Procurement is a key catalyst for the circular economy

One of the central organisational players in the transition towards a circular economy is the procurement function. Some of the key questions are, how will procurement expand its role to address the circular economy, and how can they add value?

04.02.2015

Alis Sindbjerg Hemmingsen in cooperation with Ecovadis, CSR.dk

Although it’s too early to know details of how such a transition will be implemented, there are some very strong indicators where we are heading.

Materials are Leaking
Companies which rely on the availability and ‘linear use’ of plentiful and inexpensive natural resources are living on borrowed time. Our economies have up until now used a “take-make-consume and dispose” pattern of growth – a linear model, which assumes that resources are abundant, available and cheap to dispose of, and will be so forever.

In a linear economy or business activity valuable materials are leaking from the system. Our society can benefit economically and environmentally from making better use of those resources, as well as reducing or eliminating accumulated waste by applying circular principles. By helping to decouple economic growth from resource use and its impact, the circular economic model offers the prospect of sustainable growth that will last.

Continued dependence on scarce natural resources for growth exposes a company’s tangible and intangible value to serious risks. Risks which have to be managed. Supply uncertainties and changing consumer preferences could disrupt companies’ revenue streams and their ability to maintain market share. Companies whose growth is tightly tied to scarce resources will find themselves at a competitive disadvantage due to rising and volatile prices. This can reduce their ability to forecast and compete with less resource intensive competitors.

Radical Change
Transition to a more circular economy requires radical changes throughout value chains: from product design to new business and market models; from new ways of turning waste into a resource to new modes of consumer behavior. This implies full systemic change, and innovation not only in technologies, but also in organizations, society, finance methods, policies and business models. 

There are five major shifts in business capabilities when considering the transition to a circular model:

  1. Strategy: From focus only on core business to managing complex and collaborative networks
  2. Innovation and product development: From designing for single use to designing for many life cycles and users
  3. Sourcing and manufacturing: From homogenous supply chain to heterogeneous resource flow innovation and cascading
  4. Sales and product use: From never seeing the product again to customer and asset life cycle management
  5. Return chains: From compliance to opportunity-driven take back

A Procurement Change Management Challenge
It is critical for procurement to understand the radical changes that the business will most probably undertake when integrating circular principles. Practically speaking, procurement has to be able to challenge their suppliers on the re-design of production processes, products and services, materials handling and transportation, and engage them in the post-use cycle. 

Transforming into a more circular approach means that products have to be redesigned (to be used longer), repaired, upgraded, remanufactured or eventually recycled – instead of being thrown away. 

Production processes have to be based more on the reusability of products and raw materials, and the restorative capacity of natural resources. New innovative business models can create a new relationship between suppliers, companies and consumers.

The leaders of the procurement function will have to find out how they can support the business in managing the complex and collaborative networks which the new business models require. Moreover they must define how procurement can support the business in the design of new products and integrate the supplier more closely in the process. Procurement will also have to find ways to support the company on asset lifecycle management and with establishing and managing the return chains. 

How can you prepare your company to start meeting these new business paragraphs? 

Procurement is one of the key organisational players in enabling a transition towards a circular economy. Key questions you can start asking within the business are: Are we already now engaging in more circular models? What challenges have we so far faced, and how have we and will we address them?

It is also important to acknowledge the fact, that no matter what your ambitions are in terms integrating the circular principles it is a complex change management process, which can take years to implement. The change process must start now so your business can gain the competitive advantage and survive as a company. The business of business is staying in business.

Examples to learn from:

One of the companies working on the Circular Economy agenda is DS Smith, a leading provider of corrugated & plastics packaging. They have recently published their whitepaper: One step away from zero waste. An example mentioned in the whitepaper is Costco, who redesigned their peanut container. All they really did was change the way the lid was designed. By making their peanut container more square, so it was domed at the top, it can be packed so much more efficiently that they managed to take 500 vehicles off the road every year.

Southwest Airlines found itself with an excess of 80.000 leather seat covers after a large-scale redesign of many of it’s 737 aircrafts. The airline started looking for recipients of the used leather. The airline decided to take a more holistic approach, giving the materials to NGO’s. These NGO’s turned them into shoes and soccer balls. A great example of how you can reuse instead of turning it into waste. Learn more in this article.

Author: Alis Sindbjerg Hemmingsen

First published in the Sustainable Supply Views blog from EcoVadis

EcoVadis is the CSR rating platform for supply chains spanning 150 sectors and 99 countries of Global-500 enterprises like Verizon, Coca Cola Enterprises, Johnson & Johnson and 100 others.  

EcoVadis Scorecards make it easy to understand, track and improve suppliers’ environmental, social and ethical performance. www.ecovadis.com 

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