Manufacturing: How the Circular Economy Can Support Supply Chains to Rebuild from COVID-19

June 23, 2020 | COVID-19, Insights
Sustainable manufacturing with circular economy

 

Exploring how circular economy thinking can build resilience in materials and manufacturing supply chains as we rebuild from COVID-19.

The COVID-19 crisis has created unforeseen challenges in materials and manufacturing supply chains with all sectors affected to varying degrees by the disruption. Some have faced challenges in the form of major supply shortages, whereas for others production and consumption have ceased entirely.

As well as impacts on short-term business operations, this crisis may also catalyse shifts in manufacturing bases in some sectors, such as automotive, apparel, and technology, meaning changes are likely to persist.

Despite the slowing of trade, these quieter times can present an opportunity to rethink and restrategise, to not only address immediate operational challenges but to build resilience for a drastically altered future social, environmental, and economic environment.

While the disruption has and will continue to present operational challenges, implementing circular principles and practices offers the opportunity to address these issues and create value.

How can circular economy principles help to build resilience in materials and manufacturing supply chains?

The pandemic has highlighted the vulnerability of business to natural shocks and amplified the need to rethink the way we do business and build resilience. This is particularly relevant as the effects of climate change, environmental degradation, and inequality play out over the next decade.

All manufacturing sectors will face operational challenges as countries come back online at different times, and as it may take years to reach a new equilibrium, businesses will need to be dynamic and responsive to navigate these market conditions in both the short and long term.

Looking forward, as companies emerge into a changed market with an impending economic recession, limited consumer spending, altered consumer habits, and the refocussing of the news towards climate change and environmental degradation, improved sustainability performance should be a key differentiator for customers, and increase competitiveness in this new world. So, while the disruption has and will continue to present operational challenges, implementing circular principles and practices offers the opportunity to address these issues and create value.

Circular Principles

Some of the ways the circular economy can support businesses during this time include:

  • Excess stock

Overstock is not a new challenge for the consumer goods sector but has been highlighted by the COVID-19 crisis, particularly in situations where manufacturing contracts have been cancelled part-way through delivery. Circular economy principles can be applied to manage this excess stock and may help to unlock the value in these goods by identifying alternative routes to market:

  • Ideally, excess stock can be sold in its current format, either through traditional or alternative/indirect sales channels, e.g. overstock wholesalers or outlets. The latter requires relinquishing control over the product. If this is not possible, selling it under a different product line may be a way around this.
  • If sale is not possible, it may be possible to repurpose components. For some product types, components can be harvested and sold as spares to facilitate repair or reuse in subsequent generations of product. For example, hard disk drives are designed with some components which retain the same specification over multiple generations, therefore these can be reclaimed from unsold stock and used in the manufacture of the next line of products.
  • If stock cannot be sold or repurposed, look at how materials in the products can be unpacked and separated for high-value recycling, turning a cost into value.
  • Short term effects on recycled material sourcing

The crisis has had a significant impact on both virgin and recycled material supply chains and availability. This may hinder manufacturers’ abilities to source recycled content for product specifications and thus affect progress towards targets. Strategies should address how to meet material shortfalls, as well as communicating openly with the public around long-term intentions around public commitments.

Recycled material shortfalls may necessitate a move back to traditional product or packaging material formats in the short-term. If there are no alternative supply routes for the material, roadmaps should be developed to identify timeframes for returning to using recycled material, and potential routes such as alternative materials and design which may help manufacturers to meet mid-to-long-term goals.

  • Anticipating the effects of a recession on supply chains

Any potential recession following the pandemic will put significant pressure on supply chain margins. In this environment, deep resource efficiency can allow businesses to maintain margins, while pioneering circular business models will help to build resilience into businesses and could become more necessary over the next decade.

While consumer surveys show that there is a willingness to pay a premium for “more sustainable” goods, this is not always reflected in actual spending habits. Over the past 10 years, households have faced a squeeze on income for discretionary spending due to austerity, debt, increased cost of living, and stagnating wage growth which has been further exacerbated by the COVID-19 crisis. Resource efficiency and circular business models may help to deliver win-wins for both cost savings (both for the business and consumer) and sustainability benefits, as well as building in greater resilience to future market shocks.

  • Consumer behaviour in a post-lockdown world

Social distancing and lockdowns will likely persist as countries phase in and phase out restrictions over the short term. In the longer term, there are a number of factors which are likely to lead to changes in consumer behaviour such as changes in disposable income and the experience of the pandemic itself.

The following trends may be leveraged in developing circular business models, providing effective solutions to both short-term and long-term business issues.

  • With the disruption of global supply chains, it may not be possible to procure key goods or components from overseas – this may drive a shift towards local procurement or even production, e.g. via 3D printing.
  • As people spend more time at home, it is likely that there will be an increased appetite for repairing or customising possessions. Re-designing products to facilitate at home or local repair or upgrade or encouraging at-home DIY customisation can also help to develop consumer attachment to products and brands as well as bottom-up awareness via social media. This can encourage the extension of product lifetimes and reduce the frequency that consumers replace products whilst generating income through the sale of parts for repair.
  • The pandemic has further driven the shift towards digital services, becoming the new normal, especially for people and organisations which were previously reluctant to embrace them.
  • There are indications that doorstep bottle collection and refill models may come back into fashion, particularly with the growth in home delivery services. Some industry and third sector bodies such as the Ellen MacArthur Foundation are keen to push refill models for consumables, with the primary aim to cut out excessive packaging.
  • Building capability and identifying opportunities for operational savings

Following on from the topics outlined above, training and staff engagement on topics such as resource efficiency, circularity, and supply chain partnerships will help to build internal capability, resilience, and identify cost-saving opportunities.

Moving Forward

Despite the challenges and disruption brought by the pandemic, there are opportunities for businesses to make changes and build long-term resilience, even as we enter a period of uncertainty.

The last few years has seen circular economy become a mainstream concept and receive significant backing at a policy level. The current conditions should help circularity and circular business models gain traction more easily as the imperative for retaining product and material value across their lifecycle grows. Sustainability has remained a focal point for businesses in spite of the pandemic, and – as with the climate crisis – organisations which embrace the changes and challenges, innovate, and set ambitious targets around circularity will be those which emerge as leaders during the decisive decade.

Richard Peagam
Associate Director, UK

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