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A Supply Chain Revolution: How the circular economy unlocks new value (Part 1)

17th January 2017 | Catherine Weetman

In this first installment, Catherine Weetman discusses how the circular economy is becoming a critical tool for businesses

A Circular Economy Handbook for Business and Supply Chains (9780749476755)

Part 1: what is the circular economy?

The circular economy creates and captures new value for businesses, and adds extra dimensions to supply chains. This week, we begin with an overview of the circular economy, and some of the reasons it is gaining momentum as a critical tool for future-fit businesses: Nike, M&S, Renault and many others are developing circular products and services, and circular start-ups are thriving. Next week, in Part 2 of this article, we look at the implications for the supply chain, and how your business can get started.

Turbulence ahead

After a turbulent 2016, it feels like our world is changing ever faster: ‘mega trends’ include urbanisation, a redefined world order, rising inequality and political upheaval. Predictions include 3 billion new consumers set to enter the market by 2030 and the internet-connected population doubling to 5 billion in the next 5 years – fantastic business opportunities. Disruptors, like Airbnb, Spotify, Uber and others, scale up rapidly, displacing established brands and entire sectors. Amazon has even filed a patent for aerial warehouses. Most businesses operate on ‘throughput’ principles (see below: The value leakage in our linear economy): take some materials, make a product, sell it and work out how to sell the next one. But this approach shackles growth for many businesses as demand for resources, land and water outstrips supply.

A circular revolution

How can your business survive and thrive in these challenging conditions? Across the globe, in every sector, start-ups and big businesses are exploring the ‘systems thinking’ approaches of the circular economy. Some businesses are trying to disrupt from the inside: how would a new competitor design your business? How would a disruptor innovate products and services, decouple resources from profit, build brand loyalty and create resilient, adaptive organisations?

Facts about the circular economy

Instead of leaking value by discarding products and materials after use, the circular economy redesigns products, processes, supply chains and business models to yield more value. Creating durable products, and recovering products and materials at end of use, enables reuse, repair, remanufacture and recycling. Simple examples include:

  • Making orange juice: the ‘waste’ becomes by-products, with pectin, pulp and zest for food manufacture and essential oils for pharmaceuticals and cosmetics.
  • Commercial photocopiers aren’t sold now; photocopying is a service with efficient repair networks plus refurbishment and remanufacture to enable second and third lives for each machine. 

Circular economy approaches regenerate ecosystems to better support human health and well-being. By converting the take-make-waste approach into value loops, creating more from less, the circular economy approaches decouple resource use from value creation.

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The value leakage in our linear economy

Marketing aims to create a dissatisfaction with what we have now, encouraging us to buy more stuff, or replace what we have with something better. We could describe our current economy as a waste system. It is woefully inefficient, using subtractive manufacturing processes: start with a lump of something and knock bits off to make the shape needed. At end-of-use, materials are sent for landfill, incineration or exported (often to where materials can be recovered without onerous safety regulations), allowing value to leak out of the system. A third of food is wasted between farm and fork; only around 14 per cent of plastic packaging is even collected for recycling; we create over 40 million tonnes of electronic waste globally every year. Harmful externalities from farming, extraction and manufacture - toxic waste, pollution of air, atmosphere, water and soil - are destroying the living systems we depend on – pressuring the earth systems and biodiversity services we depend on like never before. We make more stuff to replace these degraded natural systems, or suffer the consequences through disease, healthcare costs and productivity leakages.

 

 

About the author: Catherine Weetman helps businesses develop future-proofed, resilient strategies, assessing sustainability risks and value opportunities. She is a Visiting Fellow at the University of Huddersfield, a Vice-Chair of the Environment and Sustainability Forum at the Chartered Institute of Logistics and Transportation and gained an MSc in Logistics from Cranfield University. Weetman's background includes Industrial Engineering in manufacturing and retail distribution, logistics solution design, project management, business intelligence, logistics product development and supply chain consulting. Her career covers food, fashion and logistics, including Tesco Distribution, Kellogg Company, and DHL Supply Chain.

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Logistics, Operations & Supply Chain Management

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