This article is part of our Paradigm Shift series, produced by nonprofit PYXERA Global, on the diverse solutions driving the transition to a circular economy. See the full collection of stories and upcoming webinars with the authors here.
So, you’re starting a circular business model? Is it a model where no inventory is sold, but inventory is needed to offer a service? Supply chain does that. Or is it about finding a new type of secondary material that’s high in quality and cost-competitive when compared to current, virgin materials? Supply chain does that. Or perhaps it’s a take-back program to remanufacture and resell items? You guessed it: Supply chain does that, too. Supply chain integration is a critical success factor in circular business models. Read on to explore the role supply chain capabilities must play in successfully designing, launching and sustaining circular business models at scale.
The circular economy is based on three principles: design waste out; circulate materials and resources; and regenerate natural systems. The underlying premise behind the circular economy is that businesses that are strategically anchored in these three principles will be profitable, hedge their risk on raw material pricing, and add trillions to the global economy by 2030, by decoupling financial growth from limited natural resources historically required for growth. However, for these business models to be successful, the supply chains that support them must be ready, recognized and expected to offer their capabilities in a new way, and at scale.
Ultimately, the circular economy is about inventory — extending its life, reusing it, repurposing it or eliminating the need for it altogether. Supply chain is responsible for inventory, and a global, circular economy requires supply chain innovation beyond its current scope in the linear economy.
This brief guide provides starting points for leveraging the capabilities and problem-solving prowess of your supply chain colleagues.
Supply chains possess the capabilities you need to go circular. Let’s explore supply chain capabilities that support the circular business models referenced in the accompanying infographic. This section shares stories about real supply chains delivering real capabilities for circularity, today.
Supply chain capabilities: Physical and digital infrastructure for inventory
Move inventory close to the customer. Lean supply chains move inventory and decisions as close to the customer as possible. Proximity reduces the time between inventory decision and actual customer need. Because more inventory is typically required to buffer against uncertainty, decreasing the time decreases the uncertainty, which decreases the need for inventory.
Edwards Vacuum, a leading developer and manufacturer of industrial vacuum pumps, strives to locate its remanufacturing shops close to its customers’ factories. This reduces waste in transportation, translating to reduced contamination risk, reduced risk of damage and a lower carbon footprint.
Create and share data about inventory. Ah, data. Everyone’s favorite topic. Data about inventory — materials, costs, partners, locations, timing, quality, demand — these are all gathered and managed by the supply chain. The right technology platform is important, but the data itself is critical.
CHEP operates one of the world’s largest circular supply chain systems. Its business facilitates the circulation of over 300 million shipping pallets and containers across 60 countries. Its platform acts as an "invisible backbone" of global supply chains, allowing its customers to participate in the circular economy in two ways.
First, the customer can reuse shipping pallets (nearly 3 billion pallets are in circulation in supply chains in the United States alone). Second, CHEP pallets generate critical data that allows supply chain managers to effectively aggregate it and gain insight into inventory — data critical to supporting circular business decisions. Large quantities of data are available to CHEP as a result of its business model and the company is working to make this data even more useful to customers. In the future, data will be available not only through the logistics company, but also from the pallet itself.
Not all data is the same. Edwards Vacuum finds that 'data is meaningless unless you can turn it into insights.'
The multinational chemical and consumer goods company, Henkel, has heavily invested in its supply chain’s "digital backbone." With thousands of sensors measuring consumption in order to optimize operations, it uses data to inform decisions about circularity — leaning out operations to reduce required inventory.
Not all data is the same. Edwards Vacuum finds that "data is meaningless unless you can turn it into insights." This requires domain expertise. Because of this, data sharing has become less secretive as trading partners acknowledge they rely on the knowledge of others to make sense of data.
The data in the supply chain also can be used to facilitate Product-as-a-Service (PaaS) models. Chakra, a business focused on digital solutions for the industrial world, sees this as it helps its clients develop business models and go-to-market strategies for PaaS offerings. Its offering has been so successful that Chakra has launched Ventures Ecosystem, a value exchange platform that will enable these new business models to scale.
There are many discussions of artificial intelligence and machine learning in the circular economy. Entercoms, a supply chain control tower company, specializes in services and after-sales maintenance, a key part of extending the life of items and materials. Using data science and machine learning algorithms, it connects data across supply chains and apply data science, facilitating better forecasts and lower waste across the industrial spectrum. This strategy for improved asset recovery also translates into more savings for a company.
