Circular Economy: How does a supply chain become a supply circle?

Resources are finite and unequally distributed on a global scale. Thus, a shortage of or difficult access to raw materials can result in economic risks such as production bottlenecks and rising prices. In order to minimize procurement risks, conserve resources and meet increasing sustainability requirements, the reuse and remanufacturing of products and materials in a Circular Economy is becoming increasingly important. In our most recent blog post on Circular Economy, we discuss the infrastructure that is needed in order to transform a linear supply chain into a sustainable supply cycle and how logistics can support this process.

1. Resource scarcity and the linear supply chain
2. Circular Economy: from the supply chain to the supply circle
3. Circular Economy begins with product development
4. This is how logistics supports the development of a Circular Economy
5. Circular Economy: supply chains must be rethought

1. Resource scarcity and the linear supply chain

Countless raw materials are tied in everyday commodities. Among them are also those that are significant and only available through import – such as silver, gold or palladium processed in smartphones. Sadly quite often, products are disposed of at the end of their useful or service life instead of returning the valuable resources to the material and processing cycle. As a result, tons of significant raw materials are lost each year and subsequently need to be re-procured – a costly loss.  The threat of resource scarcity can have serious consequences not only for the environment and society, but also for companies:

• Many manufacturing companies are dependent on increasingly rare natural resources (e.g. for the production of microchips). If these resources run out, they run the risk of no longer being able to meet demand.
• The scarcer resources become, the higher is the increase of prices: This can lead to higher production costs and consequently lower margins.
• Nature is getting out of balance: environmental events such as floods, storms or fires are much more common.

In a linear supply chain, products are manufactured from new raw materials and disposed of as waste at the end of their life cycle (“take, make and waste” approach). However, the model is based on the assumption of unlimited resource availability, as well as an endless regenerative capacity of nature. While a sustainable economic concept tries to keep the three aspects of people, environment and profit in balance, the linear approach focuses mainly on the profit aspect.

2. Circular Economy: From supply chain to supply circle

The Circular Economy concept aims to extend the life cycle of materials and products. In this context, Circular Economy stands for a holistic system that harmonizes all three aspects of sustainable economy and focuses on closing the resource cycle – from product design to reverse logistics and recycling of raw materials. This means that rather than new ones, resources that have already been used are processed for the production of goods.

In order to accelerate and accelerate this process, there are also increasingly legal requirements and regulations that bring the topic of sustainability to the fore. The Supply Chain Act, which has been in force since January 2023, obliges companies to comply with extensive due diligence obligations toward people and the environment in their value chain. At EU level, there is also an obligation to take back products and the legal right of consumers to have them repaired. In addition, as part of the European Green Deal, the digital product passport is to be introduced. This will document all components of a product, its origin and composition: The entire life cycle of physical products – from raw material extraction and production to use, return and recycling – is to be mapped in this way, thus ensuring greater transparency in sustainability information.

3.  Circular Economy begins with product development

However, regulations alone do not change supply chains. Moreover, for this purpose, a fundamental rethinking and restructuring of the previous process steps are necessary. As early as during the design and development process, the decisive questions that lead to a meaningful circular use should be clarified. How can the design and packaging of items be created in such a way that, in the event of repair or reprocessing, only a few steps are required before they can be returned to the cycle? How can the supply chain become the infrastructure of a regenerative system? For Circular Economy to work, manufacturing processes, production facilities and logistics concepts must be rethought.

4. How logistics supports the development of the Circular Economy

Logistics plays a central role in promoting the circular flow of goods. Different markets must be connected and a high level of transparency must be ensured along the supply chain – no matter how complex it actually is. If logistics companies have a global network, they can use it strategically and facilitate the efficient flow of materials from the consumer back to the manufacturer through reverse logistics. Logistics service providers can also promote the return of used or defective equipment through value-added services such as refurbishment, recycling, repair and redistribution.  

With an adapted and sustainable supply chain management, logistics supports to build and operate the new infrastructure for a Circular Economy. This includes:

• Procurement and supplier management : Materials should be selected according to sustainability criteria. For this purpose, suppliers should be evaluated and monitored with regard to their performance and compliance with sustainable regulations.
• New network: The supply chain becomes even more complex in the Circular Economy. The network of logistics partners must be expanded to include specialists for repair, recycling, reconditioning and returns.
• Distribution and logistics: For a sustainable supply chain, transport routes and methods should also be optimized. In addition, take-back systems for products and packaging must be implemented. The use of renewable energies in logistics to reduce carbon emissions supports the goals of a Circular Economy.
• Disposal and recycling: Coordination is also needed on how to implement closed-loop systems for waste management. This includes the key questions of how the recycled raw materials can be used for new products and how the recycling of waste and biomass can be used to generate energy.
• Collaboration and transparency: For the Circular Economy to work, close cooperation between all stakeholders along the supply chain is essential. In order to extend the life of products, all relevant information from the upstream and downstream supply chain must be transparent. Customers and consumers also play an active role by returning products.

In this context, suppliers, manufacturers, transport and logistics service providers form an ecosystem with different tasks and offerings. In order to be able to manage the complex flow of materials in a supply chain, many different components need to be monitored and coordinated. This can be done with the help of intelligent IT solutions and digital platforms. Strategic supply chain management creates the necessary space to harmonize, monitor and optimize joint planning and action.

5. Conclusion: Circular Economy: Supply chains must be rethought

 The Circular Economy is a resilient system that detaches economic activities from the consumption of finite resources. Well-designed recycling offers key advantages – the raw materials are already on site, the supply chain can be limited to managing the flow of materials in a much tighter geographical radius. This protects against failures on the long haul and reduces risks and costs alike.

But for Circular Economy to work, it must be anchored as a strategic goal. In order to be able to implement ESG criteria, investments in reverse logistics are necessary, which initially means an additional financial outlay for companies. However, this is expected to pay off with longer product life cycles and a growing independence from scarce resources.

Procurement, new networks, distributions, recycling – for the shift to a sustainable, Circular Economy, the way logistics works and is aligned will be particularly important, as the flow of materials becomes even more complex. The supply chain must be aligned to create the conditions for recycling, reuse and environmental protection: In the future, the status “Delivered” should only be an intermediate and not a final stop for a product. This will benefit people, the environment and the economy alike.