Reducing supply chain costs through the circular economy

| 0 Comments

 

CircularEconomy.jpgToday, the linear ‘take, make, dispose’ economy that relies heavily on cheap resources for growth, is under threat from increasing commodity prices and growing consumer demand. The ‘circular economy’ offers a viable alternative, with cost savings estimated at over $1-trillion per annum by 2025. The supply chain has a key role to play in driving the transition to a circular economy, Tech-Pro tells SmartProcurement


The linear model, where goods are manufactured from raw materials, sold, used and discarded, has dominated industry for more than a century. However, with three-billion middle class consumers expected to enter the global market by 2030 and increasing commodity prices, which rose 150% between 2002 and 2010, change is needed.¹


In contrast, the circular economy – an ‘industrial system that is restorative or regenerative by intention and design’ - aims to ‘decouple revenues from material input’.¹


Guiding principles of this approach are:¹,²,³
 

• Reduce waste by cycling all materials infinitely, in either biological or technical cycles.
• Derive energy from renewable or sustainable sources.
• Build resilience through diversity.
• Human activity should support the environment and focus on rebuilding natural capital.
• Resources should be used to generate value.
• Think in ‘systems’ – or understand the connection and flow between parts of a system.
• Think in ‘cascades’ – or how additional value can be extracted from products or materials beyond current life spans through use in other applications.
• Shift from ‘one-way’ product consumption, where the consumer is ‘owner’, towards ‘access’ where manufacturers retain ownership and act as service providers.


Benefits of a circular economy


Research from the Ellen MacArthur Foundation found that key benefits include:¹


• Substantial ‘net material’ savings: Cost saving estimates for FMCG are as high as $700-billion a year, net of materials used in reverse-cycle activities – equal to 20% of current total material input costs.

• Mitigation of price volatility and supply risks: Lower demand for raw materials would affect the price of commodities, lessening risk and demand-driven volatility.

• Innovation: Creation of ‘circular by design’ products and reverse logistics networks is likely to spur innovation, boost technological development and improve labour, energy and materials efficiency.

• Job creation potential: Innovative re-use, remanufacture and recycling will create jobs, with 500 000 jobs created by the recycling industry in the EU alone.

• Land productivity and soil health: Regeneration (moving biological material back into the soil to improve quality and productivity) can reduce current land degradation costs.


The circular economy and the supply chain


Supply chains have a key role to play in the successful transition from a linear to a circular global economy, particularly through reverse logistics.


Defined as ‘the process of planning, implementing and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal’, reverse logistics includes reusing, recycling, product or packaging redesign, hazardous or obsolete material disposition and asset recovery.


Examples of circular supply chains


• Renault has adopted circular principles, including remanufacturing of mechanical subassemblies – like engines – which are sold at a lower price, generating $270-million of revenue annually. In addition, the company manages raw material streams, focuses on manufacturing service improvement by working with suppliers to reduce the cost of ownership of cutting fluids by 20% and offers an ‘access over ownership’ model that leases batteries for electric cars. Increased labour costs of the approach are offset by limited capital outlay and reductions in the use of energy, water and waste.¹


In South Africa:


• SAB Miller’s returnable glass bottle system allows the company to manage material flows and sell more than 85% of volume in a closed loop, halving glass output needed.¹
• Royal Haskoning DHV has worked with a brewery to convert methane gas captured from beer effluent into heat to power boilers, reducing heavy fuel oil use by 40% and has implemented a trigeneration project for a calcium carbide plant, which reroutes furnace gas, containing carbon monoxide and hydrogen, to generate electricity, reducing GHG emissions.⁵


What are your thoughts on the circular economy? How is your company meeting the challenge of implementing these principles?


¹: ‘Towards the Circular Economy: Accelerating the Scale-Up across Global Supply Chains’, World Economic Forum prepared in collaboration with the Ellen MacArthur Foundation and McKinsey and Company, January 2014
²:The Ellen MacArthur Foundation website, 2014.
³: ‘Let’s Close the Loop’, Circle Economy
⁴: ‘What is Reverse Logistics?’, Karen Hawks writing for Reverse Logistics Magazine, Winter/ Spring 2006
⁵: ‘Greening Projects Encouraging Industry to Adopt Circular Economy’, Mia Breytenbach writing for Engineering News, August 2014.

