Circular economic models are creating a major paradigm shift for supply chain managers. By pulling away from old linear models that followed the pattern of “produce, use, and discard,” companies are both reducing their impact on the environment and cutting their Total Cost of Business (TCOB) by keeping resources in use longer. Focusing on sustainability isn’t just about environmental responsibility. It’s also an important way to stay viable as other businesses and consumers demand more corporate accountability.
In the U.S., 68% of consumers believe it’s incredibly important that companies implement programs to improve the environment. Meanwhile, businesses are looking at their internal practices to see how they can reduce waste. They’re also more carefully considering their relationships with suppliers and vendors to ensure they work with companies whose values match their own. Overall, however, “circularity” is still mostly a buzzword, a term that is thrown around much more than it is actually put into practice. In this post, we’ll take a look at some actual examples of circular supply chains in practice that show how closed-loop business practices can play out in the real world.
Three Examples of Circular Supply Chain Models
The circular economy is a relatively new concept and many companies are still evaluating possible ways to bring circularity into their manufacturing, transportation, and supply sourcing. For those who are only familiar with a linear model of business, the idea of a circular business model can be difficult to envision. Here are three examples of circular supply chain models already in use by U.S. companies.
#1: Product-as-a-Service Models
Part of the difficulty of building a circular supply chain is that reclaiming products for reuse or recycling can only be done with the cooperation of the consumer. As a result, some companies, like Signify (formerly Philips Lighting), are switching to product-as-a-service models that allow them to maintain control of their product throughout its lifespan.
The product-as-a-service model is one way companies ensure that their products don’t end up in landfills.
Like any large city, Washington, DC has a lot of energy expenses. Signify agreed to help reduce these expenses by installing 13,000 LED lights–all at no upfront cost to the city. Instead, Signify will receive its payment from the estimated $2 million the city will save annually. The plan creates a win/win scenario for the District of Columbia and the environment by allowing the city to reduce electricity use and costs. And, of course, the plan allows Signify to profit from the savings.
#2: Incentivized Recycling
The product-as-a-service model is one way companies ensure that their products don’t end up in landfills. Another method is to incentivize consumers to return products to the company or to recycle them. Vodafone’s phone trade-in program is a good example. The company offers a trade-in value for any old device, which can be put towards a new one. Meanwhile, old phones traded in by consumers can be harvested for parts and recycled by the company, reducing waste.
The clothing retailer H&M is doing something similar. The company has declared its intentions to make its operations “circular,” and one of the ways it is doing this is by collecting used H&M clothing for recycling into new clothes–H&M stores now have collection bins where consumers can drop off used clothes. More than half of the material it uses in its clothes, H&M claims, is now recycled or sustainably sourced, and it plans to increase that number to 100 percent by the year 2030.
#3: Plastic Pallet Pooling
Pallet pooling is perhaps one of the original circular business models. Before pooling, used wood shipping pallets accounted for a lot of waste in the supply chain. The pooling model made it possible for warehouses, manufacturers, and distributors to rent, rather than buy, their pallet supply. These companies no longer had to spend a large amount of money upfront on a pallet fleet of their own, which they would have to manage, maintain, and store. Instead, they could rent the exact number of pallets they needed at any given time and rely on the pooling service to maintain the pallets in good condition and to collect them at the end of the supply chain.
The use of plastic pallets instead of wood ones makes pallet pooling truly circular.
However, this model was not without its issues. Traditionally, pooling companies rented reusable wood block pallets, and while these pallets had a longer lifespan than flimsy one- or two-use stringer pallets, they still needed frequent repair and ultimately ended up in the landfill after 20 or so trips through the supply chain.
The use of plastic pallets instead of wood ones makes pallet pooling truly circular. As a non-organic material, plastic resists damage from moisture, insects, mold, and mildew, and has a much longer useful lifespan than wood. When plastic pallets do reach the end of their useful lives, they are simply ground down and recycled into new pallets. Since the pallet pooling provider maintains control of each pallet throughout its lifespan, they are able to ensure that the pallets follow a closed-loop model of reuse, repair, and recycling.
Working with Sustainable Suppliers
Outsourcing logistics is not uncommon in supply chain management today. Products and shipments may go through the hands of many different companies before they reach their end-users. This creates a challenge for companies that want to focus on a circular business model, as they may choose vendors who don’t have the same policies of sustainability and waste reduction.
Choosing a plastic pallet pooling provider means contracting with a vendor who uses a sustainable economic model.
For companies looking to become part of a circular economic model, due diligence is required when entering into new contracts with vendors as well as renewing contracts with existing ones. Supply chain managers should add questions about sustainability and circular and ethical business practices to their standard vendor vetting process. They should also consider seeking out companies with Green Business Certifications. Green practices and circular supply chains go hand in hand, as both focus on reducing waste and ensuring a more efficient use of natural resources.
Plastic pallet pooling isn’t just an example of a circular supply chain in practice. Choosing a plastic pallet pooling provider means contracting with a vendor who uses a sustainable economic model; they can help your business take its first step toward circularity while modeling the ideals of reuse and recycling. Pallet pooling shows that circular business practices can work in the real world, to the benefit of businesses, the consumer, and the earth.
iGPS’ plastic pallet pooling model offers an example of circularity in action. Our pallet rental program enables companies to improve efficiency and reduce waste and is an excellent alternative to the common, but often wasteful, choice to maintain a fleet of wood pallets. For more information, contact us at 1-800-884-0225, email a specialist at [email protected], or visit our contact page.