A circular supply chain will be critical if we are to meet all our sustainability targets, according to Olimpia Bertarini, Global Purchasing Director, ZAPI GROUP.
The quiet hum of electric vehicles gliding through city streets and the growing adoption of renewable resources paints a picture of a world shifting away from fossil fuels. However, this transition presents a new question: how can we ensure the sustainability of the supply chains driving this transformation?
In today’s ‘normal’ supply chain model, materials are produced, used, and then discarded, which is wasteful and damaging to the environment. Concerns about these supply chain practices have led to increased interest in circular supply chains, systems designed to minimise waste and maximise resource reuse throughout the product life cycle.
Electrification comes with its own environmental burdens. Mining the raw materials required, like cobalt, lithium, and manganese, can have a significant environmental impact. Circular supply chains offer a path forward by recovering and reusing valuable resources from used batteries and components, leading to a smaller environmental footprint.
While implementing a circular supply chain may have higher initial costs due to new processes and infrastructure, these can be offset by reduced reliance on virgin materials, avoiding price fluctuations of materials, lower logistics costs due to localization, and, in some cases, government incentives like tax breaks.
Growing electrification demands a circular approach
As circular supply chains gain traction in the industrial and commercial equipment sectors, they present some unique challenges. One hurdle is catering to the varied life cycles of different product generations within the same equipment category. Weak regulations and different practices across regions also add complexity. Despite these challenges, the potential benefits for resource security and sustainability are undeniable.
As electrification grows, so does the need for circularity. But how should companies scale their circular supply chains? I was honoured to be part of a recent panel discussion on this topic, and one of my fellow panellists was Tom Nguyen, Vice President of Business Development and Product Strategy at Inventus Power. In his opinion, “It has to be design heritage. Although implementing new processes takes time, it will have a rolling impact and eventually become ingrained in your company culture.”
Adopting a regional approach
Building circular supply chains isn’t one-size-fits-all. Original Equipment Manufacturers (OEMs) may have different definitions of circularity depending on their markets. According to another fellow panellist, Zhao Wang, Strategy and Business Development at TE Connectivity, “It’s valuable to understand what circularity means to our customers. We can translate their requirements into technical aspects of our product design, ultimately embedding the concept of circularity.”
Understanding regional variations allows manufacturers to design solutions that meet their customers’ needs, follow local regulations, make products easier to recycle, and utilise recycled materials available in the region.
The widespread adoption of electrification presents some challenges in the UK and Europe. The level of progress and regulations around electrification vary greatly across regions. This lack of consistency can make collaboration across the supply chain difficult. Additionally, navigating the availability and suitability of recycled materials across Europe can be challenging.
Education can overcome initial resistance to the adoption of circular supply chains. Government initiatives, campaigns by non-profits, and even company marketing strategies can raise awareness about circularity and its benefits. Governments can also incentivise circular practices. For example, financial incentives or tax breaks can make or break a company’s decision to adopt circular practices.
Using the carrot, not the stick
While regulatory mandates are undeniably driving companies to adopt circular supply chains, they can be a double-edged sword. An overemphasis on compliance can lead to short-sighted approaches. Successful circularity requires upfront planning and collaboration across the entire supply chain. The European Union’s well-crafted battery directives serve as a prime example of how regulations can drive meaningful and sustainable change.
Once a company has decided to implement a circular supply chain, focusing on key strategies can help them do so effectively.
Designing products with the principles of ‘reduce, reuse, recycle’ in mind minimises waste. Prioritising component and material reuse lowers reliance on raw materials. Developing robust component tracking systems further supports this goal. By having access to a component’s usage history, manufacturers can determine suitability for second-life applications.
Technology such as Manufacturing Resource Planning (MRP) systems can be adapted to manage the complexities of circular supply chains. Real-time data from Internet of Things (IoT) sensors and AI analysis can further improve component tracking and optimise the recycling process itself.
Building a clean, circular supply chain starts with open communication between all stakeholders. By agreeing on standardised methods for measuring and reporting recyclability and emissions, progress towards ESG goals can be tracked, and areas that need improvement can be identified.
Standardisation gives a baseline to measure suppliers against to ensure they are compliant with regulations and ESG goals. Companies can leverage third-party platforms to track each component and supplier, enabling them to provide their customers with a snapshot of compliance for each finished product.
Good communication within the supply chain also allows stakeholders to learn from each other. Sharing best practices and new ideas fuels innovation, accelerating progress towards a more sustainable future.
The future of industrial and commercial equipment sector electrification hinges on embracing circular supply chains. While challenges exist, like managing different product lifecycles and navigating weak regulations, the benefits are undeniable.
OEMs who prioritise designing for circularity from the start, collaborate across the supply chain, and adapt to regional variations will be best positioned to thrive. By focusing on component reuse, leveraging technology for tracking and optimisation, and working towards standardised measurement practices, circular supply chains can become a true force for environmental sustainability.
The road ahead requires long-term commitment and innovation, but the rewards – a secure resource future and a cleaner planet – are well worth the effort.
