Circular economy: New possibilities for supply chain management

Dr Lin Woon Leong

Dr Lin Woon Leong

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In the past 25 years, little has transformed business or the worldwide economy more than the ascent of supply chains as the central organising principle for manufacturing and dissemination of day-to-day products.

In the following 20 years, shifts in customer expectations, limitations of natural resources and technological progress would reform each element of business, including supply chain patterns. This has triggered a huge number of deliberations and debates regarding sustainability in the business arena as well as in academic research.

Worldwide models of manufacturing, consumption and commerce remain precariously untenable. Presently, the majority of green solutions signify conventional, “end-of-pipe” or command-and-control solutions, wherein an entity attempts to decrease its current hostile ecological effects instead of espousing pre-emptive approaches for decreasing causes of waste or contamination.

Conventional green programmes are characterised by several drawbacks. For example, an end-of-pipe tactic is not able to remove contaminants but converts them from one type to another. Furthermore, concentrating only on concerns within the entity ignores the unfavourable spillover impacts from the substandard ecological performance of its supply chain associates. For instance, the substandard environmental criterion of small suppliers frequently impacts the performance and impression of large entities within the same supply chain.

Today, firms have started adopting an external-oriented approach to extend and push their green supply chain initiatives beyond their organisational boundaries. This includes several organisations, both downstream and upstream that go by various names, such as green supply chains, product stewardship and closed-loop supply chains. Many opportunities have been generated to implement superior environmental policies and guidelines based on organisations, clients and competitors in developed countries.

What are a few examples of what can and should change?

Four core steps can boost sustainability progress in circular supply chain models.

First, circular economy thinking. It is the “software” of our thinking and “hardware” of our practices that can either prevent or drive a change. A circular economy is believed to be able to radically eliminate waste and revolutionise the production model on which the world depends, as its principles tend to be different versus the traditional “take-make-dispose” economic model. This cannot be disregarded, as 50% of an average company’s carbon emissions are associated with its supply chain as per estimation by Carbon Disclosure Project (CDP).

Circular economy is a key philosophy that is rapidly evolving and has the ability to help organisations achieve breakthroughs with regard to sustainability performance.

Second, we need to effect changes in product design. Reimagining design in products ranging from automobile components to athletic footwear can be applied to minimise toxic elements and identify those components that can be easily recycled or reused.

Third, radical collaboration is also needed in circular supply chains. Too often, there is inadequately used production capacity. Competitors share multiple facilities but fail to maintain proper coordination in production, leading to excess or strained capacity. Companies are now seeking to manage their costs greatly, and establishing connected machines can provide greater efficiencies. At times, the obvious competitive issues hindering the efficient optimisation of the capacity could be a luxury that companies may not be able to afford.

Finally, a fundamental key element to the circular production model would be the reverse cycle to reclaim materials. Reverse logistics have not only minimised waste, but have been found to open up economic opportunities by repurposing scarce natural resources, which could yield new enterprises and additional employment.

It should be noted that, on its own, this model may not be able to deal with ongoing issues related to supply chain labour practices. That said, establishing efficient coordination among buyers could help in enabling more concerted efforts to facilitate fair treatment of workers and minimisation in material for production spikes that could have resulted in overwork of export facilities.

Globally, there is a rapid depletion of natural resources while paradoxically heaps of waste continue to pile up, causing a rise in carbon emissions. Given a looming risk posed towards the stability of an environment, the circular economy should therefore strive towards restoration and regeneration of the environment by enabling sustainability of the entire system in optimising environmental, social, economic and technical values of materials as well as products in society.

With rising concerns to minimise waste, growing ambition with regard to companies’ climate pledges, and more transparency for collaboration among buyers, the time is right to employ circular economy principles to reimagine supply chains in the next quarter-century.


Dr Lin Woon Leong is a senior lecturer at the School of Management and Marketing, Taylor’s Business School, Faculty of Business and Law, Taylor’s University. Taylor’s Business School is the leading private business school in Malaysia, based on the QS World University Rankings by Subject 2021 edition.