What Does a Circular Supply Chain Look Like and Why Does It Matter?

A circular supply chain can cut waste while building resiliency, reducing carbon emissions, and more.

Circular tube leading into a body of water
Photo by Erlend Ekseth / Unsplash

Going around in circles might not be such a bad thing after all. When it comes to supply chains, circularity can be a positive financially and environmentally.

But what exactly does a circular supply chain mean, and what does it look like in practice?

For starters, it’s important to understand the difference between a circular supply chain and the circular economy.

Circular Supply Chain vs. Circular Economy

While the terms circular supply chain and circular economy are related, they operate at different scales. Think of a circular supply chain as a subset of the broader circular economy.

For a formal definition of a circular supply chain, consider the Circular Supply Chain Network’s explanation:

“Circular supply chains are interconnected systems that use secondary and renewable inputs to generate value by reducing and maximizing resource use."

In other words, circular supply chains reuse materials and resources — possibly from your own byproducts but often from someone else’s — to create closed loops, explains Deborah Dull, the Circular Supply Chain Network’s founder, in her book Circular Supply Chain: 17 Common Questions.* She’s also a VP and global supply chain sustainability leader at Genpact.

In contrast, a linear supply chain often uses virgin materials that end up in a landfill, for example, rather than getting recirculated.

However, recycling is just one component of circularity, with other processes like repair and reuse sometimes coming into play before an item or materials go through the recycling process, adds Dull.

And sometimes a circular supply chain uses a material that’s not in circulation yet but comes from a renewable resource, which Dull says is generally one that’s renewable within 10 years. Think bamboo, cork, mushrooms, and other materials that can be used to create items without overly depleting the planet. Through processes like composting, these materials can be recirculated, as opposed to fossil fuels that have limited supplies and can’t regenerate anytime soon.

The circular economy draws on similar principles, but it involves more than just supply chain inputs and operations. From product design to consumer behavior, multiple facets, including supply chains, need to be involved in closing the loop.

As the Ellen MacArthur Foundation explains, the circular economy is based on the three main principles of eliminating waste and pollution, circulating products and materials at their highest value, and regenerating nature.

“In our current economy, we take materials from the Earth, make products from them, and eventually throw them away as waste – the process is linear. In a circular economy, by contrast, we stop waste being produced in the first place,” the foundation notes.

What Does Circularity Have to Do With Sustainability?

While circular supply chains can be more sustainable than linear ones, these aren’t meant to be interchangeable terms.

The circular model is “really meant to be an economic model and not meant to be a play for sustainability,” says Dull.

Circular supply chains can be more resilient than linear ones, she notes, such as if a company can source materials that are already in use via other local supply chains, rather than waiting for virgin materials to be mined in another country, for example. And if companies are only focused on getting the lowest-cost inputs via long, international supply chain operations, that can cause delays when supply chain disruptions like Covid happen.

Even within circularity, “the bigger the circle, the more effort, the more money, the more time, the more emissions it takes to put a material back into a value chain and monetize it,” says Dull. “The less we have to do to a material, the better. And we can still make a ton of money, [although] maybe not exactly the same amount of money.”

Still, circularity could introduce new revenue streams while also being more sustainable. Brands like Lululemon, for example, have added resale options.

Doing so can reduce the number of original items that need to be manufactured, which can simplify supply chains and reduce emissions that might have otherwise been created.

Lululemon says that around 60% of its carbon footprint comes from the production of raw materials.

Operating supply chains on a more local basis can also align with sustainable production, such as by reducing transportation emissions.

That doesn't mean the global economy will disappear. But it might become easier to fix products within hyperlocal repair shops, for instance, Dull notes. Perhaps supply chains only need to deliver one component of a product for repair, rather than creating new items from scratch.

Even if the economics of a circular economy with circular supply chains look a little different than their current forms, companies that fail to make the switch could be left behind. In other words, there are long-term business incentives to go circular.

