What are the most important facts about circular supply chains today?
A new way of thinking is required to understand the systemic challenges supply chain leaders face today and to capitalise on the opportunities for a new way of growth and resilience.
According to a Gartner survey report released in February 2020, 70% of Supply Chain leaders are planning to invest in the circular economy (in the next 18 months); but only 12% of those have integrated their customer and digital strategies with the principles of circular economy. This missing link could increase the cost of their current and future initiatives and reduce the impacts (and benefits) of the same if seen in isolation.
It is known that making decisions to manage trade-offs is a supply chain leader’s everyday task. Balancing complexity and risk whilst improving cost efficiency and performance is par for the course. Over the last couple of decades the global context guiding these decisions have included:
- Globalisation and economies of scale for cost efficiency.
- Process and labour productivity through technology investment.
- Managing performance to support organisational growth.
However, a new global context has been emerging over the last few years, which was significantly accelerated by the disruptions seen across 2020. The result, a new way of thinking and business model on how money made.
Fact #1: The challenge influencing decisions in the new global context
Although the list of known challenges business leaders face today has not gone away, how those impact organisations has evolved influenced by a shift in the economic, environmental and social system business operate in today. The forces driving this shift are described in the illustration below:
The internal challenges, if organisations continue looking at problems in isolation, they will drag the barriers of the past. Reducing investments in capabilities such as problem awareness, action-centred innovation and new types of collaboration.
Another important challenge today is the disconnection between supply chain risk areas and circularity principles, driving a business mentality of : “these ideas are good, but how much is this going to cost me and where are the benefits?”. Leaders need to overcome the mental model and assumptions around the role sustainability and circularity can play to address and overcome operational challenges like: organisational alignment, visibility and resource transparency, demand & supply volatility.
One of the most important external challenges and imperative to prioritise as a supply chain risk is resource depletion. Today, procurement strategies and product design considerations use the principle that they will always have access to the resources they need. Their role is to find the most cost effective way to do so. This principle is now being challenged, aggravating the disruption to supply chains and businesses.
Resource depletion is an issue caused by our current linear economy, population growth and unsustainable consumption patterns.
For example, there is a current global sand shortage (accessible marine sand — beaches, riverbeds and lake-beds). This issue seriously affects the construction and infrastructure industries. We are consuming 50 billion tonnes per year. China alone has used more sand over 10 years than the US has used during the entire 20th century.
In India the price of sand has increased between 100 to 150%. Additionally a sand mafia there has become a serious, violent problem. Awareness of this situation requires responsible procurement policies to cater and influence this rising issue.
With more awareness across nations, significant work is already underway to find alternative resources to sand in concrete such as fly-ash, shredded plastic, crushed oil palm shells and rice husks. Additionally, industry research & development and universities are investing in developing concrete that requires less sand, while researchers are also looking at more effective ways to grind down and recycle concrete, an approach that will require collaboration with the recycling infrastructure & forge partnerships for reverse logistics.
Addressing this resource risk through circular thinking will build the supply chain resilience required to reduce the impact of volatile commodity prices, accessibility to resources and long supply chain costs increasing customer and market responsiveness.
Furthermore, investing in capabilities across organisational functions will deliver outcomes like cost saving initiatives, new revenue streams, product innovation and new sustainable business models. As a result, organisations will not only be able to ride their own wave, but instead, they will gain from their entire value chain transformation.
Fact #2: The opportunity to reach sustainable growth whilst building a resilient supply chain
Gartner has placed the Circular Economy as an emerging capability gaining momentum and driving product and market innovation.
According to a report issued by The Ellen MacArthur Foundation and Accenture, circular business models could unlock an economic value of $4.5tn in sustainable growth.
This sustainable economic growth needs to support and co-exist with the global economic recovery we are facing now as a result of the COVID-19 pandemic. This challenges organisations to rethink their business and operational models integrating resilient, sustainable, circular and digital strategies into one single systemic roadmap.
A circular supply chain is rooted on the principles of designing out waste, keeping materials and products in use (through close loops) & the regeneration of natural systems. Supply chain leaders are required to think beyond their organisational boundaries when making decisions; instead, understand the system their value chains operate in.
Supply chains and operations seat at the driver seat in this systemic change, due to circular principles materialise across their operations lifecycle. Starting with:
- How product and service design is influenced by the vision of zero waste.
- How and what amounts of natural resources are consumed via circular sourcing practices.
- What number of new ways of establishing partnerships with suppliers for product innovation arise.
- How we use and keep materials in use through industrial symbiosis for manufacturing and distribution and finally;
- How value chains extend the customer journey through innovative circular business models that seek to generate profits in new and socially-environmental conscious ways.
Each node in the value chain requires the execution of action steps that, together, shape the systemic transformation journey towards a circular supply chain. The table below illustrates an example of transitions executed by companies around the globle.
In conclusion, as the Ellen MacArthur Foundation puts it:
“..business leaders have realised, for instance, that shifting to a more circular model can ensure the resilience of value chains and secure supply stability. On the demand side, the circular economy creates revenue through new business models, drives market differentiation, improves products and increases customer satisfaction. Non-economic motivators for going circular include demonstrating corporate responsibility, attracting talent, complying with regulations and supporting the innovation agenda”.
The Australian response to the COVID-19 pandemic has outperformed most of the developed economies, giving our government confidence to focus on economic recovery incentive policies. The federal government has already announced a budget with high rates of public spending and tax incentives at individual and corporate levels.
Additionally, as our international borders remain closed, sectors that depend on volume-growth; pipeline and discretionary spending will continue to weaken if they rely on past trajectories and business models that are now disrupted by ongoing international pandemic lockdown measures.
Whilst our government is seeking for ways to assist our economic recovery, stimulating growth and spending, sectors and their value chains will remain challenged by the volatility of volume and access to key input materials.
Organisations that can lead with a mindset to change their recovery plans with a new definition of sustainable growth will build the resilient foundations across their end-to-end value chains.
This is today’s business crossroads, what organisations decide to do will determine their competitive position to capture the benefits of shifting market demand, whilst building the resilience required to deal with supply and input material disruptions.
Would organisations and supply chain leaders seize this opportunity? Or would they continue through the conservative path and false “comfortable approach” to re-do or re-apply traditional approaches born in the linear economy?
Would love to hear your thoughts in the comments section.
