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What is a Circular Supply Chain?


The world has started to realize that the Earth’s resources are finite, and our growing rate of consumption of those resources is no longer sustainable. Companies are looking for ways to reduce resource inputs while consumers are recycling more each year. There is still, however, tons of materials entering our landfills every day, and much of that could be recycled back into the supply chain.


Reverse logistics is the movement of goods from the consumer back to the seller and then to the manufacturer. Many companies today, especially those who specialize in eCommerce, have come to view reverse logistics as an required aspect of their business. In 2018, returns represented as much as 13% of all holiday eCommerce, or $90 billion, and that number is continuing to grow as our hunger for one-click buying continues to increase. Those returns can have a large negative impact on business’ profit margins; and strategies are emerging in order to mitigate that impact caused by the flow of goods back to the seller.

Many companies will inspect, repackage, and resell returned merchandise in an effort to cut down on costs. This is especially true with items that are relatively easy to resell, such as garments. Many items can be sold “as is” or even at a discount. What cannot be resold is then discarded. There is more that can be done to extend the life span of a product, and that’s where the circular supply chain comes in.

What is a Circular Supply Chain?

A circular supply chain, or circular economy, takes the concept of reverse logistics further by focusing more attention to the returned goods and finding new ways to reuse them. The goal is to create sustainability in our economy. The three most important ways to create that sustainability is to reduce the amount of raw materials entering the system, extend the life span of goods in the system, and reduce the amount of waste exiting the system. Chris Cunnane, Research Director Supply Chain at ARC Advisory Group, has listed six ways in which goods can be treated and brought back into the economy.


Re-use

One of the most common methods of handling returns for a company is simply to resell them. For a consumer, finding new and innovative ways to use an old product can keep it out of landfills.

A person working at a recycling center looking at piles of recyclable materials

Sharing

Giving unwanted goods to others or donating them to charities is a great way to extend the life of a product and help those in need. There are many apps today that allow individuals to connect with others in their area to trade items, sell unwanted goods, or even rent seldom used items such as power tools.


Repair

Just because something broke doesn’t necessarily mean it has no value. Repairing an item can be a cost effective alternative to buying a new one. Right to Repair laws are making it easier for consumers to repair electronic devices that would otherwise have been thrown away.


Refurbishment

Companies will refurbish a product for resale. This often include new packaging, and removing of any blemishes on the item itself. They will then resell the item at a discount. This can put the product back into the economy and reduce the overall costs to the business.


Re-manufacturing

Re-manufacturing is much like refurbishment, but at a more involved level. It could mean sending the item back to the factory for a complete rebuild, discarding the damaged parts and reusing the parts that are still high quality.


Recycling

When a product is no longer viable for reentry into the economy, a company should find a sustainable way to dispose of the remains. Safely disposing of toxic materials, recycling what can be reused, and then properly disposing of what remains can reduce the overall amount of waste entering our landfills.

Cardboard on palettes ready to be recycled at a recycling center.

Why is a Circular Supply Chain Beneficial?

By using the above strategies, less raw materials are required to enter into the economic cycle as old materials are recycled and reused to make new goods. A product’s life span is dramatically increased by reusing and sharing beyond its initial use. Companies realize added value in recirculating goods, and less waste is discarded at the end of the product’s life span. This focus on sustainability can add value to companies’ reputation with a consumer base that is increasingly looking for greener alternatives.


As more companies look for ways to recycle and reuse their products, they will inevitably create an industry that caters to their needs. While recycling is available in most parts of the U.S., it is still in its infant stages compared to where it will need to be if we are to create a sustainable economy. The more demand there is for recycling, the more research and investment will be made in processes and equipment, which will reduce the costs of recycling and create a more cost effective cycle.

Ways to Make the Circular Supply Chain the Future

Creating a reverse logistics chain is the first step toward a circular supply chain, and many businesses are already well on their way with this important step. Making return policies easy and friendly encourages consumers to return items rather than simply discard them and it can also build consumer good will toward a business.


Finding new uses for those items that cannot be resold is the next stage. According to an article by Forbes, close to 40% of goods are discarded rather than recycled. Creating partnerships designed to extend the life of goods through recycling or re-manufacture keeps the goods out of the waste bins and in the economy. It can also create new revenue streams for companies as they find new ways to sell used items.


As the world transitions to renewable energy and sustainability initiatives, the circular supply chain will become increasingly important to reduce resource consumption and waste. Creating added value through new uses for old items keeps those products in the cycle longer and generates additional profits to the economy. Businesses have to work closely with consumers as well as other businesses to find ways to get the most use out of a product; and when that product finally ends its life cycle, making sure it is disposed of in the most sustainable way possible.

 

ABOUT THE AUTHOR

Jason Kelly is currently completing an internship with ASCI. He is a senior at the University of Alaska Anchorage finishing his final semester for a bachelor’s degree in Global Logistics Supply Chain Management with a minor in Computer Information Systems. He is also scheduled to receive an Occupational Endorsement Certificate in Business Analytics. His experience in logistics lies in oilfield supply, inventory consignments, and air cargo shipping.  


Contact us at hello@ascillc.com or (907) 348-1610  if you would like to set up a free consultation appointment to help with your business’ inventory management needs. 


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