In this article, we will look at why you, as a business leader, board member or Supply Chain professional should build a Circular Supply Chain. There are many challenges in building a circular Supply Chain. We will start by looking at why it is important to embark on this journey. We will look at it from a risk and innovation perspective but we will also look at, why it is so difficult for so many companies to get started. Throughout the article you can expect to get tips and tricks to embark on the Circular Supply Chain journey yourself. 

Continued dependence on scarce resources is a serious business risk
The growth model favored by economies, and indeed most companies for the last 250 years, is based on the availability of plentiful and inexpensive natural resources. It is living on borrowed time and, so are companies that rely on it. Since the industrial revolution, waste has constantly grown. This is because our economies have used a “take-make-consume and dispose” pattern of growth – a linear model, which assumes that resources are abundant, available and cheap to dispose of.

A circular economy is taking into consideration, that valuable materials are leaking from our economies. In a world, where demand and competition for finite and sometimes scarce resources will continue to increase, and pressure on resources is causing greater environmental degradation and fragility, we can benefit economically and environmentally from making better use of those resources.

For businesses, and their top executives responsible for setting the direction of their firms, this leads to one inescapable conclusion: Continued dependence on scarce natural resources for growth exposes a company’s tangible and intangible value to serious risks. Due to:

  • Revenue reduction: Supply uncertainties and changing consumer preferences could prevent companies from generating revenues and maintaining market share. For instance, companies that depend heavily on scarce resources might have to shut down production at times and be unable to deliver demanded volumes.

     

  • Cost increase: Companies whose growth is tightly tied to scarce resources, will find themselves at a competitive disadvantage. This is due to rising and volatile prices, that reduce their ability to forecast and compete with less resource intensive competitors.

     

  • Intangible assets: A company’s environmental footprint and resource dependence could erode brand value, as consumers shun companies with unsustainable business practices. And, as planetary bottlenecks and resource scarcity become more critical, policymakers likely will favor companies that can prove they have positive societal impact and can operate without depleting the country’s natural resources.

The Circular Supply Chain is expected tow grow
Looking back to January 2020, when the pandemic started, concerns began to emerge in relation to importing components or goods from certain geographies. Since then, stress on global supply chains has increased month by month, culminating in some supply chains actually collapsing. The more complex the Supply Chain, the more prone it becomes to vulnerability. This has caused a domino effect with respect to production and how goods are produced and the agility to change production. 

Furthermore, the unpredictability of the opening and closing of borders and government policy changing on a weekly (if not daily) basis, has forced numerous enterprises to rethink their Supply Chains with respect to how international they wish such Supply Chains to be. How much control, or lack of, do manufacturers, for example, wish to have over critical components or materials? 

In a linear economy where the fragility of Supply Chains has been exposed by the COVID-19 pandemic, manufacturers and suppliers are being forced to rethink their entire business models and consequently switch to circular models. The more unpredictable and indeed costly materials have become, due to global Supply Chain disruption, the greater the focus has been upon innovative solutions to keep materials in use, to prolong their lifespan, to upcycle etc. 

The pandemic has also illustrated that, when necessary, production processes can be much more agile that once thought. The necessity for economic survival resulting from global Supply Chain unpredictability has further fuelled an unforeseen circular economy transition that is expected to grow in 2021. Let’s have a look at what a Circular Supply chain is all about.

Adopting a circular Supply Chain requires a new mindset
In a circular economy, growth is decoupled from the use of scarce resources through disruptive technology and business models based on longevity, renewability, reuse, repair, upgrade, refurbishment, capacity sharing and dematerialization. Companies should no longer focus mainly on driving more volume and squeezing out costs through greater efficiency in Supply Chains, factories and organizations.

What should then be done?

Businesses should concentrate on rethinking products and services from the bottom up, to future proof their operations to prepare for inevitable resource constraints. They must build systems where products are recirculated and supports a circular production and material flow. The Supply Chain has to support the business in creating a more circular customer journey and circular products. Companies should stop producing specialized parts. Also they should stop trimming the production from a performance vs. cost tradeoff.