“It’s going to be interesting to see how [consumers], especially Gen Z, come up with their demands for the right to repair and wanting to keep their favorite blue jeans or their favorite cell phone or whatever the case may be,” she says. “They don't necessarily want to buy into consumerism.”

Circularity in Action

Circular supply chain management might sound good in theory, but what does going from linear to circular look like in practicality?

Consider the case of Polycarbin, a circular materials company specializing in plastics for the scientific industry.

Over the past 30 years, global plastic consumption quadrupled, according to the Organisation for Economic Co-operation and Development (OECD). And while the amount of plastic that comes from recycled or secondary plastics also more than quadrupled from 2000 to 2019, that still only accounts for 6% of total plastic production, the OECD adds.

Part of the problem is that only certain types of plastics can easily be recycled. The scientific industry often uses materials like polypropylene that have negligible recycling rates. That leads to significant landfill waste.

Behind essentially “every great innovation in science is a mountain of single-use plastic that's only getting worse,” says Noah Pyles, co-founder and COO at Polycarbin.

Polycarbin, however, provides one example of supporting circular supply chains and an overall circular economy. The company essentially works at both the beginning and end of the cycle by capturing what would otherwise be single-use plastics and then turning them into new products.

For example, Polycarbin provides some customers like laboratories with special boxes to collect pipette tips. Then, working with manufacturing partners, Polycarbin creates the same types of products from the old materials, which it then sells back to customers. In addition to labs, Polycarbin is expanding into industries like food and wine.

Not everyone participates in the full loop; a customer might primarily recycle other brands’ plastics or just use Polycarbin as a vendor for sourcing recycled plastics, for instance. But those who do engage in full circularity can gain additional cost savings of around 10-20% (compared with buying virgin plastic products), along with environmental advantages.

“They're sourcing material for us, thus we pass on the savings to them,” says Pyles. “We want to show people that a circular economy isn't just a virtuous system that is good for the environment; it can also be good for your wallet.”

Polycarbin also offers customers carbon impact quantification tools, though some customers are simply focused on the economics of sourcing recycled products, rather than the environmental impact.

That said, many organizations are worried about things like plastic pollution.

“Our biggest underestimation as a company was the community of scientists that have been trying to deal with this issue internally…without the resources or infrastructure to do it,” says Pyles. “The movement was already there, it just wasn't well equipped.”

But as more stakeholders create and use products and services with the circular economy in mind — as well as the subset of circular supply chains, e.g., sourcing recycled plastic products that can recirculate into new, potentially less expensive inputs — circularity looks more within reach.

“People that make products need to be thinking about what happens to them when their customers are done with them. If you enshrine that in the design of the product, you can then make a product that is fitting to a system that can [facilitate] a circular economy.”

Getting Started With Circular Supply Chains

While circularity often makes sense from both economic and sustainability perspectives, it might feel overwhelming to flip the script from linear to circular.

But you don’t need to do everything at once, nor do you have to leave everything to supply chain professionals (although much of the change will likely come from supply chain leaders).

Start by picking one process, advises Dull. If you want a deeper challenge, “try to map a product or even a single material with a single supplier all the way back to the planet,” she says.

Even services-based businesses can implement more circularity within their supply chains.

A fashion company might source recycled fabrics to create clothes, but if you’re selling financial advice, consulting work, or even a SaaS offering, your supply chain might not have as clear of a connection to your core business.

However, these types of companies still have vendors that can use secondary or renewable inputs. A cloud-based software company, for example, could work with a vendor that uses circular servers. Running data centers on renewable energy also ties into circularity, as opposed to extracting more from the planet to ultimately provide cloud-based services.

“The cloud is a real, physical place,” she says. We need to be “responsible with how we design our systems and data to use less to begin with.”

But that doesn’t mean companies need to shrink. Instead, it’s about figuring out how to grow, which can include monetizing waste and/or finding cost savings from reducing waste, while decoupling “growth from the amount of virgin material we need to put into the system,” she says.

*Deborah Dull provided a complimentary copy of her book as background for this article.

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