the supply chain will play a pivotal role in capturing the value of end-of-life goods and facilitating the adequate reuse of such. Even more, the supply chain allows products to stay at their highest level of value for as long as possible. By doing so, the supply chain will not only take on more and more important tasks and, at the same time, become more local and granular; it will also drive the circular flow of goods, link markets and provide transparency no matter how complex. This makes companies and organisations with strong supply chain capabilities key enablers and forerunners for accelerating the scale-up of the circular economy.

Companies engaged in circular economy will soon face changing and expanding business areas – and new ones can be realised. This also applies to customer relationships, journeys and individual touchpoints within them.

Organisations that are on top of these opportunities will be best placed as value-adding members in the supply chain, including logistics service providers who can easily leverage their central position. With that expertise at hand, innovative supply chain and logistics solutions can be brought to life – assuming that these are socially acceptable and fulfil net-zero ambitions. 

Making it happen… 

  • Define the strategic dimensions, such as cost vs profit focus, product vs service orientation, organisational anchoring (business unit vs cross-functional) as well as operating model (make vs buy).
  • Set clear guidelines for recovery and remarketing ambitions as well as products in scope.
  • Understand the requirements for return management and reverse logistics according to individual product types and needs.
  • Understand all stakeholders involved along the supply chain, both internal and external.
  • Assess the maturity of existing or planned return management processes.
  • Gain transparency into returned products and related demand in secondary markets.
  • Strengthen and scale the organisation’s circular approach to leverage market potential.
  • Ensure comprehensive digitisation as a basic requirement for product and inventory traceability, supply chain monitoring and information exchange across supply chain participants.
  • Run continuous improvements on all dimensions and keep moving.

Dynamic and agility are two important characteristics that will help organisations remain successful. There is no “one way” or “one size fits all” when it comes to becoming – and staying – circular. Return management systems and reverse logistics requirements vary based on individual product (group) and business model attributes – and so do different demands on holistic supply chain setups.

Based on our experience at Implement Consulting Group, we have mapped out a set of characteristics along three dimensions impacting the definition and setup of comprehensive supply chain and logistics systems. These might serve as a source of inspiration for companies and organisations tapping into circularity. Circularity is no longer a question of “if” but “how”.

Product perspective

Residual value: What is the product’s economic and ecological worth after the usage period – and how can it be increased by circularity throughout the value chain?

Modularisation: To what extent can defective product parts be dismantled, directly impacting the level of effort towards service and repair measures and involved logistics?

Life-cycle extendibility: To what extent can the product’s life cycle and materials be extended, e.g. by refurbishment measures, to overcome the typical “use-dispose” approach?

Regulations: To what extent are products affected by policy instruments, e.g. EPR (Extended Producer Responsibility), WEEE (Waste from Electrical and Electronic Equipment) that must be adhered to – and which ambitions exist to go beyond what is required at minimum?

Figure 1: Implement model for circular economy – the product perspective

Customer perspective

Return effort: What is the overall effort required from customers to bring products into circularity – and how can these be even more simplified?

Incentives: What motivations are useful – even necessary – to increase the share of circular products, e.g. vouchers and deposits?

Figure 2: Implement model for circular economy – the customer perspective

Supply chain perspective

Agility and speed: What is the needed responsiveness towards circular solutions directly impacting involved costs? Depending on the use case, these can highly influence the overall supply chain setup, e.g. in product-as-a-service vs efficiency-driven environments.

Ecosystem and collaboration: What capabilities exist in-house, and what is the need for collaboration and partnerships outside your organisation to ensure lasting success?

Figure 3: Implement model for circular economy – the supply chain perspective

Regardless of which closed-loop solution is the best fit, all options lead to even greater dynamics in transport and storage that need to be planned and controlled. Hub-and-spoke systems, centralised value recovery setups, synchronised pick-up and delivery services and commercial and service agreements – just to name a few impact drivers. 

All put together, businesses will soon realise that the supply chain and logistics capabilities can act as a “margin enabler” instead of being perceived as a “margin killer”. Collaboration is the basic requirement to manage future needs. For a circular strategy to succeed, all parties involved in the ecosystem, including suppliers and manufacturers, must commit to this process and act as a joint entity. For example, while every company can take the path to digitisation on its own, circular ambitions and concrete actions need to be carefully balanced on multiple shoulders. 

The transformation required by the circular economy requires a rethinking of current material flows and the creation of transparency in the existing infrastructure. A joint commitment to retaining and adding value is the order of the day. From this, new and holistic supply chain and logistics processes must be designed and established to always take the customer into account. Companies that understand and address the role of closed-loop supply chains and the complexities of reverse logistics, in particular, will unleash the power and promise of the circular economy for the benefit of all.

How to get started

Achieving a circular economy requires a fundamental change of mindset within the business, all the way from the strategic decisions made for the company and its value chain, through the tactical ways of managing and setting goals for the company, to the day-to-day operations of designing, developing and applying circularity principles.

At Implement, we help you understand your company’s current circular readiness, which is key to planning a successful transition to increased circularity. We also assist your systematic transition to a circular economy.