 

Leave a comment


SmartProcurement Newsletter
X

Please enter your details below to receive the SmartProcurement Newsletter for FREE on a regular basis.

As part of the SmartProcurement Newsletter you will be receiving World Class Procurement News, Tools, Tips, Tactics, Procurement Training updates, Upcoming Events, and the latest Procurement Career Openings.

* Email Address:
* Title:
* First Name:
* Surname:
* Company:
  Position:
* Country:
* Public / Private:

 

Career opportunites

Operations Manager

  • >500 000 Gauteng Operations, Planning & Inventory Permanent Supply Chain
Our client within the FMCG industry with a ...More

Warehouse and Distribution Manager

  • >500 000 Gauteng Logistics & Warehousing Operations, Planning & Inventory Permanent
An exciting opportunity awaits for a Warehouse and ...More

Demand Planner

  • <500 000 Permanent
Get an opportunity to be part of one ...More

Procurement Manager

  • >500 000 Gauteng Permanent Procurement Management Procurement Officer / Specialist
An opportunity for a seasoned Procurement Manager, who ...More

Industrial Engineer

  • >500 000 Gauteng Industrial Engineer Permanent Procurement Consultant
An exciting opportunity that offers extensive exposure on ...More

Deputy Director: Procurement

  • >500 000 Contract Procurement Management Procurement Officer / Specialist Western Cape
Department of Economic Development and Tourism:Procurement Specialist, Ref ...More

DEMAND PLANNING MANAGER

  • >500 000 Gauteng Operations, Planning & Inventory Projects / Category Management
(Total Cost to Company R750k – R900K) excluding ...More

GLOBAL SUPPLIER PERFORMANCE MANAGER

  • >500 000 Gauteng Operations, Planning & Inventory Permanent Projects / Category Management
(Salary: R 1.3M –R1.5M, dependent on level of ...More

GLOBAL CATEGORY MANAGER

  • >500 000 Contract Gauteng Procurement Consultant Projects / Category Management
Total Cost to Company R1mil – R1.2mil excluding ...More

Project Manager

  • >500 000 Contract Procurement Management Projects / Category Management Western Cape
 Description:A well-known retail organization is looking for an ...More

PROCUREMENT ANALYST

  • >500 000 Analyst Gauteng Permanent Procurement Management
Description:A leading infrastructure development group with strong presence ...More

Commodity Manager: Fuels and Lubes

  • Commodities Gauteng Permanent Projects / Category Management
 Ensuring continuity of supply in line with business ...More

Senior Facilities Manager

  • >500 000 Commodities Gauteng Operations, Planning & Inventory Permanent
(Total Cost to Company R800K – R900K) Johannesburg Our ...More

ENGINEERING STANDARDS MANAGER

  • <500 000 >500 000 Gauteng Industrial Engineer Permanent Procurement Management
(Total Cost to Company R350K – R550K) JOHANNESBURGYou ...More

Supply Chain Analyst

  • <500 000 >500 000 Permanent Procurement Officer / Specialist Supply Chain Western Cape
(Total Cost to Company R350K – R550K)  SOUTHERN ...More

Security Manager

  • <500 000 >500 000 Gauteng Permanent Projects / Category Management Strategic Sourcing
(Total Cost to Company R350K – R550K) JOHANNESBURG This ...More

Demand Planner

  • <500 000 >500 000 Operations, Planning & Inventory Permanent Projects / Category Management
(Total Cost to Company R450k – R550k, dependent ...More

Procurement Specialist-Randburg

  • >500 000 Gauteng Permanent Procurement Management Procurement Officer / Specialist
(Total Cost to Company R700k – R800k including ...More

Solutions Architect

  • >500 000 Gauteng Industrial Engineer Permanent Projects / Category Management
(Total Cost to Company R1.3Mil – R1.1Mil including ...More

MANUFACTURING MANAGER - OLIFANTSFONTEIN

  • >500 000 Gauteng Permanent Projects / Category Management
(Total Cost to Company R850k – R950K including ...More