What the circular economy means for supply chain innovation

Global resources and supply chains are feeling the burden of economic, geopolitical, and societal issues – exacerbated by the ongoing climate crisis. So can a shift towards a more connected and circular economy help solve these challenges? And how can you position your organisation to drive ongoing value in this changing business environment?

What is the circular economy?

The circular economy is an economic system that demands a major shift in the way we think about the production and consumption of goods. Instead of a linear ‘take-make-dispose' model, the circular economy provides a system where products and materials are kept in use for as long as possible.

This means designing products for durability and ease of repair or reuse, creating closed loop systems where waste is eliminated, and materials are kept in a continuous cycle.

Key to this approach is the adoption of sustainable business models that prioritise resource efficiency and waste reduction. This includes service-based models where products are leased or rented instead of sold (‘pay per use’ models, for example) to extend the product life and reduce waste. A circular system also requires adaptation across your products and supply chains, establishing a closed-loop approach to manufacturing and product design.

How circular economy models can increase supply chain security

The circular economy provides enormous potential for reducing the environmental impact of business – from your emissions to waste.

By keeping resources in use for longer, you can reduce the amount of raw material required to produce new products. This, in turn, reduces energy use in extractive activities and production, and cuts greenhouse gas emissions. The reuse and recycling of materials also means a significant reduction in waste, minimising the environmental burden on landfills and the need for virgin materials.

Another key benefit of the circular economy approach is the reduced risk of supply chain disruptions caused by geopolitical tensions or resource scarcity. By keeping valuable materials and resources in a closed loop, you’re in a better position to manage your own resource use and make use of alternative sources of materials without depending on a single source or supply chain.

So how can organisations adapt their products, processes, and supply chains to reap the rewards of more sustainable and service-based business models? Here are three circular economy models gaining traction...

Circular economy examples in fashion, home appliances, and automotives

1. Circular Fashion

The fashion industry is largely still based on a linear system of ‘take, make, waste’, which means the industry has a large environmental impact. Recycling is a building block on the way towards a more circular economy, but it’s limited by challenges such as mixed fabrics and the short lifecycle of textiles.

Individual retailers and brands are starting to explore more circular models and processes. We’re seeing, for example, the rise of subscription rental models (John Lewis), resale and gaming (Gucci), repairing and sharing models (Patagonia), material innovation (Stella McCartney), and upcycling manufacturing processes (Veja).

Circular.fashion wants to catalyse a broader adoption of circular thinking and systems. Its platform enables companies to build circularity into their products and design process from the outset, with tooling and information on materials and their reusability. This helps you optimise product designs so that products can be produced with minimal surplus and from single-variety materials wherever possible. In this way, Circular.fashion is facilitating the return of textiles back into the production cycle.

2. Home appliance leasing models

‘BlueMovement’ is a rental model for household appliances from Bosch-Siemens-Hausgeräte (BSH). Customers rent their washing machines, dryers, or other devices instead of buying them. This extends the lifecycle of products while giving consumers access to the latest and greatest devices.

BSH takes care of the maintenance and repair and takes the devices back at the end of their lifecycle for recycling or refurbishment. By reducing e-waste and the need for new resources in the production of new devices, the appliance liease model has a significant sustainability impact. It also motivates manufacturers to produce durable and easy-to-repair or maintain equipment since they take on responsibility for maintenance and recycling.

3. Circular automotive production

Scientists at RWTH Aachen University have a promising idea for circular automotive production. They’re looking at how Toyota can adapt its production system to include easier disassembly, durable components that lend themselves to reuse, and the replacement and recycling of worn-out components through standardised and automated processes.

The team is also looking at how to extend the lifecycle of vehicles through regular hardware updates – a concept that’s already very established in the world of software. The researchers stress the need for a suitable product structure and new processes for so-called ‘Re-assembly factories’. Their solution? An open-source approach called ‘Oscar’ (Open Service Cloud for the Smart Car) which is based on a basic vehicle structure that can be expanded and reused several times within the lifecycle of a vehicle.

With the help of a digital product file for a vehicle and its essential components, the concept provides a clear route towards more sustainable automobile production. And for the customer, the added value comes from having ongoing access to the latest technological developments and design trends without having to purchase completely new products.

Why adapting supply chains for a circular economy is a group effort

Adopting a circular economy approach is a triple win for businesses, the environment, and consumers.

By keeping materials and products in a continuous cycle, you can slash waste and minimise your use of virgin materials. Crucially, you can reduce your dependence on scarce resources and supply chains vulnerable to geopolitical shocks. At the same time, circular innovations unlock new value propositions, innovative service models, and alternative revenue streams.

But the shift towards sustainable and closed-loop production requires significant investment and systemic change. And circular economy opportunities are bigger than any one organisation or industry.

To realise the circular economy’s triple bottom line impact for planet, profit, and your customers, you need to innovate beyond borders and partner with diverse organisations with complementary data, capabilities, and a shared goal. In a connected and circular business environment, this is how you create ongoing value – smarter, faster, and at scale.

How can companies take the first steps towards the circular economy? We’ve developed a science-based guide that features concrete actions, helps you find your bearings, and successfully guides you through the five phases of transformation. Don’t be a late adopter – become a first mover and exploit the potential of the circular economy for your business.