The change we need to make is fundamental, and it requires sharing knowledge with and gaining inputs from as many different people within your company and your value chain. Our proven approach is designed to incorporate as many colleagues from your company as possible. In fact, we provide a measure of how inclusive you are in relation to the different functions in your company. We also help you engage with your value chain, turning good ideas and intentions into tangible actions – together, we create “change with impact”.

Case: Reverse logistics for packaging solution

A manufacturer of polyethylene (PE) film for packaging is offering a circular packaging solution to its customers, including a take-back scheme and reverse logistics after using the packaging. The circular solution includes six steps:

  1. Production of PE film: The company produces PE film using sustainable practices, such as recycling materials from previous applications.
  2. Sales of PE film to the customer: The PE film is sold to customers who use it for packaging purposes.
  3. Use of the PE film by the customer: Customers use the PE film for the packaging of their products.
  4. Sorting of the used PE film by the customer: After use, the customers collect the used PE film.
  5. Return and transport from the customer to the PE film manufacturer: The collected, used PE film is returned to the manufacturer via a logistics process.
  6. Mechanical recycling and return to production: The manufacturer mechanically recycles the PE film, reusing up to 30% to produce new PE film.

The PE film manufacturer has several reasons for favouring this circular solution:

  • Sustainability: The solution reduces the negative impacts of the packaging solution’s end of life, such as waste or CO2 emissions related to the incineration of the waste. Besides the impacts at the end of life, the demand for raw material extraction is reduced because the material can be reused. The negative impacts linked to the extraction are reduced, such as CO2 emissions and impacts on ecosystems.
  • Material savings: Using recycled PE film reduces the need for virgin plastic, conserving resources. This reduces the demand for oil and breaks dependencies on oil-producing countries.
  • Quality assurance: Utilising their own recyclates ensures quality control in production. In the case of plastics, there is a lack of transparency in the supply chain regarding the additives used to ensure the polymers’ functionality. If a company recycles its own plastics, the formulas are clear and do not have to be disclosed to third parties for a proper recycling process.

However, implementing this circular solution poses challenges for customers:

  • Increased effort and costs: Customers may anticipate increased effort and costs associated with returning and sorting used film as well as changes in handling processes and storage space requirements.
  • Lack of clear benefits: Customers may struggle to quantify the cost and CO2 savings or process changes associated with the circular solution.

In its pursuit to improve sustainable packaging practices, the company has embarked on strategic initiatives. Central to this endeavour is the active engagement of stakeholders throughout the supply chain, including suppliers, customers and partners. By fostering collaboration and open dialogue, the company aims to ensure that all parties understand the benefits of sustainable packaging solutions and invest in the process.

Recognising the significance of addressing human behaviour, the company has implemented tailored change management strategies. Through comprehensive assessments, barriers to adoption are identified, and initiatives are developed to motivate and empower employees and stakeholders to embrace sustainable practices.

The commitment to optimising logistics processes is evident through investments in technology and the forging of close partnerships with logistics providers.

Leveraging tracking systems, route optimisation software and other tools, operations are streamlined, costs are reduced, and the environmental impact is minimised. Furthermore, the company places a strong emphasis on developing closed-loop supply chains that promote the reuse and recycling of packaging materials. This includes educating customers about the advantages of participating in circular supply chains, integrating supporting technologies and implementing initiatives to incentivise the reuse and recycling of packaging materials.

Through the implementation of these strategies, significant steps have been taken to achieve sustainability objectives and deliver more environmentally friendly packaging solutions.

The authors

Simon Theißen

Simon is a senior manager at Implement Consulting Group in Munich. He has more than ten years of experience shaping customer-centric supply chains/logistics setups and driving sustained performance improvement. 

Since 2015, he has focused on the integration of forward and reverse logistics in closed-loop supply chains – a topic that has finally gained industry attention in recent years. Simon strives to bridge the gap between conceptual design and solution-oriented implementation. He is a dedicated advocate for positive change, focusing on advancing relationships, empowering individuals and inspiring teams to achieve their objectives.

Christian Lueb

Christian is a partner at Implement Consulting Group in Hamburg. He is an industrial engineer with more than 17 years of experience managing transformation projects, primarily in the aerospace industry. He has demonstrated a strong focus on process management through various client projects, especially in logistics and supply chain management and organisational development. 

Christian has extensive experience in creating impact and ownership with a high level of involvement of all relevant stakeholders to adapt and improve existing processes and create new ones. Christian is a dedicated advocate of active communication with less hierarchy, individual motivation and target clarity.

Jan-Markus Rödger

Jan-Markus is a partner at Implement Consulting Group in Hamburg. He has more than 15 years of experience in sustainable product design and manufacturing. He has extensive experience in creating impact with a particular interest in quantifying, adapting and enhancing existing processes and products. 

Jan-Markus believes in joining forces to create a real, sustainable impact. That might be one of the reasons why he and DTU’s ready2LOOP team have organised an event where companies can evaluate their circular economy readiness level. Are you a product manufacturer interested in assessing your organisation’s circular readiness? Sign up for the free workshop here.

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