The circular economy is high on the agenda of many policy makers and industry leaders. There is consensus on the economic potential of the concept and new circular economy business models are arising in a wide range of markets and countries.
However, due to a lack of understanding and skills, many companies are still struggling to incorporate circular thinking in their strategy and day-to-day operations. This article discusses the circular economy’s definition, its potential impact on the supply chain and the business opportunities related to it.
What is a circular economy?
Despite regulatory pressure and optimization of manufacturing processes, our world has been unable so far to decouple economic growth and resource consumption. Economic growth is important in delivering a range of social and community benefits, but it also puts enormous stress on the availability of resources. Without drastic changes in consumption and production practices, global needs for resources could double from 2015 to 2050 according to the International Resource Panel1. The sharp increase in demand for materials can aggravate resource scarcity and may lead to unmanageable levels of waste. It can also generate unwanted side effects as the “war on plastic” is showing us.
Much of the need for economic growth is in emerging markets, where environmental regulation and practices are less mature. If the growth of production and consumption in these emerging markets follows a similar trajectory to the developed world, the health and environmental impacts will be higher than what most local ecosystems will be able to carry.
The good news is, there is significant room for improvement. Although resource efficiency has comparatively improved in emerging markets, there are still many inefficiencies along the supply chains of products. For example, the Food and Agricultural Organization of the United Nations (FAO)2 estimates that about one-third of all food produced globally is lost in the different segments of the supply chain. In order to cope with these challenges while increasing wealth and welfare in a sustainable way, the global economic model is required to evolve. The circular economy embodies the idea that the management of products and materials can be changed to make economic systems less reliant on the extraction of virgin materials, deliver more from the consumption of these materials and reuse resources where possible. The combined focus on resource efficiency, use of renewable resources, and economic growth has inspired many policy makers and industrial leaders to act.
The circular economy concept has a comprehensive scope and can be implemented across many sectors and countries, from product design to end of life. Unfortunately, its generic nature makes it less practical to implement at a company level. Therefore, prioritizing and focusing — at a very early stage — on elements with high materiality can be critical to success of the company.
What impact will the “war on plastic” have on business response?
The focus on resource scarcity is not new. The topic first came to prominence as a result of The Limits to Growth study3 in the 1970s. However, over the past 12 months, it has again been brought to prominence as the increasing plastic deposits in our oceans has gained attention in the mainstream media. This renewed focus is likely to have an impact on consumers and regulators with an expectation that business should be held more accountable for stewardship of their products even after they have been sold. A response to the issue of plastic waste should be a trigger for a broader assessment of other resource or waste risks in a company’s supply chain.
What is the impact of the circular economy on the supply chain?
A circular economy strategy aims to generate cost savings and business value by closing material loops in all stages of the supply chain. For example, changing a product’s design and business model can reduce the resources needed upstream. Or, leasing rather than selling, can be a way to upgrade clients to higher-end, more profitable and more durable products. In addition, take-back schemes for end-of-life products and materials can provide the resources needed for new products (e.g., by collecting them via reverse logistics or product stewardship schemes).