Why?  Seen from a design perspective it is important to create “part commonality” and easy disassembling. So get as few parts as possible, but also use local sourcing. It is important to create a space, where the costs of reusing are low and the rawmaterials used are available both faster and cheaper.

What if companies do not change? The challenge for many companies is, that they have chosen a business strategy where they optimize the performance by creating specialized parts that has an added functionality. They have created economies of scale by creating big, centralized production units which share costs and who delivers to a larger geographical area. The challenge for many companies is, that it can become quite expensive to create this “new logic”. 

The “new logic” means, that these companies should stop using large production facilities. They must also stop using specialized parts so it becomes easier to recycle. New technologies such as 3D printing will definitely support the change. Also already exisiting, and well proven technologies, such as Supply Chain Design can help break down the complexity. It can also support in making the right decisions.

Collaboration across the ecosystem is key
Collaboration across the ecosystem is also key to enable a circular transformation. The Supply Chain has to facilitate that supply partnerships emerge from a pure cost orientation, towards a strong focus on joint collaboration and innovations. Who else? Supply chains are getting more complex every day in terms of the number of involved partners and the quality and degree of interdependency between them. One of the predictions in relation to the integration of a Circular Supply Chain is, that complexity will increase.

We must also remember, that businesses have to operate in a globalized world where the volatility of markets, the speed of technological progress and the pace of change, in the economic and business environments, will continue to rise rapidly. As a result product life cycles are getting shorter and market demands become more and more unpredictable.

Collaboration with all types of partners, and their willingness and ability to share their knowledge, will be crucial and key to a successful development and integration of circular thinking.  The risk to miss an important trend and the threat of being commoditized, has become the substantial risk of every company. This provides a great opportunity for Supply Chain to take on the lead on circular innovation.

In many companies it is typically a challenge to include suppliers in the front end of the innovation process. Procurement teams are often disconnected from the functions they serve and the markets they engage with. They are not fluent in the nuances of the business and hence lack experience and authority. Also in many companies, procurement is used to “innovation” being an internal capability and are hence not used to working together with external partners on delivering innovation.

Key questions to ask: How can Procurement or Supply Chain advance the collaboration with suppliers on circular thinking in an effective way? How can Procurement ensure that the suppliers are willing and able to share their knowledge? For Procurement and the Supply Chain to be successful in these innovation oriented supply partnerships, it requires new models for relationship building and collaboration. It also requires that the involved parties integrate across the whole organization.

Checkout Optilon’s oferings when it comes to Supply Chain sustainability.

The mind creates our behavior. Our behavior shapes the people we lead. And the people we lead create the culture in our organization and hence determine its performance. If one wishes to increase the total performance, it is important to show care for people as a part of the business strategy. Thus, the people one has employed will feel an interconnection, a meaning and a feeling of happiness.

The initiatives of companies with regards to increasing commitment and productivity was traditionally oriented towards external ways of satisfaction, such as bonusses, trips, dinners etc. These are short-term solutions that only work for limited amounts of time. The efficacy is often decreased. It does not create motivation. If we, as Supply Chain leaders, intend to develop organizations that prosper, we need to understand what really matters for people. Employees that return home daily, with a sense of satisfaction, will want to return and perform – focus on the challenges, and work determinedly and hard.

Delve into the culture

First and foremost, you must, as a leader, be a role model and impel the correct behavior. Cultures shape organizations. Cultures are not inherently visible, but they are powerful. The culture is created, maintained and expressed through the many different mindsets, that comprise any and every organization.

The culture is embedded as feelings, values and principles, and these are all unconscious. We cannot see them, and most of the time, we have no idea that we’re affected by them. This means that we all partake in the creation of a culture, that we are a part of, but often using unconscious values and behavioral patterns.

As Supply Chain leaders, the responsibility of shaping the organization’s culture rests on our shoulders, due to human brains being programmed to see and respect hierarchies. The human brain is designed to understand where we fit in, within social structures, and to support those who seem dominant.

