Posted On November 2, 2022

The modern supply chain is changing.

Most supply chains follow a fairly simple structure, with almost all products ending up in the same place: the landfill.

But a new structure, known as a circular supply chain, is growing in popularity.

What is a circular supply chain?

A traditional supply chain, called a linear supply chain, involves the movement and processing of a commodity from raw material to manufacturing to delivery to the end user. The commodity flows only in one direction—toward its final destination.

A circular supply chain, on the other hand, doesn’t end with the end user. After the item is used, it is brought back into the supply chain (a process known as reverse logistics) to be recycled or refurbished, repackaged, redistributed and resold.

There are a few different types of circular supply chains:

Refurbishing

Sometimes, products just need a refresh or repair to return to market. This process is known as refurbishing.

Nike has one of the most well-known circular supply chains, and refurbishment plays a big role. Many of the shoes that reenter its circular supply chain can be cleaned, repaired and disinfected before returning to shelves to be sold at a lower price point.

Larger commodities, tech products and things like major vehicle components can often be refurbished, saving money for both the manufacturer and the consumer.

Recycling

Many manufacturers and brands utilize recycling in their supply chain to reduce waste and decrease the need for raw materials. There are various ways this can be done. Companies can break down products to be recycled into new products that have nothing to do with the original product. Nike’s supply chain management is a good example here, too. Through a program called Nike Grind, the company shreds worn shoes to reuse the materials for things like sport court surfaces and carpet padding.

Alternatively, recycled materials can be used to create new versions of the same product. For example, consumer packaged goods companies can process old packaging to be used and sold again with new contents.

Closed loop supply chain and open loop supply chain

Where a product goes after its recycled determines whether it’s part of open loop or closed loop supply chains.

In an open loop supply chain, products that have been deconstructed into raw materials are used by separate manufacturers to create a different commodity. Turning Nike’s worn-down shoes into carpet fibers is an example of an open loop supply chain.

A closed loop supply chain involves raw materials being used to remanufacture products of the same type. An example of a closed loop supply chain would be a company that recycles used aluminum soda cans to make new cans.

Benefits of circular supply chains

The logistics industry is seeing a growing trend toward circular supply chains. According to a 2020 survey by Supply Chain Dive, 51% of supply chain leaders expected to focus more on circular economy strategies in the next two years. There are several reasons influencing the shift in global supply chains.

Environmental sustainability

The largest factor driving the growth of circular supply chains is environmental impact. The World Economic Forum estimates that supply chains account for 80% of carbon emissions, a fact that doesn’t align with changing consumer sentiments toward sustainability practices and responsible consumption.

A circular supply chain involves fewer new materials being used in the manufacturing process than a linear supply chain, reducing the carbon footprint.

In addition to being better for the planet, incorporating circular economy principles into a company’s supply chain can actually drive profits. One study found that more than half of consumers are willing to change their buying habits—and even pay more—for products that are more sustainable. Sustainable supply chains can be compelling talking points for sales and marketing messages across industries.

Pricing and material costs

Labor shortages and supply chain backlogs caused by the pandemic led to waning resources and increased prices for raw materials. A supply chain that incorporates used products is less dependent on new raw materials, which can translate to lower production costs.

Changing consumer demand and government regulations

As sustainability becomes an increasingly central focus for both consumers and governments, businesses are evolving their practices to decrease waste and eliminate harmful byproducts of production. Governments and regulatory agencies are encouraging (and in some cases, requiring) companies to evolve their supply chain. The European Union, for example, has a circular economy action plan that encourages businesses to repair or reuse items and reduce their dependency on raw materials.

Parts of a circular supply chain

The benefits of utilizing a circular supply chain are clear—but establishing a successful circular supply chain requires in-depth planning and strategy to ensure it has the right processes, tools and capabilities in place.

The ability to refurbish or recycle the product or materials

Step one of adding circularity to a company’s supply chain? Determining how its products can be refurbished or recycled. This might require adjusting the product design altogether, utilizing different materials that are easier to repair or reuse, or partnering with a manufacturer in a different industry that can use discarded products to create something new.

A well-planned (and well-promoted) collection process

To ensure products are being reintroduced to the supply chain, businesses need a plan to collect old items. This can vary widely based on the product. Things to consider when determining reverse logistics for collection include:

• Incentives for return. How will customers be notified that they can return the products, and what incentives will there be?
• How consumers will return the items. Are they given a pre-paid return envelope when they make the purchase? Can they download a shipping label online? Are there drop-off points?
• Carrier and transit options to move the items. How can items be returned in the most cost-effective way?
• Where items go once they’re returned. Will the products go directly to the recycling or remanufacturing facility, or to regional collection centers where they can be palletized before going to be recycled or remanufactured?

A recycling or remanufacturing processes

Once the products are collected, companies need facilities, teams and processes in place to unpack, clean, disassemble, repair, remanufacture, repackage and ship out the products.

Supply chain technology

Throughout the entire process, businesses need advanced supply chain technology to track products and shipments and maintain visibility throughout the entire supply chain. Forecasting technology is also useful for demand planning, allowing companies to determine how much raw material is needed to supplement the used products reentering the supply chain.

Getting started with a circular supply chain

No matter your commodity or location, implementing circularity starts with a thorough analysis of what future supply chain management can look like. Using supply chain data and evaluating variables such as warehousing and collection sites, reverse logistics carriers and more will allow you to design a circular supply chain that is actually sustainable, cost effective and productive. Without this up-front work, companies are simply taking a shot in the dark and hoping their strategies pan out.

Partnering with third-party logistics providers can help your business adopt sustainable practices in a way that makes sense both environmentally and financially. Flat World helps companies optimize their circular supply chain processes from reverse logistics to fulfillment centers and every step in between. Contact us to get started.