Circular Digital Wealth: Transitioning from Linear Supply Chains to Sustainable Businesses
Written by Denis Daus, a contributor to Sustainability in Global Value Chains
The COVID-19 pandemic and its aftermath have created a changed dynamic that cuts across all sectors of industry and all levels of society. Businesses in all sectors are on the edge of an uncertain future and need to fight for survival in their respective markets.
The need for digitalization solutions is currently more visible than ever and practical solutions for more sustainability in global value chains are long overdue. Sustainability issues have already been there since the age of industrialization, and digitalization in value chains still has a long way to go. These topics just become more obvious now.
Despite the collapse of entire value chains, as well as numerous restrictions in the professional and private spheres, we should perceive this crisis as an opportunity to learn from it and to do better – or even better – to prevent such a situation from occurring again in the first place. The aftermath of the crisis will continue to plague us for years to come. Especially now we should be encouraged to rethink our economic, environmental and social approaches.
Businesses have a great opportunity to reset their mindset and adjust their global value chains in a more sustainable way.
In this article, you will learn why a circular economy is the preferred concept to achieve truly sustainable value chains (or better: value cycles) and what to consider when transforming linear value chains towards more circularity.
Why is a circular economy so crucial for businesses?
Waste is value
Usually, companies build up excess inventories in times of a weakened economy, which they then have to get rid of. As a result, they are increasingly forced to invest in waste management. In some countries, this means generating energy through incineration. A far better option would be to implement circularity.
To ensure that the sustainability successes achieved so far (e.g. plastic avoidance, renewable energies, sharing economy) are not discarded, a circular value creation must be focused on more intensively.
This includes not only closing material, information and resource loops, but also slowing them with new product designs made to last longer and across several product life cycles.
Only then will we be able to fully exploit the functionalities of materials and keep surplus materials away from incineration.
Markets with new opportunities
Speaking of materials – one popular material that is frequently emphasized, especially in sustainability–related discussions, is plastic.
If a drop in oil prices occurs, it would make the production of plastic cheaper. In this case, recycling is hardly worthwhile and consequently, the second-hand plastics market would suffer.
On the other side, we all know that the available oil on earth will not last forever – the scarcer it gets the more expensive the production of plastics becomes. That’s why it is important to act now instead of reacting later, e.g. through new materials compositions replacing the conventional plastics or through closing the linear value chains and establish innovative business cases to use the available plastics over and over again.
Local circularity instead of global linear value chains
The Green New Deal is intended to bring about an ecological turnaround that is environmentally sustainable, economically viable, and socially responsible. A Circular Economy provides the fuel for this turnaround by increasingly replacing linear value chains with circular value chains.
During the last few years, we have seen the risks of globalization and how fragile linear value chains are. The longer value chains become and the more stakeholders they contain, the more complex it gets and the greater the risk of failure.
Especially now, when local products are increasingly in demand, there is a great opportunity to establish a Circular Economy with short and preferably local cycles.
Considerations for transforming linear value chains towards circularity
The era of new business ideas
This is the time for companies to think of new business ideas. Due to the current pandemic, and possible pandemics to come, there is an increased risk (at least for the short term) that the trend will move back from reusable to disposable or from unpacked to packed products. This development is surely not sustainable.
However, it also offers innovation potential for new business models that deal with, for example, safe (sterile) exchange of products in order to restore confidence in reusable packaging.
Furthermore, when fewer new products are manufactured and instead returned back into value chains, companies might try to establish new types of revenues, e.g. through take-back models, upgrading of products, selling on secondary markets, repair or maintenance services, developing sharing platforms, etc.
A radical change in thinking
In order to establish innovative and sustainable business models, a new mindset needs to be internalized and operationalized in the different processes along the entire value chain.
This is an important prerequisite to ensure credibility and avoid being exposed for “greenwashing”, which might irrevocably damage reputation.
Global sustainability issues have greatly changed everyday life, both in business and in private. Positive impacts on the environment due to sustainability endeavours become apparent and sustainability topics are becoming mainstream. The well-known approach to fulfil customer needs as much as possible becomes even more crucial in these unparalleled times because customers increasingly develop environmental awareness and are demanding ‘green products’ from companies to fulfil sustainability goals.
If companies don’t listen to these calls, they might get punished in the long run. Hence, this is a unique opportunity to test and maintain resource-conserving practices in industry and everyday life.
Digitalizing the circular economy
The current COVID-19 pandemic has triggered a digitalization push in almost all sectors of the economy.
Digital technologies are not only a key driver for linear supply chains, but can especially serve to establish circular value networks, from product design to recycling technologies to communication and platform technologies for end-to-end transparency in circular value processes.
Information technologies are helpful for data collection, management and availability. Traceability of materials and resources is notably important in a circular system and can be realized, e.g. by means of material passports or Blockchain technology.
In this way, information about the composition of products can be tracked across company and industry boundaries along the circular value chain in a tamper-proof manner.
An IT platform based on smart contracts for data storage and management with access for all participants at any time and from any location enables secure data exchange and creates continuous transparency and trust in the value chain.
This vision is still a vision of the future. Therefore, the necessary exchange of data and information between the different actors in value chains should be explored and evaluated in order to ensure value preservation and to conserve resources.
The aim should be to avoid information silos and gain a better understanding of the interdependencies between the different stakeholders in the value chain system and the necessary changes at all technical and management levels.
Time for circular transformation to secure wealth for us and future generations
A high level of innovative strength and competitiveness is the backbone of every industrialized nation. However, if these goals are not aligned with sustainability measures, the competitiveness of entire industries is in danger.
The goal should therefore shift to a resilient economy and society whose prosperity does not depend on the consumption of finite resources.
From the viewpoint of the conventional Supply Chain Management field, there is a need to establish clarity about necessary activities and management approaches as well as harmonize them along the entire value chain. This is due to the fact that a circular transformation cannot be done by a single company. The change should be integrated into the entire value chain in order to avoid conflicting goals among different stakeholders.
To implement circularity an integrated view of the value chain should be considered, which enables coordination and collaboration between all stakeholders supported by innovative business models and digital processes.
Denis Daus holds a B.Sc. in Industrial Engineering, a B.Sc. in International Business, a M.Sc. in Industrial Engineering, and a M.Eng. in Logistics Engineering and Supply Chain Management. After his studies in Germany, USA, Thailand and Singapore, he worked as a researcher in the area of Supply Chain Development and Strategy as well as digitalization. His research interest is the application-oriented transition from linear supply chains to supply cycles.