Building a circular supply chain

Our key takeaway: Procurement departments manage the movement of massive amounts of material through the global economy, to the tune of 100 billion tonnes of materials annually. This puts them in an ideal position to catalyse players within and outside of the business towards a circular economy. The Ellen MacArthur Foundation explores the “circular economy-supply chain nexus”, concluding that reconfiguring supply chains will “help shape a more resilient, net-positive future; the circular economy offers a toolkit for supply chain professionals to achieve this.” Supply chain leaders can mobilise the transformation through nine core pathways: (1) Putting the right people and structure in place; (2) Designing supply networks to optimise circularity opportunities, including working with partners along the value chain to develop new models for material ownership and use; (3) Engaging with and supporting suppliers to make the transformation; (4) Leveraging new technology for better, higher quality data; (5) Setting KPIs to meet circularity goals and tracking performance; (6) Working with other teams internally to develop new circular business models and design circular products and services; (7) Collaborating with marketing teams to engage and educate customers on circularity; (8) Garnering adequate internal resources and the mandate to implement new practices; and (9) Advocating for policies and legislation that facilitate the transition to a circular economy.

The Ellen MacArthur Foundation published Building a Circular Supply Chain: Achieving Resilient Operations with the Circular Economy (February 2024):  

• Supply chain leaders are critical players in the transition to a circular economy: Supply chain leaders have the “skills, knowledge, and data” for a transition to a circular economy. They also have financial leverage and decision-making power within the company, allowing them to embed circularity into all stages of production and circulation, from sourcing to production by-products to reverse flows of materials. The report also points out that supply chain leaders are “natural system thinkers,” using “problem-solving and system-orchestrating skills to turn high-level business strategies into daily operations, improve procedures, and bridge siloed teams”—all key components of a shift to a circular model. In addition, many supply chain leaders have the ear of the highest levels of company leadership and can build a mandate to adapt circularity principles: “85 of S&P 500 companies now have a Chief Supply Chain Officer (CSCO) or a similar role.” Supply chain leaders also have major influence beyond their own company; their connections to stakeholders suppliers and policymakers can serve to help catalyse a broader system change.
  

• Five ways supply chain leaders can directly support the transition: The report “presents nine areas these professionals will need to focus on to shift to circular supply chains, five of which their departments can directly address, and four of which will require collaboration with other internal and external stakeholders.” Directly, supply chain functions can develop the right organisational structures and internal expertise to manage a circular economy shift, including clarifying roles and responsibilities to enable circular supply chains and building knowledge in their teams. They can also “optimise network designs to enable cost-effective reverse flows of materials and products at scale” by exploring options for locations of supply chain activities and infrastructure, embarking on partnerships with other players in the system and reimagining models for material ownership. They can engage with suppliers to incentivise a circular transformation by communicating clear criteria and expectations, rewarding good performance and innovative practices, and providing resources and guidance for suppliers. They can use emerging technologies to “help increase visibility across the supply chain, ensuring sourcing, quality, and design professionals have enough data to make adequate decisions around circular inputs.” Finally, they can work with sustainability and finance departments to set KPIs and track progress, as well as embedding circularity KPIs into performance evaluations for supply chain teams.
  

• Four areas for collaboration between supply chain functions and other stakeholders: With other stakeholders, supply chain leaders can feed into "business model and product design process to ensure design for a circular economy” and play a connecting role between internal stakeholders and value chain partners upstream and downstream. For example, two companies in Brazil worked together to use the materials from one product at end-of-life for a new product, including implementing constant communication that allows each company to adapt to changes in the other’s value chain. Supply chain leaders can also work with marketing teams to incentivise responsible consumption practices of customers and develop new models of product repair and reuse. They can further catalyse action by company leadership, including heads of finance, supply chain and sustainability, using their seat at the table “to ensure adequate resources are available for the deployment of circular supply chains.” And, they can advocate for legislation that enables and incentivises circular business models and consumption practices.