Traditional linear supply chains, focused on efficiently producing and often then discarding products, are becoming increasingly inefficient in today's resource-scarce, volatile world. Transitioning to circular business models offers a solution to improve the resilience and resource efficiency of supply chains, and a tool for creating new low carbon business.
Inefficiencies of the linear model can be tackled with circular business models
The linear economic model optimizes supply chains by streamlining production and distribution to maximize efficiency and speed, often at the expense of resource sustainability. Yet, from many viewpoints, linear supply chains are very inefficient (1): In the linear economy we extract virgin materials from scarce sources and mix materials in a way that prevents their reutilization at the end of life.
In the linear economy we extract virgin materials from scarce sources and mix materials in a way that prevents their reutilization at the end of life.
The global circularity rate is only 7.2 % (2). Once products are produced, their capacity is highly underutilized. For example, private cars are in use only about 4 % of the time. And when in use, only a small share of their capacity is in use (3). Products are discarded before they have reached the end of their lifespan and are still functional. Products or product parts are not effectively reused or recovered, as they have not been designed for recovery, which makes it very difficult to maintain their value and to allow recovery at the end of their life.
Circular business models decrease these inefficiencies by:
utilizing circular raw materials
designing products that enable circularity at each lifecycle stage
extending product life and intensifying product use
creating reverse logistics and take-back programs that unlock assets’ end of life potential and enable next-life applications.
What kind of new actors and actions does circularity bring to supply chains?
The transition to circular supply chains requires new solutions and operators as well as prioritizing several strategic actions.
To enable the circulation of products, components and materials, establishing reverse logistics systems, take-back programs, and product dismantling processes is essential. These elements have been absent in linear models but are vital to circularity, enabling the reuse of materials and components across product life cycles.
Additionally, companies should implement digital connectivity and tracking for all assets, allowing them to monitor usage and performance in real-time, predict maintenance needs, and ensure efficient operation within circular business models.
Building new partnerships with recyclers, service providers, and refurbishment centers is equally important to access a broader range of materials and enable circular solutions. Supplier bases should be reassessed, favouring those offering reused, recycled, or otherwise circular inputs. These new partnerships may require developing skills for collaborating across diverse industries and stakeholder groups, fostering innovation in areas where traditional methods fall short.
Finally, companies need to recognize that revenues will be distributed differently in circular models, as products are used differently, and they undergo multiple life cycles. To capture value in these evolving supply chains, companies must actively engage in shaping circular economy structures from the outset, positioning themselves as leaders in redefining future supply chains.
The transition to circular business is a way to build low carbon, resilient and efficient supply chains.
Circular business models – a tool for supply chain decarbonization, resilience and efficiency
Circular business models create a great tool for supply chain decarbonization: they could for example significantly reduce the demand for primary industrial materials and therefore reduce annual global CO2 emissions from key material supply chains (steel, plastics, aluminum, cement) by 56 % by 2050. (4) Reducing the demand of materials also means less dependence on complex global supply chains, and more efficient use of existing material stock. Therefore, the transition to circular business is a way to build low carbon, resilient and efficient supply chains.
The potential for creating new business value out of circularity is equally compelling. As circular practices gain traction, the revenue opportunity from the circular economy could be more than $1 trillion in Europe alone by 2050 (5) bringing huge opportunities for businesses that explore and manage to lead this transformation.
Circular economy is the definite economic model of the future - either because of we run out of virgin non-renewable materials, or because we proactively take the steps towards sustainable material use. The companies who start their journey towards circularity today will define the supply chains of tomorrow, reap the perks and ensure their position in the future economy.
If you would like to explore the development of circular business models, please join our roundtable discussions on Circular Design still this year (2024) or contact the Pure team. Read more about the roundtables (open for Combient companies only) here: https://combientpure.com/articles/circular-design-roundtables
References:
1) Sitra (2022): Sustainable growth with circular economy business models - A playbook for businesses
2) Circularity Gap report (2023)
3) Fabra et al (2023), Observed patterns of free-floating car-sharing use
4) McKinsey (2022) How a ‘materials transition’ can support the net-zero agenda
5) McKinsey (2024) From trials to triumphs in building materials circularity: Takeaways from Davos
