The circular supply chain has evolved over the years as a disruptor to the traditional structure of global supply chains. Traditional forward supply chains follow a linear model of “make, take, throw away”. Here the movement of goods sees the product shipped, the customer receives it and they use it until it is useless, defunct, or outdated. The insatiable thirst for the new product can leave many older – still workable – products resigned to the dustbin too early in their lifespan. This is an economic cul-de-sac.
The circular supply chain has developed at a greater speed due to sustainability rising to the top of the agenda. There’s a big push on the 4Rs – Return, Recycle, Refurbish, and Reduce. Companies aim to decrease the amount of packaging and carbon being used in their supply chain. It’s high time to answer their social responsibility and act more circular, less linear.
Circular Supply Chains and Big Business
Even the largest of multinationals realize sustainability is imperative to their business planning. Indeed, companies in the past (and still sometimes today) saw sustainability as a burdensome cost disruptive to the status quo. Transitioning to a circular supply chain is more costly than if you continue to concentrate on the forward supply chain. However, any form of mass change will need money pumped into the new process even though money can be saved in the long run through the use of enabling technologies. Large portions of the consumer market demand that the supply chain is more circular.
With COVID, people moved in swathes to e-commerce, especially in the apparel and the shoe industry. If a customer didn’t know their exact size and couldn’t visit the bricks and mortar store, the company would often ship four different sizes and then they would choose one and ship back the other three. The same occurs with clothing. The postman delivers a shirt, the consumer tries it on – a home fitting room – and if it doesn’t fit or suit them, they send it back and get a quick refund. This process is too simple and the consumer needs to be made more eco-conscious. Convenience should not trump sustainability.
The problem has been that the forward supply chain works very efficiently, so how can companies be convinced – the ‘if it ain’t broke, don’t fix it’ brigade – to change their processes? Chief Financial Officers can be convinced by the potential of reducing costs down the line while also answering their social responsibility and the impact they have. It is a win-win situation, reducing waste, time, and space.
Sustainability by Technology Solutions in e-commerce
What is the best approach to work more sustainably from a product perspective? This can be done in multiple ways. With the shoe example, the vendor sends four pairs of shoes instead of one which is clear waste. Then the returns mean more carbon is used in transporting them back and then, ultimately it stays in the warehouse occupying the space. In most cases in those warehouses, they don’t get put back on the shelf and are often destroyed.
It’s more costly to ship those four than utilizing biometric technology. In Germany, there is a company working on a device where you place your foot on it and it will biometrically measure you. It has all different sizes that now could be sent to the vendor so the correct size is sent. Some apparel shoe companies use software like myShoeFitter and they only send the product once the measurements have been made.
Repair and Maintenance over Forward Supply Chains
From the shoe to the mobile phone, consumers order and buy more expensive technological products online. Mobile phones are now one of the biggest players in the circular supply chain: sending the phone back, having it refurbished, and then returning it into the forward supply chain. This process saves the components and prevents the unnecessary destruction of parts. Furthermore, companies can repair the product and give each phone a longer lifespan, rather than just throwing it away. You have a lot of items that are not recyclable, but if you repair them, reuse them, and increase their life, that is acting with sustainability. The issue is that the whole area of repairs is not very easy. It may be that some companies would argue differently, but it’s not the most efficient because it goes into a repair depot and the repair is highly manual. It is a difficult, labor-intensive process. However, this is changing: robotics is being used to repair products, making it a less labor-intensive task.
I was talking to someone recently that had a broken exercise machine. The company sent them another one and advised ‘Just throw that one away.’ What a waste! Why not send a repair kit instead? Companies and consumers must change the way they think about this and embrace reverse logistics and modular manufacturing.
Modular Supply Chains
A modular supply chain means that if an individual piece malfunctions, you can just pull it out. So, if this keyboard breaks, I won’t have to throw away my entire computer. You can repair it at a central depot, then put it back into the supply chain so you’re reducing waste and you’re making the supply chain and the economy much more resilient. Many consumers don’t bat an eyelid when buying used and refurbished products online, especially from a big online retailer like Amazon. This makes it modular and it is much more efficient and renewable than the old product line style.
The current global chip shortage means that any machine that uses a chip is not easily available. This has benefitted the secondhand car industry as the development of new cars has gone down due to the shortage. There’s a greater demand for used cars and in the repair process again, you pull out any malfunctions, fix it, put the car back in the market and it’s good to go. This culture of reuse is becoming more popular than forever aiming to buy the new.
However, there are still consumers that want new things and don’t want a refurbished product. But the consumer is changing. The Millennial and Gen Z generations will be more attracted to the refurbished product because of a reduction in the overall carbon footprint. This is the more sustainable choice and younger generations will be more likely to buy a used product than a brand new one.
