‘The entire planet stands to benefit from the circular economy,’ SAP expert says
Under increasing public scrutiny, companies large and small are experimenting with strategies for building a circular economy, one that focuses on regenerative activities that reuse materials as much as possible to eliminate the waste stream.
“Consumer expectations, regulations and market demands are putting pressure on business executives to step up their sustainability game,” said Scott Russell, executive board member, customer success at Walldorf, Germany-based enterprise application software company SAP. “The logistics and distribution systems across the supply chain are obvious places to implement new standards.”
FreightWaves interviewed Russell to get a better understanding of what it takes to transition to a circular economy.
The interview has been edited for clarity and length.
FREIGHTWAVES: What is your background and knowledge of circular economies?
RUSSELL: “One of my biggest priorities is helping customers build more resilient and sustainable supply chains by factoring circularity into product design, manufacturing and logistics processes.
“The success of the circular economy model depends on three core elements: First, products must be designed to be future-proof, which includes the use of renewable, reusable and nontoxic resources. Second, it requires a shift in mindset. Waste is a resource; it must be recovered for reuse and recycling, which in turn requires the right infrastructure. Finally, these new business models require digital technology that can track, monitor and analyze relevant data across the entire process.”
FREIGHTWAVES: What market signals have set the shift toward a circular economy in motion?
RUSSELL: “Sustainability is now a business imperative. We’ve found that consumers, investors, regulators and employees are increasingly demanding more responsible products and services with circularity principles in mind.
“Increased regulation has played a key role in circular economy practices. Extended producer responsibility laws help ensure that the manufacturer of a product is responsible for its ultimate recycling, reuse or disposal.
“There has also been a surge in plastic taxes, which impose a charge on companies using materials that do not contain a certain amount of recyclable content.”
FREIGHTWAVES: How are companies responding to this idea?
RUSSELL: “Manufacturers used to design products based on cost and performance, but going forward, they will focus on sustainability and recyclability, new regulatory environments, and new technologies. Companies have continued to release new products that allow manufacturers across sectors to reap the rewards of a circular economy as well.
“One company we’ve seen do this well is Schneider Electric. Their energy and automation technologies have enabled customers to avoid 302 million tons of carbon dioxide emissions since 2018.
“One way the company achieves this goal is by offering an end-of-life take-back service that recycles, reclaims or destroys the sulfur hexafluoride gas contained in customers’ electrical equipment.
“In addition, rental, repair and resale models have made headway in the retail industry. For example, SAP customer Ikea has launched several resale pilots in the last few years. And Lizee, a recommerce software company, is on a mission to ‘transform the retail industry from linear to circular’ by helping retailers move from selling to renting and reselling.”
FREIGHTWAVES: What sectors are embracing circular design the most right now?
RUSSELL: “Packaging is a big one. It’s frustrating to manufacturers, retailers and consumers and causes untold environmental damage. However, the good news is that circular business principles are being applied in this space to ensure packaging is designed with reuse and recycling in mind.
“A company I’ve seen do this well is LimeLoop, which offers retailers everything they need, including reusable packaging, reverse logistics, visibility and analytics. They’ve helped divert more than 1 million single-use packages from landfills.
“Manufacturers, transportation and logistics are industries adopting circular economy principles. In manufacturing, we’ve seen more companies building new business models in which they make goods once and customers reuse them.
“They’re also developing alternatives to purchasing raw materials by reclaiming valuable materials from complex products, a practice that is particularly common with electronics. In some cases, recovering and reusing resources can be more cost-effective, as well as more environmentally sound, than extracting raw materials.”
FREIGHTWAVES: How do circular practices impact costs and logistics?
RUSSELL: “Traditionally, supply chains have been linear and unidirectional, but this is being disrupted with reverse logistics and circular supply chains.
“Circular supply chains allow organizations to reclaim as much as possible and realize the value from end-of-life products. This can help reduce costs and get meaningful value in extracting recyclable components from products.
“On the flip side, reverse logistics poses some challenges as they most often come in the form of customer returns. Estimates show that the global amount of e-commerce returns will exceed $1 trillion over the coming decade. Transporting returned inventory creates more than 15 million metric tons of carbon dioxide in the U.S. alone.”
FREIGHTWAVES: What are some of the benefits and challenges of a circular economy?
RUSSELL: “The entire planet stands to benefit from the circular economy. Every human being, enterprise, plant and creature will benefit from an economic system that generates less waste and pollution, keeps products and materials in use longer, and regenerates natural ecosystems.
“While there is huge potential, it doesn’t come without its challenges, including:
- “Regulation. Large producers may face challenges because it is difficult to adhere to different regulations on products in different regions.
- “Complex legacy systems. As manufacturers go through their digital transformation, complex supply chains, heavy assets and legacy technologies can hold them back from adopting circular economy practices.
- “Overall management. Overseeing the life cycles of thousands of products and materials across hundreds of regulatory systems globally is arguably one of the biggest challenges brands will face.
“While this will certainly come with challenges, putting these practices in place will be beneficial long term.”
FREIGHTWAVES: What advice do you have for companies considering going circular?
RUSSELL: “Think about every aspect of the business. Having a left-to-right view of the vision and strategy all the way down to the value proposition to the customer will enable companies to more effectively make this move to circular business.
“Leaders looking to embrace a circular business model should consider:
- “Leveraging digital technology to improve and authenticate circularity. The ability to monitor the identity, location and condition of individual components and products is improving thanks to increasingly digitized supply chains.
- “Investing in circular initiatives. Demonstrate the value this will bring long term to the business.
- “Spreading the responsibility for making materials more sustainable throughout the organization, from purchasing to design to manufacturing.
“Transitioning to circular practices brings great social and economic opportunity. As the pressure to become more sustainable ramps up, delivery and logistics are obvious paths to implement green measures.
“These will go far in creating a competitive edge as companies spend less money on delivery by using less energy and other resources, get better return on their investments, such as truck fleets, and identify better ways to deliver.”