Focus on the health of the company

Human-oriented organizations put people first, since it is the people that make the company successful. This is why the companies, and by virtue of this, also the board of directors, should focus on the health of the company instead of the wealth of the shareholders. Only by doing this, one can recover the trust of the employees, and thereby attain a long-term, sustainable performance.

If we lead with the purpose of helping people create an immanent feeling of happiness, meaning, interconnectedness and contribution regarding their job, they will go home every day with a feeling of satisfaction. If we, as Supply Chain leaders, create an environment where the employees feel genuine care for their well-being, where we actually are present, they will become more motivated, more enthusiastic, and more cooperative team members.

The establishing of more human-oriented cultures is the most logical answer to the current organizational crisis, entailing decreasing commitment of employees and the widespread, negative occupational satisfaction.

The corona pandemic affects all aspects of society. The labour market is one of the areas that has been hit the hardest. Following the corona crisis nations are looking for new job opportunities. Counterfeiting is part of the problem – and the solution. It’s the cause of tens of thousands of jobs being lost every year in the Nordic countries. Simultaneously, e-commerce, which is the most important channel for counterfeit goods, has taken the piracy industry to new heights during the corona pandemic. A powerful strike against the industry could recreate tens of thousands of jobs in the Nordic countries alone.

A Global Mega Industry

The counterfeiting industry is a global mega industry that only continues to grow, and it actually grows more rapidly than the rest of the economy. The estimated market value varies from 500 billion USD (OECD) to an incredible 1.8 trillion USD (Research and Markets). The first figure is around three percent of all global trade. In Europe, the market share is nearly seven percent (OECD) of all trade on the continent.

Counterfeit products range from cosmetics to industry components. Each year, the turnover for counterfeit Swedish products exceeds 28 billion SEK. That’s a loss of 17 billion for Swedish companies (PRV). On the Swedish market, sports shoes are the most common counterfeit product. In total, the Swedish shoe and clothing industry loses 6 billion SEK due to pirating (SvD). But pirating extends to all areas and industries. Today, one of five spare parts for cars and more than every second bottle of perfume sold in Sweden is counterfeit.

Recently, pirated corona tests and vaccines have reached the global market, a fact that might have devastating consequences (FDA – 2020). The Swedish vaccine coordinator, Richard Bergström, has expressed great concern that Sweden too will be subjected to fake corona products. It’s a matter of life and death, in other words.

Counterfeit Products are a Problem in the Nordics

The Nordic countries are particularly affected by the counterfeiting industry. Each year, tens of thousands of jobs are lost as a result of counterfeit products. In Sweden alone, at least 7 100 jobs are lost each year as a result of the counterfeiting industry (PRV). Jobs that, today, are needed more than ever before, as the economy is in dire need of a boost.

The competitiveness of Swedish businesses is reduced, and the loss of tax income can be counted in billions. For the Swedish government, the loss of tax income reached 7.5 billion SEK in 2016. Counterfeiting is a real and urgent problem for Sweden’s and the Nordic’s ability to compete globally, one that must be addressed and opposed, with force and efficiency, today.

The Conscious Consumer

Parallel to the advance of counterfeiting, an opposing trend grows increasingly strong. Consumer behaviour and preferences are shifting for good. It doesn’t matter if we’re talking about millennials or generation Z, there’s a clear trend that more consumers are driven by purpose and value, rather than financial aspects. The conscious consumer is already here, and their market share is growing rapidly. To attract this group a company must be able to prove that their goods are produced, transported and recycled sustainably, both socially and environmentally. The only way to approach this is to be able to prove that the value chain is unbroken – from raw material to the final product. If we can do that, we also make life difficult for those who produce counterfeits.

Multiple Measures are Needed

The broad extent of the counterfeiting industry makes it difficult to stop. All too many have something to gain from it, but in the long run even more people are losing because of it. There is no miracle solution to the problem. Instead, a series of actions are required, and the supply chain plays a crucial role in them.