The Lifetime of a Product
Baby boomers always bought new things. They want the new, not the refurbished, but this isn’t the case with large appliances. For example, a lot of boomers will buy refurbished appliances because the life of those appliances still has longevity. The circular economy allows refurbished items to be used more where repairing an item fast is becoming the norm. This is a challenge for supply chains because if you call and say ‘I need something repaired’ and the operation requires eight weeks – that doesn’t hold up. Repairs have got to be rapid. In the physical supply chain, huge refurbishment centers are being built with the aim of a 24-hour turnaround. And if they can reach that goal, then it is infinitely more sustainable. The test for supply chains is how to make it cost-effective as logistics can be costly.
So, how can it be more cost-effective? By using innovative technologies, such as supply chain solutions, robotics, and predictive analytics, companies can calculate the demand of the refurbish center and effectively manage routing. If the communications to the carrier are going through a system where they’re able to pick up and drop off. This is going to reduce the overall costs of the logistics network; that, in turn, will reduce the total cost of the supply chain.
AI and analytics can predict with good certainty to the percentage of how much is going to be put back into the supply chain and how much is going to be returned or refurbished. Using AI gives us predictive analytics to manage the entire circular supply chain using network analysis. Algorithms will give you all the information and ability to know that the DHL courier has a pickup and a drop-off in the same building. Too often if someone needs something collected, companies tell them where the depot is so they can drop it off.
AI can understand where pockets of customers are. This is particularly important in apartment complexes where algorithms can know the demographics of a part of town. This is essentially what Amazon Prime is doing. They soak up your loyalty with fast delivery and offers while also taking in all the data possible about you as a consumer. They can then use this technology to find if someone is sending a product back in the same building. Crossing two packages off the list with one trip.
If we look at the way companies manage returns. They should ask ‘why are we doing returns in the same warehouse where we’re shipping products?’ They have got to redesign their network to have a separate area for return or implement warehouse and transportation management systems. Technology-driven by predictive analytics and AI can highlight the number of returns that go into the system. Therefore, instead of having a swollen inventory gathering dust, they can get back onto the shelf.
Future of The Circular Supply Chain
Change is occurring as people are entering into the supply chain industry with a different direction, a fresh appetite, and a skill set to match the circular supply chain. Too often companies, those in charge, only care about getting the product to the consumer.
But what about sustainability? And reducing your carbon footprint?
These new skill sets of the budding generation in the supply chain are asking questions on how processes can become sustainable. It is in the interest of the C-Suite to answer their calls. Consumers are becoming more eco-conscious and will stay loyal to brands that implement sustainable processes. There are big carrier companies now buying companies that specialize in reverse logistics. Redoing processes is the first thing, then building collaboration and enabling technologies to help improve those processes.
The fear now is that companies are going out and buying technology and thinking it will automatically take care of everything. Fast forward two years later and they say costs are still going up. It’s because they haven’t looked at the processes and they haven’t built collaboration across the supply chain. Use technology to enable your collaboration and enable the processes so that you can make the right decisions through digital dexterity. People aren’t going to be replaced by the technology, but people are going to become decision-makers based upon the analysis they carry out. The future is not going to go away: The circular supply chain and the circular economy are here. We see it all over the world. The whole sustainability movement in the EU is coming to other countries. What’s the foundation of the economy? It’s the supply chain! But it has lagged a little bit. How do we speed up? Enabling technologies to allow companies to make processes more efficient and have the goals and KPIs to get to where they want to be.
20-20 and Making Goals
I remember in the 1990s we had ‘20-20’. 20% reduction in the carbon footprint by the year 2020. And start using more than 20% recycled material in products. Having goals like that in driving the supply chain forward and in reverse is what the economy is doing. The area of concern is that we’re still not thinking that way but we’re going to have to start. The companies that don’t start thinking circularly across their business will lag. More companies are realizing that social responsibility is of prime importance and more companies are being driven to circular supply chains.
Sustainability is here to stay. Consumer behavior going forward is focused more and more on the climate being protected. Climate change is a serious problem ignored for too long. Action is required. For this to happen we have to be more adaptive to the circular supply chain and render it cost-effective. And so, we start looking at the 4 Rs – Reduce, Recycle, Refurbish, Repair.
Consumer behavior is showing that they care about the actions and social responsibility of the company. In that, they won’t buy it from a company that doesn’t have social responsibility. It’s about people, processes, and technology. Find the people with the skill sets that believe in the circular supply chain. Design your processes to keep the supply chain agile, resilient, and cost-effective. Embrace collaboration, enable technology, commit to sustainability, and then you will achieve the objectives in the circular supply chain.
Minimize costs, reduce waste, save time and space. This is the future, the new generation of supply chain professionals thinking in circles, picking up the valuable pieces as they go along. The new generation with youthful energy and fresh perspectives are taking the reins, don’t get caught in the past.