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The circular economy: why supply chains need re-shaping

by wrich

By: Henrik Smedberg, Head of Intelligent Spend Management UKI, SAP

Focus on the supply chain has reached previously unseen levelsdue to the external market impacts in recent years. Major disruptions caused by Covid-19, Brexit and other logistics issues, such as the blockage of the Suez Canal,have led to heightened consumer awareness and consideration of supply chains, which have historically been overlooked.For example, our researchfound that 79% of consumersare now more aware of how supply chains impact availability of products than before the pandemic.

This shift in focus, coupled with rising environmental concerns, has sparked a transition of consumer preferenceforbrands that are committed to sustainability and are ethicallydriven – particularly those with “green” or locally sourced supply chains. As showcased in our research,83% of consumers would be more likely to purchase from a brand that supports and sources from local suppliers, a further 83% would also be willing to compromise for ethically sourced products.

With increased supply chain scrutiny, brands’ sustainability activities can no longer stop at their organisational borders but must span their entire value chain. With this in mind, the big question is,how can businesses address this?

Turning full circle

The circular economy is at the heart of sustainability effortswhereby products and materials are kept in use, by design, for as long as possible to get the maximum value from them. This could be by sharing, leasing, reusing, repairing, refurbishing or recycling. Many organisations now operate within this space and big brands are also embracing it, with the likes of Burger King, Adidas and IKEA all developing products or offerings that play into the circular economy in some form.It’s therefore not surprising to learn that the circular economy is one of the main building blocks of the European Green Dealand in achieving the EU’s 2050 climate neutrality target.

While our research showed that nearly three quarters (73%) of UK consumers didn’t know what the circular economy was, when explained, the majority said they would be more likely to shop from brands that are contributing towards it (62%). 

As such, working with suppliers operating in this space is a way to not only create a more sustainable business model, but also to respond to changing consumer demands. 

Achieving circularity

To move towards embracing a circular economy, it’s crucial that brands have better visibility into their supply chain to understand who their suppliers really are: their operations, their ESG goalsand, importantly, if they contribute to the circular economy. The only way to achieve this visibility is through leveraging cloud-based technology that moves beyond a traditional linear supply chain model to a digital supply network. 

As opposed tolinear supply chains, supply networks shift away from singular, point-to-point processes to a many-to-many structure that enables 360-degree visibility. Digital supply networksleverage technology and data analytics to provide a continuous flow of information, allowing business leaders to gain holistic insights into all business areas. Not only does this help to quickly respond to demand and address unforeseen circumstances, but it also allows organisations to understand what partners they are operating with and their practices, and it’s this data that is important here. If the partners you transact with don’t adhere to sustainability targets then there is less impact in setting them for your own business. 

Once an organisation is connected to a network,it canbecome both a buyer and a supplier. This allows for broad visibility into the interconnected operations ofan organisation’s trading partners, including those operating in mines, farms and other providers of raw materials.Not only does thisprovide organisations with greater transparency to ensure that the company’s ethics and values are not compromised at any stage, but it also enables them to find and collaborate with new partners, like those in the circular economy.

The circular economy is important for our future world, but it’s also now becoming an important differentiating factor that consumers will consider when interacting with a brand. So, as consumer interest in sustainability continues into action, organisations must increase focus and investment in circular practices. Digital supply networks will help brands to not onlymonitor suppliers’ sustainability performance and hold them accountable, but also find newpartners that are embracing circularity.

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