1. Start with Yourself

The first and simplest action is to start with yourself. Don’t buy counterfeit products! According to the report ”Assuring that ’Made in Sweden’ is always made in Sweden” (”Säkerställande av att ’Made in Sweden’ alltid är det”), about half of the counterfeit products bought were bought by consumers who believed the product to be genuine. The other half were bought consciously. Be sure to be careful when you’re shopping from new marketplaces, and always question the authenticity of the product.

2. Create a Digital Twin

Create conditions to ensure an unbroken chain from raw material to delivered product in the long run. The key is to create a digital twin of the physical product, which can then be tracked in a secure manner. Blockchain technology can be used here, combined with a unique identifier (tag) such as an RFID, NFC or QR code.

A tag can be a part of the product or its packaging, and be scanned in the final step. By combining this with a blockchain solution the brand owner is able to gradually integrate their production both upstream and downstream, consequently increasing integrity and transparency of the supply chain. This creates new possibilities including better handling of guarantees, repair history, a more secure second-hand market, and extended product information.

And that’s not all. These data points also make it possible to identify defects in the supply chain, and more accurate information about incoming deliveries. If machine learning is applied even more insights can be reached. This gives businesses a vastly improved ability to approach the conscious consumer and their demands. Companies can kill two birds with one stone – make it more difficult for the those who pirate products, and secure demand of their products for the future.

3. Extend Collaborations and Raise Demands

To extend collaborations with suppliers and subcontractors, check their work, and educate them on the subject are all important actions to take. Raise the requirements you make toward them, and follow up on suppliers and transporters. A chain is never stronger than its weakest link, and this is exceptionally true in this case.

4. Team up with Your Customers

Your customers can make for a valuable ally to reduce the sales of pirated products and all the costs and negative consequences they entail. Offering web-based tools to prove the authenticity is one option. Build a clear organization and process to help customers report suspected breaches in a simple way, and make sure that you follow up on the reports. Team up with your customers and their customers, in a joint effort to combat counterfeit products.

5. Support SACG and other Similar Organizations

In the autumn of 2020, SACG (Swedish Anti-Counterfeit Group) worked vigorously with the new EU regulations within the Digital Services Act (DSA) – regulations that are central to all online sales in Europe. In a letter to the government, SACG appealed to “the need for stricter requirements to ensure that digital platforms are more active in preventing the sales of illegal products” (SACG).

To support various organizations like SACG as a business contributes to putting anti-counterfeiting on the agenda. Also ensure that your company reports any suspicion of crime to the police.

More Important than Ever to Address Counterfeiting

Counterfeit products reach far beyond fake sports shoes and perfume bottles. Today, it even affects something as crucial as corona vaccines. The counterfeiting industry is costing Swedish businesses billions of kronor every year. It results in significant loss of tax income. And it is the reason for the loss of tens of thousands of jobs in the Nordic countries on an annual basis. A powerful anti-counterfeiting reaction is needed, from multiple directions, now. By looking up, enhancing the debate and being observant to the dangers and losses, we might be able to see the possibilities the fight can bring with it. Counterfeiting is one of the greatest economic crimes of our time. To tackle the problem for real would mean great rewards, especially in times like these.

Network design and planning teams are often faced with the difficult task of meeting strategic cost reduction, sustainability and customer satisfaction targets whilst at the same time maintaining an operationally sound and effective product distribution network.

In this session we will look in to how statistical and Machine Learning-based solutions can strike the balance between cost, CO2 emissions and distance reduction. This to continuously produce optimum routing alternatives.   

Watch webinar here

I remember being a fresh student, 17 years old at my High school’s newly introduced cooperation with a global German company with its Nordic headquarters in my birth town just north of Stockholm. It was a unique chance to study subjects once a week that were set to plant the seed for us students to pursuit a career within the technology field, and perhaps one day, an employment at this specific company. One of the courses that made an impression was the Project Management course. The first day we learned that a Project Manager is responsible for everything in a project. He or she could never blame downwards on the team members. Essentially, he or she was not just the accountable, but also in a way responsible for the work of each team member. Now coming from this type of doctrine, which I did not reflect upon very much at the time, and given that it was a German company, it is very different from what we are used to in Nordic originated companies.

