How retailers can leverage technology to create a more circular supply chain

    By Elena Bergmann, Associate Consultant, BJSS

    Elena Bergmann

    Covid-19 has caused consumers to review their purchasing behaviours and priorities. As a result, the retail industry is experiencing heightened market expectations towards more sustainable practices. However, the sustainable strategies currently in place are acting as a band-aid. They don’t necessarily address the root cause of the problem.

    To achieve long-term results and a truly sustainable business model, retailers should consider the circular economy model. This system replaces the traditional take-make-waste approach with a model that keeps materials in use, cuts down waste, and prioritises regenerating the natural ecosystem.

    Adopting a circular model requires retailers to fundamentally rethink two aspects of the business - their products and supply chains. When moving towards the circular economy, companies need to ensure this investment is closely linked to their digital strategy. Looking at the two aspects in separation would be a missed opportunity as technology can support the creation of a more circular supply chain.

    In this article, I outline the main thinking behind the circular economy model and explore two technologies, which enable the move towards more circular practices. Digital supply chain twins and the Internet of Things (IoT) can be crucial supporters in achieving a companies’ sustainability goals.

    Circular Economy

    Sustainability efforts only have a real impact if they are treating the cause of the problem. Recycling is great, but what if there was no waste to be recycled in the first place? The circular economy model completely redesigns how businesses operate to minimise waste in any form and refeed resources into the loop.

    Key solutions of how to accomplish this goal are:

    •   Pay for service business models
    •   Self-containment and local consumption
    •   Shortening supply chains
    •   Capping consumption based on capacity limits.

    An example of a company taking its first steps in the circular economy is H&M who is encouraging its customers to bring back old fabrics to its stores in exchange for a discount. Then there is Adidas, who is producing sneakers out of recycled ocean plastic.

    Other companies are completely changing the way they interact with customers by not selling products anymore. Instead, they sell services. One example is Phillips, who is now offering light-as-a-service instead of selling light bulbs. The same rental concept works for buying a certain number of washes instead of a washing machine or renting headphones instead of purchasing them.

    Each of these solutions is closely linked to an efficient supply chain, underlining the importance of supply chain management (SCM) in the context of circularity. Over the past years, supply chain setups have become increasingly complex and fragile. To achieve circularity, companies need to convert from a linear supply model to a complex ecosystem with many dependencies and feedback loops, including end-of-life solutions. To successfully manage such a complex ecosystem, advanced technology is required.

    supply chain technologies to support circularity

    Technology can help retailers navigate these new ecosystems, reduce risk, and increase revenue opportunities. Leveraging technology also frees up time and resources which companies can use to focus on sustainable product design and customer education.

    Digital Supply Chain twins (DSCT) is one of the first technology solutions companies should consider in more circular business practices. A Digital Supply Chain twin is a digital representation of the physical supply chain. DSCTs are increasingly used to get a better understanding of the ever-changing dynamics of a given system. They can either be used on a micro level to gain insights into a particular subsystem or asset to improve model efficiency and design. Alternatively, DSCTs can visualise entire 3D models of warehouses, networks, and logistics hubs on a macro level. Such models provide an expansive view of the current state and interaction of systems, which may streamline sustainable efficiencies.

    Overall, Digital Supply Chain Twins can help retailers test strategies and thus, reduce risk in important decisions. It provides rich data insights for leaders to move towards a more sustainable operating model with confidence. Importantly, DSCTs are attainable with comparably modest technology, opening it up to many companies and use cases.

    Closely connected to DSCTs is the Internet of Things (IoT). This technology enables a new level of transparency along the supply chain that can bring both increased operational efficiency and reduced costs. It does so by monitoring the condition of assets within the supply chain through smart sensors. Furthermore, IoT enables retailers to keep track of environmental conditions and the state of their products. The technology also provides the precise location of assets.

    These improved data insights are an essential step in navigating a complex ecosystem of materials and allow for optimisation every step of the way. When a product reaches its end of life (EoL), IoT enables companies to design a more efficient Reverse Supply Chain.

    The EV market is an interesting use case for circularity in EoL management. Batteries are usually used for roughly ten years in an electric vehicle before they no longer meet safety standards. However, at this point, batteries still hold around 70% of their original capacity. Instead of being disposed of or recycled, the circular model repurposes these batteries in a new context. Companies like Renault started using old EV batteries for stationary storage where they can be of economic value for many more years.

    In summary, Digital Supply Chain Twin technology coupled with IoT and machine learning enables organisations to better predict when, where, and how the replaceability of a given product might be necessary. Retailers can track assets, optimise efficiencies, and reduce costs while transforming their linear supply chain into a more circular model.

    the time for change is now

    Whether cross-industry collaboration, alternative material sourcing, or innovative pay-per-use models – the circular economy comes in many different forms. While the adoption of circular models is still low, it seems to be the only truly sustainable solution looking into the future.

    Covid-19 forced retailers to adapt their business models to changing market demands quickly. Overnight, eCommerce skyrocketed, and click-and-collect models were set up. It proved that fundamental changes are possible with the help of the right technologies. For the first time, retailers should build on these digital advancements, adopt the most appropriate technologies, and migrate towards a more circular future.

    If you want to learn how to harness this and other digital innovations to keep pace with the competition, download our free white paper, Retail E-Commerce: Driving Sustainable Growth Through Innovation. It contains advice and insight based on BJSS' experience building bespoke software solutions for leading retailers in North America, Europe and Australia. 

    Driving sustainable growth white paper