Managing inventory around the world
Reduce & eliminate resource requirements. Henkel’s supply chain began its zero waste journey over 15 years ago. Since then, it has reduced its footprint and impact by over 50 percent. The supply chain does this. Its manufacturing facilities prioritize optimizing boilers, compressed air and other manufacturing processes. "Zero waste to landfill" has been adopted by two-thirds of its 180 sites with the short-term goal of 100 percent globally. This requires clever solutions and new partners (found and developed by…? The supply chain).
CHEP in sub-Saharan Africa (SSA) developed circular approaches because it operates in regions with expensive base resources. To address compromised electricity infrastructure, it uses natural and automated lighting, power correction devices and energy-saver air conditioners. To conserve water at its reusable plastic crate plants, it not only harvests rainwater, but also uses purification systems to clean and recirculate runoff from pallet wash bays. This way, no drop is wasted — it’s all repurposed. Sustainable supply chain operations make this possible.
Circulate inventory. To make the best use of existing inventory and reuse items as many times as possible, a business must know a lot about that inventory. If it can’t virtually "see" its inventory, or if it lacks the ability to easily move it, it often ends up buying or creating more to buffer the system. CHEP SSA addresses this. It offers businesses the ability to see and move their inventory. For example, in the rapidly developing smart farming industry in South Africa, the supply chains of growers can use CHEP to see their bin locations (orchard or de-greening room, loaded or unloaded). This allows them to make smart choices about how and when to circulate their bins.
At the end of the useful life of a bin or pallet, CHEP engages a "wider loop." Instead of sending this timber waste to landfill, it chips it and the material has a second useful life by other companies. This is the heart of the concept: first reduce, then monetize. If lean management is about finding and eliminating waste, circular economy is about finding and monetizing waste.
Extend the life of inventory. Entercoms helps its customers re-use parts and assets by eliminating the need to manufacture a new part. This can be tricky because there are often several suppliers for the same spare part, leading to excess inventory. Entercoms uses unique substitution logic to help customers avoid buying new parts and rebalance stock levels across locations. This requires data from different sites to "talk to each other," taking into account forecasted needs and the cost of transfer.
Edwards Vacuum continuously maintains the products it produces. For example, an entire product may get taken apart once every year for maintenance to extend its life up to 20 years. The remanufacturing facilities improve efficiency, and thus reduce costs, through targeted scheduling of skilled labor, components and needed consumables. Technological investments are critical. The Internet of Things (IoT), domain expertise, data science and the right platforms predict product performance and proactively maintain assets, ensuring customer satisfaction.
Maintain multiple product generations. Products go through several "generations." Edwards Vacuum has found its customer base falls along the generational spectrum of these products — some want new models; others are happy with refurbished products — so Edwards keeps two to three generations of product in its install base. As these generations mature, the supply chain capabilities inform product design. Over time this leads to modular products with lower variability, reducing response times and lowering costs. In addition, the installation period for upgrades is streamlined.
Creating inventory around the world
Locate and transform inventory. The next generation of miners is emerging — instead of extracting resources like traditional miners, they locate resources that are already "detached." They look for plastics in the oceans and — I predict — eventually will "mine" landfills.
In order to recirculate items, the inventory must be located and transformed. In Australia, the team at Far North Queensland Plastics designed one product — a twin wall panel called ReGenWall made from 100 percent recycled HDPE plastic — that has multiple uses. As a supply chain, Far North Queensland Plastics produces a single stream resin that can be recycled again. The extrusion line was manufactured by Telford Smith Engineering, and the mold tooling itself was built specifically to extrude continuously, creating more strength. Additionally, the byproduct of the manufacturing is captured and reused.
Getting started with your supply chain
Three easy ways to get started leveraging supply chain capabilities. These are fairly painless, but likely require meeting new people:
1. Locate and meet your supply chain team. This team covers procurement, planning, sourcing, transportation, storage, manufacturing, remanufacturing, contract management, supplier management, inventory management and more.
2. Include members of your supply chain in design sessions. Supply chain professionals are trained to design waste out of operational systems. Including them in all steps of the design and management process means listening to their perspectives, insights and ideas.
3. Pose a challenge to your supply chain. Ideally, give the team time to solve a problem, and be dazzled with what they come up with. Do yourself a favor and avoid presenting crises to your supply chain — your solutions will be better for it.
To learn more from the leaders of the circular economy transition, visit PYXERA Global.