Closing the Loop: Why Circular Economies are the Key to Long Term Resilience

As the world grapples with the challenges of climate change, sustainability policies have become an imperative for supply chain management. In the face of increasing global risks, such as financial penalties and reputational damage, organisations worldwide must prioritise green choices. However, against rising costs due to persistent inflation and high energy prices, businesses find themselves caught between a rock and a hard place. With the additional pressure of increasingly frequent disruptions and resource scarcity, the balancing act has become even harder.

Organisations simply can’t afford to let sustainable practices slip as costs continue to creep upwards. By ignoring the trend towards fostering sustainable practices in the supply chain, organisations will face growing risks while also struggling to appeal to the increasingly climate-conscious consumer market.

Sustainability is a hot-button issue for consumers. Research from Banc shows that internet searches for ‘eco-friendly products’ were up 101% from 2013 to 2023, whereas searches for ‘sustainable products’ were up by 158% in the same time frame. Currently, procurement teams are being forced to juggle the need to reduce their organisation’s impact on their environment without breaking the bank. To find the balance, circular economy models supported by digitalised spend management offer not only a more sustainable, but also a risk-averse solution.

The circular economy advantage

The circular economy model focuses on minimising waste by making the most of resources. Unlike a linear plan that disposes of resources at the end of a product's suggested lifecycle, the circular economy ensures that materials have an extended lifespan via reusing, repurposing or repairing. This system ensures that resources can be continuously recycled, alleviating the dependence on finite resources, improving efficiency, and mitigating the environmental impact.

The benefits of the circular economy have been proven. A recent Ivalua study of 300 UK supply chain and procurement decision-makers found that more than half (56%) of companies implementing circular economies into their supply chain are already reporting revenue growth, and 49% have seen reduced costs. Moreover, such models contribute to supply chain resilience by easing pressures on scarce materials.

But where should organisations start? Procurement leaders seeking guidance should look to existing circular economy frameworks that have been introduced in recent years. Adhering with frameworks such as the European Green Deal and the Circular Economy Action Plan not only ensures alignment with sustainability goals but also mitigates critical risks tied to non-compliance.

The Circular Economy Action Plan specifies mechanisms for sustainable supply chains by focusing on the entire lifecycle of products, ensuring that sustainability is considered from design until disposal. Emphasis is placed on reducing waste, which is fundamental to achieving a circular economy. By following these processes, procurement teams will find themselves supported through the transition, as well as in line with government regulations.

Some of the world’s top retailers have been leading the way on circular economies, including IKEA. To ensure sustainable practices across its 1,600 global suppliers, IKEA has implemented a strict Code of Conduct. Using a digitalised supply chain, the company can conduct annual audits to review a supplier's compliance with the code and adjust where necessary. This is a perfect example of using compliance as a tool to strengthen sustainable practices and protect supply chains against future disruptions.

From Vision to Reality: the challenges of sustainable Supply Chain adoption

Whilst the benefits of a circular economy are clear, the road towards deploying this system isn’t an easy ride. Currently, many businesses simply do not have the tools and processes to enable closer collaboration with suppliers and greater supply chain visibility.

Equipped with the right tools, procurement can play a key role by engaging suppliers in sustainability initiatives and embracing technology to track sustainability-focused metrics, monitor progress and identify areas for improvement.

Organisations must invest in digitalising the procurement infrastructure to build a circular economy and optimise efficiency but first, they will need to win over hearts and minds. As it stands, 58% of businesses believe that introducing a circular economy model is a ‘pipe dream’, particularly without support from the C-suite and board. What’s more, 37% of businesses experience resistance to change from suppliers, 34% cite competing priorities, and 31% still don’t understand their own environmental impact.

Yet despite these challenges, 57% of businesses agree that the cost of inaction will outweigh the cost of circular economy investment. For example, once implemented, circular economy models can strengthen an organization's subscription-based services and increase customer stickiness. Organizations who fail to do this will miss out on opportunities to generate recurring revenue streams.

This is why buy-in from the leadership and sceptical stakeholders is a must. Decision-makers must recognise that transitioning to such models in today’s volatile market is as much about safeguarding long-term operations against regulatory and environmental risks as it is about sustainability.

Empowering procurement to embrace circular economy

In a survival of the fittest economy, a circular economy model will improve the financial and operational standing of businesses – particularly those who are early adopters. After all, more than half of businesses recognise that without embracing a circular economy model, they will be “overtaken by greener, more efficient competitors”.

By empowering their procurement teams to build the foundations for a circular economy, organisations can create a pathway that reduces their environmental footprint while strengthening their brand and increasing operational resilience, shielding them from future disruptions or penalties.

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