A Week of Circularity: The Supply Side of Things

We rarely associate the circular economy with the supply side of things. Or at least, as a society, we are not used to start there.

From matters of transport and logistics (namely, bottlenecks) to the way that consumption of imported natural resources may end up in the supply chain of exported goods, lots of focus continues to be on the demand, and, as a result, on how the circular economy can influence buyers’ decisions. Replacing brown for less brown, green for greener, empty for full (or better growing a country's wealth and population all else being equal). After all, it’s the age of influencers, of action against over-consumption, of the run to close socio-economic gaps on virtually anything that causes inequalities in standards of living. As a result the narrative gets lost in either importers or exporters in perennial rush to specialize and deliver "differentiated" goods and services, in businesses seeking their unique niche for a unique taste and entice consumers one way or another back to the demand side.

The way of circularity is that of closed loops in both supply and demand.

The starting point, its core foundation, is purely of basic necessities in a world where many – plenty – don’t have access to those necessities on a consistent basis yet.

?? The Science of Impact

Speaking of impacting the supply side of things, have you ever heard of Reverse Logistics (RL)?

It refers to the supply chain process of returning products from end users back through the supply chain to either the retailer or the manufacturer. It has been part of the retail industry for over 100 years when the transport of goods was mainly handled by rail. E-commerce has amplified its role as consumers are now able to ship goods back to the seller – a phenomenon that according to the Reverse Logistics Association generates 3-4x more returns than traditional in store purchases.

Most importantly, RL offers a way to recapture value as the final destination of a shipment from a return is moved to a destination of choice (including when customer’s returns are due to end-of-life disposal).

Through the lens of the circular economy, the ideal reverse logistics strategy is…waste free or closed loop. Products are recovered from a customer in exchange for value and/or recycled for later use.

While many businesses use their (no fuss) return policies as a competitive differentiator, not all businesses develop a comprehensive RL strategy and most likely, miss out on their ability to reduce storage and distribution costs. A supply chain will operate most efficiently when it's optimized in both directions.

Yet, there’s a key challenge in managing RL effectively. ?

Failure to balance costs vs. benefits. Put it simply, a failure to track the profitability of RL operations.

Think for example of RL processes for medications.?Because of the nature of the products, a chain of custody is required to satisfy regulatory burdens. Also, they are often considered hazardous waste and must be handled accordingly.

Without mapping out a way for RL to contribute to recapturing value, there are a number of missed opportunities to positively impact the customer and the operating environment of the supply chain.

Let's start looking at returns as another source of supply.

Debrup Jana from Gartner puts it quite nicely in his interview with Modern Materials Handling, a publication of Reed Business Information earlier this month:

?? Circularity Roadmaps Explained

Surprising update from the Netherlands: the circularity of the Dutch economy has barely increased.?Statistics Netherlands ( Centraal Bureau voor de Statistiek – CBS) has just released new figures showing that circularity efforts nationwide have barely increased since 2014. The government has set a goal of a fully circular economy by 2050, with an emphasis on the use of renewable resources and reuse of products and materials. According to CBS, sand and gravel were the most commonly reused natural resources at 31%, while reuse of fossil fuels was low.

Let’s take a closer look to understand the role played by imports and exports of natural resources:

• Resource consumption (reduced)

Natural resource use in the Dutch economy has decreased between 2014 and 2020. This decrease is mainly attributed to the lower consumption of fossil fuels and non-metallic minerals, as well as the nitrogen crisis and coronavirus crisis, both of which resulted in less commuting and flying.

The drop in fossil fuel consumption may not be permanent.        

• Natural resources imported (increased)

From 2014-2020, the Dutch economy's reliance on imported natural resources increased for all materials, except non-metallic minerals. Dependence on fossil fuels, such as natural gas, rose significantly, due to a decrease in natural gas extraction in Groningen.

The Netherlands is completely dependent on foreign supply for metals.        

• Natural resources processed into export products (major share)

In 2020, the Dutch economy processed over 400 billion kg of natural resources and other materials, half of which were used in the domestic economy. Nearly 44% of these materials were exported, 25% were 'lost' as a resource through incineration and consumption of food and other products that can only be used once (short-cyclical products such as biomass). On average, 50 of the 60 billion kg that went to waste were recycled, but they only replaced a small portion of natural resources used in the local economy (e.g., energy consumption and material use).

Product life extension and sharing of products are key for the Netherlands to meet its circularity goals.        

Besides reuse, reducing the need for natural resources is another way to eventually become fully circular by affecting both the supply and demand side of things.

?? Investing in the Circular Economy

Private Sector Opportunity:

Edinburgh-based Circularity Capital was founded in 2015 by a team who believes that "circular entrepreneurs deserve a circular-specialist investor".

Their European Growth Fund II is currently the largest specialist circular economy private equity fund globally.

The team invests in innovative, market leading businesses that create value by promoting a. resource productivity, b. offering alternative ownership models, and c. making or remaking circular products and materials.

A trait that makes them stand apart: Circularity is their only domain.        

Their focus? Realizing a sustainability premium: "We believe circular businesses who can validate and articulate the sustainability impact of their product or service in a way that is relevant to their customers can grow faster and ultimately attract premium valuations."

Their most recent investment participation is a €30 million growth capital round for Saarbruecken, Germany-based CERAFILTEC , a leading provider of ceramic ultrafiltration membrane solutions for the global water industry.

Watch the brief video by Julius Gloeckner, MBA, CPA, CIA, CFE and Kay Gunther Gabriel highlighting the investment case study for the business:

???You don't want to miss this week...

From Chicago to Quito, Tokyo and Melbourne, the opportunities to learn and connect are plenty.

UChicago Applications Open Until Feb 26th: Very much looking forward to welcoming the 3rd Cohort of participants in the Circular Economy and Sustainable Business Program at the end of the month. The cohort counts on an English and a Spanish track.

Come join us!

Feb 13th: Call for applications: eTrade for Women Masterclass . eTradeforWomen , an initiative led by UNCTAD , organizes a new free Masterclass in Quito, Ecuador on 25-28 April 2023 for women entrepreneurs in digital businesses based in Latin America and the Caribbean. This is a fantastic opportunity for women-led ventures in circularity who are advancing digital platforms in the region. The event will count on agribusiness entrepreneur and director of the Cámara de Comercio Ecuatoriano Americana - AMCHAM (Ecuadorian American Chamber of Commerce) Pierangela Sierra .

Feb 14-15th: Sustainable Brands 2023 (SB’23 TOKYO-Marunouchi – hybrid). Theme: Recenter and accelerate. Bringing business and sustainability professionals from across the globe together to learn and share how to drive innovation and create sustainability value for their organizations. Special highlight: The Activation hub will feature a session on “Sustainable Chocolate: The Challenge for the Procurement of Cacao without Child Labor” by YURAKU CONFECTIONERY CO.,LTD.

Feb 16th- 17th: International Conference on Green Building, Materials and Civil Engineering (ICGBMCE) 2023 (Melbourne, Australia). Virtual event organized by the World Academy of Science, Engineering and Technology . ICGBMCE 2023 provides a truly interdisciplinary platform for researchers, practitioners and educators to present and discuss the most recent innovations, trends, and practical challenges in the fields of Green Building, Materials and Civil Engineering.

Off to another impactful week!