Don't Trash it, Transform it! - Shifting from a Linear to a Circular Supply Chain

Much before ESG became a bonafide subject in itself and conversation about circularity in supply chain became a standard fixture, I first heard about these principles (not the terminologies) around two decades back. It came via an RFP we had to respond to from a (now defunct) Texas based company whose core business model was Return - Repair - Resell (3Rs) of cellphones. Later, adding Refurbish (make it like new) and Recycle (disposition) to the mix, the model became 5R.

A few years back, I got an opportunity to visit a warehouse (again in Texas) where I could see all of this in action. The facility belonged to a large 3PL company where they collected phones and repaired it on behalf of major telecom service providers whose plans came bundled with a device. These reverse supply chains were complex due to the sheer unpredictability of demand (which phone breaks down when and where) which then cascaded to the rest of the flow as well. Accepting a return via 3rd party drop points, shipping it to the right warehouse, triaging issues, deciding whether to repair/refurbish/recycle (with refunds thrown in) and then either return to the owner or resell it through another channel was hard enough. Now multiply that across hundreds of models of various brands/vintage and you get an idea of the complexity involved.

Electronics retailing has similar challenges too. Open Box items instantly diminish in value by 50% or more just because a shopper bought an item, opened the box at home, decided not to use it and just dropped it into a nearby store for a full refund. In most cases, the store manager may just decide to put it into the store's cage meant for open box items at a deep discount. The default thinking could be that sending it through the reverse supply chain would incur additional processing costs and there's a chance it may still end up in a landfill anyway. However, if it can be refurbished at a repair center and sent to the right store/shelf, the item can now sell at a much higher price point (realization rate).

All of these came to my mind while chancing upon a company called Ample, which is a start-up into EV battery swaps. Whether it is reaching out to customers in distress, ensuring design compatibility with multiple car models, keeping enough inventory for swaps or building charging stations in close vicinity, Ample is going to be a fascinating one to watch for as it scales up. When an intensely physical business like that scales up, everything has to multiply mostly linearly - land lease/locations, equipment, inventory, people and more. For now, they've partnered with Uber as well as Stellantis (the parent company of Fiat & Jeep, among others), which assures a certain demand predictability through better quality data analysis.

Circular economy is equal parts profit and and equal parts heart, but the struggle to scale the ideas is real. For businesses looking at a shift to circularity, one of the clearest approaches I have read is from HBR (it's a 3 year old article, but even more relevant today). The authors simplify all circularity strategies into three:

1. Retain Product Ownership (RPO) - the way anyone into leasing their products would do, say Xerox or Caterpillar.

2. Product Life Extension (PLE) - by making quality products that have an extended life and then sell them at a premium, like Apple or Patagonia does.

3. Design For Recycling (DFR) - where the products are made out of recycled items (like Adidas shoes from ocean plastic) or can be recycled once discarded.

When it comes to applying this in the real world, the authors juxtapose these along two parameters:

(a) Access - how accessible are your products from a recycling point of view and

(b) Process - how efficiently can you recondition the product/components for reuse

Something like wind turbines go into the hard zone for both the above parameters, others like apparel fall into the easier quadrant. If the embedded value for recycling is low, DFR is always the default option, suggest the authors. If there is a lot of residual value, one can try the other two strategies PLE and RPO.

All that said, the next time we feel saddened by a non-circular collateral damage to earth - say, apparel waste mountains in Africa or plastic trash in the Great Pacific Garbage Patch, remember, the best strategy starts with us - buy less, pay more (fair price) and use longer.?