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Circular Economy

What is the role of logistics and supply chain management?

Geschreven samen met: evofenedex Kennisknooppunt Handel & Logistiek
A circular economy shares the common goal of preserving the value of resources, materials, and products for as long as possible. As a product is used, its value decreases, and a processing step is required to restore (or even increase) that value.

Various options exist for this purpose, such as repair, refurbishment, remanufacturing, upgrading, or recycling.

Increasing complexity of (reverse) logistics

Each of these steps creates a return flow with unique characteristics. A manufacturer wanting to repair a returned product may do so at a different location and through a different partner than someone remanufacturing it.

In a circular economy, there is less often a simple linear flow of materials between the manufacturer (A) and the consumer (B), but rather an increasingly complex network of materials processors and remanufacturers, each utilizing their own expertise to preserve the value of materials. This complexity makes (reverse) logistics challenging.

Smart and efficient organization is necessary to optimize the circular business model and make it economically viable; hence, chain management is required.

Supply Chain Management

Without effective supply chain management, the likelihood of success for a circular business model is low. In practice, various players, such as producers, distributors, or logistics service providers, can assume this leadership role. Sometimes, organizations within a supply chain jointly establish a new entity to take on the role of supply chain management. It is crucial for the supply chain manager to understand where (residual) flows originate and what raw materials, materials, or components are sought by other organizations. The goal is to connect supply and demand as effectively as possible and close the loops. The supply chain manager must take the initiative to bring together the entire system of actors in the chain and align the various chain links as seamlessly as possible.

Inventory Management

Inventory management in a circular company involves different dimensions than in a linear company. A portion of incoming raw materials, materials, and products in circular companies consists of secondary flows from other organizations, which are by definition not newly made but must first return from the market. In some sectors, secondary materials may be easily ordered from a (circular) supplier. However, in very specific, smaller, or less mature sectors, entrepreneurs may need to retrieve products from the market themselves. Inventory management in a circular enterprise is therefore less straightforward, and this can sometimes mean that essential materials are not readily available.

Example: The circular hub of Ahrend and Gispen

 

Office furniture brands Ahrend and Gispen opened a joint circular hub in Veghel in 2021. Here, returned furniture is received, and revitalization, rental, storage, maintenance, and sale of ‘revived’ products take place.

 

Their furniture makers are daily involved in returns. Maintaining the basic inventory of common products such as office chairs, meeting chairs, and workstations is integrated into daily activities. Gispen/Ahrend knows what is on each pallet position and in what quantities. Orders are linked to these locations, complete with a photo, minimizing the chance of errors. Data is entered upon goods receipt.

 

The lead time for the revitalized furniture from Ahrend and Gispen is significantly shorter, at 5 working days, compared to new furniture, which takes 8 to 10 weeks. Customers can purchase revitalized furniture in an online store and have a 5-day option.

 

If a customer wants something that is not part of the usual product range, the companies actively search for it, as ultimately it remains a matter of bringing supply and demand together.

Data and Digitalization

One of the new logistical skills of the circular entrepreneur is the ability to track the nature and location of secondary raw materials, materials, and products. Where are they in the market, when will they become available as a return stream, and what is their quality at that time?

In the IT environment of a circular entrepreneur, a system must be present to track products even after delivery. A combination with predictive maintenance, where the status of a device is remotely monitored, helps keep maintenance costs low. Especially in a service model, this is essential.

The MIT-regulation

 

The MIT regulation offers opportunities for SMEs to realize data-driven logistics or gain better control over information and material flows within and outside the company with the help of chain management.

 

The MIT regulation promotes innovation, sustainability, digitalization, safety, and competition within the logistics sector. This includes initiatives such as making road transport more sustainable or innovating to improve efficiency in warehouse operations.

 

The subsidy enables SMEs to be reimbursed for research, development, and advice that can form a digital foundation to expand circular activities. (Source: evofenedex)