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Rethinking Your Business For The Circular Economy.

Corporate social responsibilitySupplier relationship management

In this guest post, Procurement Leaders invites Tradeshift's Christian Lanng to look at how businesses, and therefore supply chains, will be looking to adapt to the rise of a 'circular economy' and the various business models that implies. 


It now seems clear that decades of effort focused on sustainability and corporate responsibility initiatives have struggled to make a difference. Production has outstripped planetary boundaries and the environment is contending with mass-scale pollution. But why is this? To put it into a succinct argument: Companies can't be sustainable in an unsustainable society.”


There have been moves to shake us out of the unsustainable status quo. The sharing economy is made up of hundreds of compelling new businesses, including Uber, AirBnB, Lyft, Netflix and Kickstarter, which are transforming how goods and services are concepted, created, procured, and sold – in fact, changing the whole distribution model. The trio of Internet ubiquity, cloud computing, and mobile broadband makes the sharing economy possible.


And in the same vein, we've seen major manufacturing companies like Rolls Royce starting transition from manufacturing to managed services in recent years, taking care of product life cycles end-to-end. Today, you don't buy a Rolls Royce jet engine: you lease it and the British manufacturer will manage the process end-to-end. Again, this will have a net positive impact on the environment.


But while the sharing economy trend is a good start, it's putting heavy demands on the modern supply chain. As such, there is the growing consensus that the only way forward with sustainable production and growth is to switch from our current industrial “linear” model to a circular economy.


McKinsey, Ellen MacArthur Foundation, and other large companies such as Philips support the circular economy. Companies on the forefront of this wave can create new product-to-service approaches, new materials recovery methods, and smarter projections and preparedness for future costs. And while it may take years or decades for the ultimate vision of the circular economy to take hold, the transition has begun.


Procurement chiefs have to rethink their supply chain economy as a network, not as a collection of single companies. The interdependence between companies is going to be suddenly much higher, which means they have to better choreograph the movement between materials and goods.


Steps to a circular supply chain

  1.     Outputs become inputs because your goods don't end their life with their customers, but become an input in your supply chain. This means your accounts payable and accounts receivable processes will form a loop instead of a straight line.

  2.     Without a digital supply chain, it will be almost impossible to coordinate all the moving parts a circular supply chain requires in real time.

  3.     Assess your suppliers and work with the top tier for a common vision and goals towards a circular supply chain. Trace your supply chain to the bottom to ensure your CSR standards are met as you assess reuse opportunities. Drop those that are not in compliance with social and environmental mandates.

  4.     Figure out the cash flow demands of a circular supply chain, compared to a linear one. Your margins might improve, but your suppliers' need for cash may change, so having active cash management in place is mandatory.

  5.     Make a plan to manage the soft components like all the evidence, materials, production information and components for the entire lifecycle.

Christian Lanng is CEO, Tradeshift.

This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.

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