The concept of a ‘Circular Economy’ has been growing in prominence over the past few decades, particularly as corporate social responsibility has become increasingly integrated into mainstream business strategy. This trend is likely to continue as the current linear economic system is challenged by growing resource scarcity. (Just a week ago, the WEF summit in Davos brought a spotlight on the circular economy, announcing with the Ellen Macarthur Foundation a new report rethinking the circular future of plastics). Procurement teams may be wondering “What is the Circular Economy and how might it be integrated into supply chain management?”. The term Circular Economy refers to a closed loop economic system, where waste is eliminated and outputs feed back into the cycle. Modeled on natural biological systems, this system is in theory largely or completely self-sustaining and has a limited impact on external environments.
Although the reality of a circular economic system remains distant, many companies are taking meaningful steps and applying so-called circular business models throughout their operations. Rising commodity prices and growing scrutiny on corporate waste and resource use are key motivators of this action. Correctly, many companies are focusing on the supply chain, engaging with their upstream partners to implement innovative procurement practices. Circular business models, by their very nature, require a holistic view that considers processes and products from design through delivery and end-of-life. Innovative procurement practices and supply chain engagement is fundamental to the success of any such strategy.
Market leaders, spanning a number of industries, are committed to renovating their supply chains guided by these principles. Renault, one of the largest automobile manufacturers in the world, recently announced a partnership with the Ellen MacArthur Foundation to help drive the principles of the Circular Economy into its operations and procurement process. Leaders in other industries are taking a similar tack, including Google and Unilever. For example, Walt Disney World Resort has developed a sophisticated process where food waste from its restaurants is collected and sent directly to their electricity provider. This supplier, Harvest Power, converts the waste into renewable biogas, which is then used to generate electricity for the resort.
Efforts like this require direct partnerships with suppliers and operational continuity between different stages of product life. For instance, end-of-life take-back programs can be connected to suppliers in order to redirect waste streams back into the supply chain as inputs; closing the loop in terms of material flows. Recycling companies like Waste Management USA, or Botek Waste Management Solutions in France can help with this process. In all cases, increased transparency and an ability to impact suppliers is essential. One of the most straightforward ways to achieve this is through supplier evaluations.
Supplier evaluations contribute to Circular Economy based procurement efforts in three primary ways. They: (1) enable companies to identify effective supply chain partners; (2) build supplier capacity; and (3) enable measurement and tracking of results.
Implementing circular business models requires finding the right supply chain partners. However, identifying which companies are most likely to engage and succeed in such an initiative can be a challenge. The first step is to screen suppliers to find those companies with strong sustainability management systems and a culture of transparency. Supplier CSR assessments can help identify appropriate partners by shining a light on key indicators (e.g. policies, actions, results) across criteria relevant to their purchasing category and location.
Even if a company has strong supply chain partners, it will frequently be necessary to build capacity in order to ensure that these suppliers can support the circular business model project. Bringing aspects of their management system in line with company ambitions and objectives can be achieved by identifying specific improvement areas and suggesting practical steps.
Finally, measuring the impact of a project is essential to success. Knowing what is happening in the supply chain enables continuous improvement. This may require establishing new reporting KPIs or measurements such as “amount of waste diverted from landfill,” or “percent recycled content…” or “GHG emissions per product produced,” etc. Integrating these into supplier evaluations are an effective way to make this happen.
As the idea of the Circular Economy continues permeate mainstream business strategy, an increasing number of companies will seek to implement projects based on its key principles. In order for these companies to be successful, they must focus on confronting issues and unveiling opportunities in their supply chains. Supplier evaluations continue to be crucial to unlocking this potential.
CSR Analyst at EcoVadis