During some of my first employments after finishing university, I got to experience this difference right from the start. In comparison to what I had previously been taught at the German company, many project managers seemed to be less authoritative and often had a very consensus-based leadership style. Although intuitively it might seem like a negative feature, this leadership style is not always bad. From my own point of view, I felt that the responsibility for being creative and taking initiatives was shared with all project team members, including the Project Manager. This created one of the pros. The biggest con on the other hand, was that sometimes this shared responsibility could create a vacuum in responsibility as there was a lack of understanding of what was expected from each team member. In some projects it felt like I together with my team members were driving, planning, executing, and overseeing the project, even though none of us at the time were the Project Manager. We had become both responsible for the work that was to be executed, as well as accountable for the outcome of the project. Something that would never have been accepted in the German company.

So that brings a question: how can we fully use the power of a consensus-based leadership style with its pros, without having to deal with the cons?

A few years back, to improve Optilon’s delivery model, we nailed down the culprit of the matter. We discovered it was the lack of guidelines describing what the responsibilities of each team member (including Project Manager and Account Manager) really was. The answer to the above question became the following: Define a Responsibility map. A responsibility map clearly states who is responsible for what, regardless of project or role in the team. To aid every project team we created a template of the responsibility map to be used as a standard tool in each delivery.

To make things clearer, we also decided to introduce the word Accountability into this template as a complement to the word Responsible. Since both Accountable and Responsible translates to the same word “Ansvar” in Swedish, the importance of accountability risked being left out.

The result: we combined the best things from two worlds. We now have a hybrid by combining the way of the German company and the Nordic consensus-based way. Now each project has a clearly defined picture of the responsibilities and accountabilities of each project member. Not all team members will have accountability, but in larger projects some will. Although never directly to the client, but to the Project Manager who in turn has it to the client. This means that team members will never have to find themselves acting as an interim or substitute Project Manager, and in instances of project uncertainties it will all travel in one direction – up-streams to the Project Manager.

We can see that this approach has helped us streamline our projects to be more consistent in planning and execution. This assures a higher success rate when helping our clients with all their different Supply Chain endeavors.

At Optilon we believe, that the next generation of Supply Chain competitive advantages will come from Artificial Intelligence (AI). We believe that it is necessary to have a platform that automates and empowers organizations to embrace the AI journey on their own. Optilons AI solutions are designed to solve existing Supply Chain challenges without the need for deep experience or knowledge of AI. Therefore, we have collated this Supply Chain AI Kit to get companies started on their AI journey.

Getting started with the journey
Many companies are still struggling to get the journey started. To get you off for a good start you might want to have a look at the whitepaper we created on AI. You should read the whitepaper if you would like a general understanding of what AI is, how it could benefit your business and how it can be implemented in your Supply Chain.
You can download the whitepaper right here: Turn your Supply Chain into a competitive advantage with AI (whitepaper).

From a business perspective we have in this blogpost highlighted why Supply Chain AI improves competitiveness (blog)

If you want a quick introduction to how to get the journey started then read this blogpost – 5 steps to get started with AI in the Supply Chain (blog)

We have also recorded a session – how to get started with AI in the Supply Chain (webinar) 

Explore your Supply Chain data with AI
If you want to explore more of your data, and you are still uncertain about what kind of business value you would be able to create, then you can find some inspiration in the following webinars.

How can you drive out more value of your data with AI

Utilizing AI to drive insights

Deep Dives – more detailed cases
We have a group of Nordic companies who have already embarked on the journey and with whom we have gathered some experience. We have started sharing that experience and cases in a series of “Deep Dive” webinars.

In this session we explored how companies can get a higher customer satisfaction by using AI to monitor supplier reliability:

Watch here

All things supply chain.

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