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Circular Economy

… in circular business models and supply chains?

For businesses to shift to the circular economy a solid business case is required. The shift also requires a completely new rule book on supply chain collaboration.

Finding the needle

One of the repeated barriers to developing the circular economy is translating what it means on a practical level for different businesses and organisations. The terminology can be a challenge, and the concept as a whole is so big, it is almost overwhelming. Circular economy as a soundbite has many meanings to different people; therefore more clarity of the terminology is required for avoidance of doubt as to what outcome is required. CIWM, 2014p21-23.

Creating the business case

For the circular economy to be embraced, companies will need to address existing challenges and solidify a better business case. Number one in the top five barriers, cited by 38 percent of respondents, was an insufficient business case.UPS & Green Bizz. 2016, p11.

Dutch businesses highlight the difficulties of creating a viable business case as the primary barrier to realising their circular economy initiatives.

Accenture; MVO; Circle Economy; 2016, p6.

Financing a circular business model

Financial risks wil change in a circular economy. Read more on the consequences of these changes via the link on the right.

Overcoming challenges in B2B cooperation

Incorporating circular practices can require multiple companies to adjust their operations. This may entail a complicated network in which suppliers are ready to provide all the necessary inputs and ensure that infrastructure requirements are in place for logistics, with a diversified set of end markets for recovered materials.

Companies face several hurdles in going down this route. There are potentially large transaction costs and delays in negotiating with partner companies. Some larger retailers are already well-practised in pushing norms and standards down supply chains; in other cases companies have longer-term relationships with suppliers.

Businesses are more likely to collaborate where they do not directly compete (for instance, electricity distribution companies that operate in separate areas) or if they focus on different sectors.

Preston, 2012, p15.

Aligning incentives in supply chains

Production and consumption often take place in different countries with inputs from multiple companies around the world. In a circular economy, supply chains may have to be reorganized so that information and materials flow in both directions to facilitate reuse and remanufacturing.

A key question is how to align incentives throughout the supply chain so that, from the design stage to customer engagement, companies actively consider the use of sustainable materials and features such as durability and reparability at the core of their product strategy.

Preston, 2012, p15.

Organizing reverse logistics

When customers acquire products, forward logistics can be organized to benefit from scale economies. But taking products back from consumers is a particularly sticky and cost-prohibitive problem. The lack of economies of scale in first-reverse-mile logistics can drive costs through the roof in many developed countries and cities.

Agrawal, Atasu, and Van Wassenhove. 2016