Procurement is the Key to Building a Circular Economy

Whilst recycling is indeed a key component of sustainability, we need to sow deeper roots for a Circular Economy – and it starts with us in Procurement.

As the global climate change effort supports a transition towards a circular economy, the procurement function plays a critical role that surpasses traditional organisational boundaries.

The concept of a circular economy was developed to promote sustainable development, or a society living within the planet’s finite resources and encouraging an equitable distribution of resources. 

It contrasts the standard linear supply chain, which moves from production to consumption to waste. Today, products are consumed and discarded far from their point of origin. As supply chains lengthened around the globe, it’s become more challenging to see the supply chain as a loop or circle

Procurement is positioned to influence many other departments within an organisation and oversee compliance with regulations and rules governing ethical sourcing, carbon reduction commitments and other ESG initiatives. Succeeding in the circular mindset requires more collaborative relationships with suppliers to unlock potential through shared innovation and alliances.

As ESG topics gain prominence, sourcing and the circular economy are becoming a board-level topic that requires a vision and a roadmap to succeed. 

What is a Circular Economy?

There’s still some confusion on the definition of a circular economy. The particulars will vary across industries. One common view is that it’s about recycling. That’s part of it, but there’s so much more to consider.

The potential for recycling is easy to see in raw materials and manufactured goods. Aluminum beverage cans, for example, can be recycled many times. But not every product or commodity fits that mold. In manufactured components, you can also apply a circular value chain. It’s common in automotive and aerospace to collect cores of worn-out parts for refurbishment into like-new products, significantly reducing the raw materials and energy requirements to manufacture new ones. 

According to the MacArthur Foundation, the circular economy is based on three principles: 

  • Designing out waste and pollution
  • Keeping products and materials in use at the highest possible value
  • Regenerating natural systems

Still, the term supply chain implies a flow of material. According to Deloitte, most of a product’s circularity is determined at the design stage, including recycled or previously used materials. The environmental and social impact of the product often aligns with the idea of a high-quality product, one with a long useful life that’s designed to be repaired.

Look at the big picture. A circular economy is not just about recycling. It requires a fundamental shift in how materials are sourced and products are designed, produced, sold, used and disposed of. There must be a new mindset to revise the resource systems and loops involved. Procurement is ideally placed to manage the planning and coordination that crosses organisational lines.

The procurement department can take on a strategic role to influence the design and production process to consider the long-term implications of the many decisions that go into developing products.

Procurement guards the upstream value chain, working with suppliers to focus on criteria relevant to environmental goals rather than focusing solely on cost. Companies committed to developing a circular economy will source materials differently than in the past. Supplier selection and relations will be different as procurement develops material literacy or an understanding of how materials impact the supply chain under new criteria. While working with current suppliers will be necessary, procurement should also actively scout for emerging suppliers and innovation.

Circular Economy Process

The Ellen MacArthur Foundation developed a circular procurement framework to guide organisations toward circular purchasing choices and engage their suppliers in circular economy conversations. 

Strategy: This process supports the decision logic that should be explored before launching the sourcing activity. 

Sourcing: This process aims to educate and spark ideas for sourcing products and materials in a way that adopts and incentivises the best circular practices. 

Management: After entering a circular economy partnership with suppliers, this process helps manage continued performance and ensure mutual value generation. 

Circular Economy Examples

Swedish electric vehicle maker Polestar, which aims to create a climate-neutral car by 2030, is working with suppliers to source fossil-free steel and collaborating with a renewable energy company to source low-carbon aluminum.

IMS Retail developed and ran a comprehensive plastic reduction initiative for an international spirits firm that eliminated 30% of plastic from its point-of-sale materials.

Research shows that 97% of all clothing is made with virgin materials, creating more than $500 billion in wasted materials per year. If the trend continues, the fashion industry will consume a full quarter of the world’s carbon budget by the year 2050. Early steps include shifting from synthetic textile blends to natural fibers that are easier to recycle. 

Consumer electronics manufacturers are seeking ways to reduce parts count and simplify packaging while supporting easier disassembly for repair.

The decision whether to buy or lease capital equipment will have an influence on how it’s built, installed, repaired and dealt with at the end of its life cycle.

Is Your Company Creating a Circular Economy?

One of the key benefits of the circular economy is to decouple economic growth from natural resource consumption. Alternative sourcing options tapping into existing waste streams can reduce the need for virgin materials. Companies can prosper while lessening their consumption. At a Board-level, companies are beginning to see the synergy between achieving economic returns while achieving environmental goals.

Still, they face many hurdles. For most commodities, virgin materials are less expensive than recycled options, so a company must be firmly committed to making the environmentally conscientious choice.

To meet environmental goals and heed demands from consumers calling for more sustainable products, procurement has a lead role in helping companies develop robust circular economy practices. According to Walter Stahel, the founding father of the circular economy, “Instead of producing more things, we must maximise the use of existing ones.”