What Is Circular Economy And How Does It Impact Supply Chains

Defined as a systems-focused approach designed to minimise waste and involve processes geared towards restorative and regenerative behaviour, a circular economy aims to disrupt the current model of resource utilisation. In the modern day and age of efficiency, the typical business model prioritises profits over sustainability – by redesigning materials to be less resource intensive and recapturing ‘waste’ as a resource, a circular economy seeks to reduce the life cycle impacts of materials and its ensuing contribution to climate change.
This pivot towards more environmentally conscious practices involves all parties from the bottom up – starting with manufacturers all the way to the end consumer. One big question on everyone’s mind however, is how this change might ultimately affect supply chains across the globe. What are some challenges these supply chains might face and how may we yet reframe these roadblocks into opportunities?

Increase in supply chain to meet demand

Sitting squarely in the intersection of major trade routes, the ASEAN region functions as an influential port of call and boasts up to 3.4 trillion US dollars worth of global trade passing through annually. Supply chains in the region have gone through significant changes throughout the decades in order to meet the overwhelming demand. An example of this can be seen in the past three years as the COVID-19 pandemic struck. Supply chains became solely responsible for the safe and reliable distribution of vaccines, masks, and healthcare equipment. With time being of the essence, many supply chains placed heightened emphasis on speed and neglected sustainability. Studies concluded after the fact found that at least one third of resources were lost somewhere along the supply chain.
Another instance in which supply chain changes have negatively affected communities and the environment is exemplified in food waste. Supply chains across the world have a narrow margin for error when it comes to last-mile fulfilment for fresh produce. Emergency shutdowns and tightened borders during the COVID-19 pandemic resulting in supply chains being unable to adapt quickly. Saddled with a large bulk of produce and nowhere to export them to, supply chains have no choice but to dispose of their stock.
Lastly, rising demand for just-in-time fulfilment across the globe has led to increased consumption of non-renewable fuels. Planes, boats, and motor vehicles make up the bulk of transport in supply chains. Instead of optimising their routes to conserve fuel and reduce waste, the paradigm shift in consumer expectations has supply chains valuing last-mile delivery over environmental sustainability.

Circular economy and its impact on supply chain

Linear supply chains, as we discussed, do more harm than good for the environment. This is where a circular economy rises as a feasible solution for supply chains. By doing away with the ‘disposable end product’ model of today, a circular economy seeks to breathe new life into used products by refurbishing or recycling them down to their base raw material forms. In doing so, businesses cut down costs and create less waste.
Take packaging materials in the supply chain – instead of disposing of them once done, organisations should effectively opt to break them down and recycle them for further use in future transactions. Fiscally, this process provides maximum benefit out of raw materials purchased and aids supply chains in cutting costs. Considering the amount of labour, energy, and time that goes into refining raw materials, it is only sensible that used products be repurposed. Furthermore, as consumers account for ESG practices in business, supply chains that do not adapt to a circular economy will soon be viewed as outliers who fail to contribute in the fight against climate change.
In the grand scheme of things, by reducing the demand for raw materials, prices achieve equilibrium as well. Companies no longer have to worry about shoring up additional cash on expenditure for raw materials. By keeping everything in-house and no longer depending on external third party supplies, supply chains can regain autonomy of operations in the long run.

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