Circular Supply Chains: The Impact.

Circular Supply Chain 2 Blog Article

Changing a supply chain near you.

In a previous post, I wrote on the emergence of Circular Supply Chain models and, whether we welcome it or not, there is a new future coming soon to a supply chain near you.  In fact, for many companies, it has already began.  The latest KPMG Survey[1] of Corporate Responsibility Reporting found that 93% of global 250 companies are publicly declaring sustainability and corporate responsibility standards.  67% of these companies now disclose targets to cut their carbon emissions.

So what will that future look like and how will the transition present itself.  There are volumes published on specific aspects of this initiative such that it is often difficult to understand the comprehensive picture.  Some publications focus on the recycling aspect, others on carbon emissions and others on sustainable sourcing.  However, one thing that is unanimously agreed upon about Circular Supply Chain is that there will be a transformational impact on global supply chains.

In this post, I want to describe two ways in which manufacturers may be impacted.

Sustainable Sourcing

Chronologically, raw material sourcing is a logical starting point in the circular supply chain discussion.  Sourcing and procurement decision-makers are confronting a perfect storm.  They are facing cost increases, vanishing supply sources, combined with increased demand.  Global commodity costs have been steadily increasing since 2000 after almost a century of gradual declines and will continue to increase[2].  Supply is being depleted as current extraction is forecast to exhaust virgin sources for a growing number of raw materials[3].   And to complete the nexus global demand is continuing to increase with world population growth.  Something has to give.

In the future, procurement leaders will play a more influential role in product design to limit the use of non-sustainable raw materials and promote the use of sustainably sourced materials.  However perhaps more importantly, procurement leaders will influence product design to allow for easier recovery of raw materials from the product once it reaches end-of-life.

Many valuable materials are lost every year, because it is difficult to recover them from products, such as mobile phones or computer screens. Better product design can promote product engineering which is conducive help save precious resources and reduce unnecessary waste. 

By promoting material reclamation from end-of-life products, manufacturers keep the same raw materials in use reducing costs and securing supply.  But it will take some reengineering.  Not only re-engineering of product design, but manufacturers and supply chains.  Supply chain design must be more bidirectional to salvage the recovered material. 

Food & beverage and Pharmaceuticals already embrace reverse supply chains to enact product recalls or the return of reusable containers.  However supply chain design and planning will evolve to include procurement planning, track and trace of materials, and refurbishment and restoration types of production processes.  This evolution in supply chain thinking will require investment in supply chain planning technology to support these changes.

Product as a Service. RIP – Planned Obsolescence

In recent years we observe an increase in supply chain relationships that have moved from a product to a service.  From Philips selling light instead of globes, and HP Ink selling the ability to print instead of printer cartridges, these forms of trading relationships promote circular supply chains.

Let’s consider the Philips model.  You pay a subscription to have light.  You don’t pay for a replacement light globe if one were to burn out.  You don’t pay for extra electricity if the globe is inefficient in its energy consumption.

With this model, it is in the supplier’s interest to design and manufacture a product that uses the least power and lasts the longest hours.  It is in the suppliers interests to promote natural light options in the architecture of the building.

This supply and demand relationship is the exact opposite of how light globe manufacturers work today.  In 1925 a group of light globe manufacturers, the Phoebus cartel which included Philips, colluded to intentionally enforce a maximum life of a light bulb to 1,000 hours[4].  Product design could easily and cheaply produce longer-lasting globes, however, that would reduce product demand.

Let’s speculate where the product-as-a-service model could reach.  A washing machine where you pay per wash (energy and water included) or a subscription model for a number of clothes washes per subscription period.  Now it is in the interest of the service provider, the manufacturer, to have a durable, long-life washing machine that is efficient with its consumption of water and power.  Stepping away from consumer goods there are also many examples of product-as-a-service in B2B trading relationships such as the Rolls-Royce’s aerospace division with their TotalCare® service offering.

The primary driver for change is not government regulation nor corporate responsibility (although both of these play a role).  The driver is a commercial interest to provide the contracted service at the lowest cost.  The fact that it helps save the planet is a fringe benefit.

We should hold a funeral for Planned Obsolescence.