Sustainability and environmentalism have transformed from topics at the fringes of society to mainstream concerns that affect consumers’ daily lives and purchasing decisions. Recyclable packaging and environmentally friendly certifications are found on many products. More and more customers look for these marks when shopping for food and packaged goods. However, there’s a clear consensus that just using recyclable materials in packaging is not enough. Increasingly, closed loop supply chains, which reuse all of their materials as-is, recycle them into new products, and otherwise find ways to prevent waste are being held up as the logistics model of the future.
The most important benefit of a closed loop supply chain is the reduction of waste. However, the upfront design work to create reusable or completely recyclable packaging, the work of tracking it for reuse, and incentivizing its return can involve a significant cost. As a result, companies are looking for direct financial benefits to justify the cost and effort of making the switch to a closed loop supply chain.
The Financial Benefits of Closed Loop Supply Chains
In truth, the benefits of a closed loop supply chain are indirect. Transitioning to a closed loop supply chain only translates into direct financial benefits to a company over the long term. Complicating matters further is the fact that closing the loop can’t be done quickly. It takes years of research to develop a circular business model, and further years of dedicated effort to fully close the loop and create a zero-waste supply chain. In fact, most companies haven’t yet reached the official zero waste mark at which 90 percent of materials are diverted from landfills. Nevertheless, a closed loop supply chain is worth pursuing due to the following benefits:
- Reduced Waste: Efficiencies save money on every operation. Redesigning packaging to reduce the amount of packaging material used for each product can save money, and, if the overall weight is reduced, can also help save on fuel costs. If the redesign makes packaging easier to recycle, some material costs can be recouped as well.
- Perception: The wider public is concerned about the environment and becoming increasingly so every day. Consumers are willing to pay more for environmentally friendly products. In fact, the public’s perception of the effort to go green is one of the most immediate benefits of working towards a closed loop supply chain and can boost sales, helping to offset many of the costs of initiating recycling and reusability initiatives.
Customer Loyalty: Sincere ongoing efforts to improve recyclability and material reusability can result in loyalty to a brand. This can be reinforced by refill initiatives in which consumers refill reusable packaging instead of discarding it after a single use. A truly closed loop supply chain for consumer package products resembles a product-as-a-service (PaaS) model, similar to digital marketplaces, in which customers are tied to a certain operating system and its ecosystem of applications.
- Shaping Regulation: Companies that work towards a closed loop supply chain ahead of any regulatory mandate that they do so pioneer the methodologies that will be used in the future. This gives them an advantage in that they can work with regulators to help shape future regulations and can provide their services to help other companies with compliance when regulations are enacted.
Being “ahead” of other businesses can bolster a company’s reputation, enhancing customer perceptions and building brand loyalty.
Perhaps the biggest of these advantages is the opportunity to be ahead of regulations and to be able to provide the model that shapes those regulations. Being “ahead” of other businesses this way can, in turn, bolster a company’s reputation, enhancing customer perceptions and building brand loyalty. Being ahead of the crowd is not an easy option though. It requires advanced planning and a degree of trial and error.
Building a Closed Loop Supply Chain
Consumer durables such as appliances and electronics are more often recycled than other goods because the metals and rare earths that go into these devices retain much of their value. This provides some incentive for waste management companies and recyclers to pull these out of the waste stream and tear them down for recycling. However, even with these incentives, only a small percentage of electronics and appliances are recycled. In the consumer packaged goods market, where the monetary value of individual packaging is minimal and the incentive for recycling it is nonexistent, creating a closed loop supply chain is much more difficult.
Building a closed loop supply chain involves incentivizing the recycling of packaging.
Supply chain management within the circular economy is still primarily concerned with reducing, reusing, or recycling consumer packaging, and most consumer packaging is already recyclable to some degree. Part of the issue is that very few consumers make the effort to put it into the recycling stream and it instead ends up in a landfill. At a minimum, building a closed loop supply chain involves incentivizing the recycling of packaging. However, redesigning packaging to be biodegradable or easier to recycle is likely to be more effective and less costly over the long term.
Another option being tested by some of the world’s largest consumer brands is the PaaS model. Instead of purchasing a product, consuming it, and discarding the packaging, consumers instead participate in a refilling service. They receive a container that is meant to be saved and either take it to a retailer to have it refilled or use a service that drops off new, full containers while reclaiming empty ones for washing, sanitization, and refilling. This is a fundamental change in the way that consumer packaged goods do business. However, it does secure a more consistent market share over the long term as the consumer is a part of a product ecosystem that functions similarly to an online product library.
All of these methods for developing a closed loop system take time. However, companies can begin to reap the benefits of a closed loop supply chain model by choosing a pallet pooling service. Pallet pooling companies use a closed loop system to rent pallets to their clients. While pooled wood pallets will eventually wear out and end up in a landfill, plastic pallet pooling programs that use recyclable HDPE plastic pallets are true closed loops. In this cradle-to-cradle model, every plastic pallet can be recycled directly into another plastic pallet after it reaches the end of its long lifespan.
iGPS is the leader in plastic pallet pooling, renting high-quality GMA-spec HDPE plastic pallets to a network of clients across North America. To make the switch to a closed loop pallet supply chain, give our team a call at 1-800-884-0225, email a specialist at [email protected], or visit our contact page.