A circular economy is an economic system aimed at eliminating waste and the continual use of resources.
- first, consumers may not be willing to make big purchases, resulting in product as a service (PaaS) models becoming more attractive
- secondly, a circular economy has the potential to improve raw material security from end-of-life products. Chief supply chain officers (CSCOs) can use circular economy strategies to increase their organization’s raw material security in times of disruption.
“The COVID-19 pandemic has shown that the strengths of globalized supply chains can become a weakness when raw material availability and access plummet during a crisis,” said Sarah Watt, senior director analyst with the Gartner Supply Chain Practice. “For CSCOs, the circular economy is a great opportunity to improve raw material resilience and decouple material consumption from financial growth.”
- Further reading: Respond, Prepare and Reimagine – How supply chain disruption will lead to new ways of working
However, organizations still struggle to access and reprocess end-of-life products. Supply chain leaders face a web of complexities that consist of four specific challenges (see Figure 1).
Gartner says A circular economy still needs to operate within economic boundaries. Products with low residual value are less likely to be processed. While there may be differences in environmental impacts between materials, most of the organization’s decision-making will be based on economics and risk.
“There are a couple of reasons why it can be worthwhile to reclaim end-of-life materials with low residual value,” Ms. Watt said. “Reclaiming those assets can act as a hedge against price volatility and increase an organization’s raw material security. Customer sentiment towards certain forms of materials such as single-use plastics has also changed, presenting a reputational risk, which has been a catalyst for action.”
The less complex a product, the easier and cheaper the reprocessing. One of the easier methods to overcome complexity is by recycling to reclaim primary materials. However, recycling leads to loss of value, as the manufactured product is being extinguished in the process.
Only 24 per cent of survey respondents stated that their organization is involved in refurbishment activities. Refurbishment provides more value than recycling as it typically reduces environmental impact and allows the organization to achieve a quick second sale.
“Product design is crucial to end-of-life management. Poorly designed products with toxic materials can be incredibly difficult and costly to process and put back into the market,” Watt concluded.