Circular supply chains can be costly


30-06-2021
a circle of plastic bottles on a green background

Circular supply chains are more sustainable, but they will be rare unless consumers compromise on cost, says a Harvard Business Review article by Christoph Loch and Khaled Soufani of Cambridge Judge Business School.

There are very few circular supply chains because circularity, or re-use, requires parts that are common (or “standard”) enough to be of use locally without having to be shipped all over the world. But existing supply chains are built on principles of centralisation (to achieve volume and economies of scale) and specialised parts that maximise short-term product cost and functionality, so these two principles make a circular model prohibitively expensive, says a new article in Harvard Business Review by Professor Christoph Loch and Dr Khaled Soufani of Cambridge Judge Business School.

In the UK, for example, only 9% of plastics are recycled, and overall recycling has stagnated at 45% since 2017 as much material is incinerated to the concern of environmentalists.

Despite increased interest in circular supply chains, which are more sustainable, there are very few functioning examples of circular supply chains where locality of re-use and “generality” of the materials and parts come together (as is the case for aluminium cans, for example, and for some special product categories), the article says.

In contrast, many products “tend to involve many specialised parts and highly dispersed operations in order to optimise a performance cost trade-off,” it says. Because of this, circular supply chains will remain rare unless consumers are willing to compromise a bit on performance and cost in order to get sustainability (and perhaps in the long run, new technological progress that may be opened up by these new routes).

“Because most supply chains have optimised for these goals, adopting circular business models is in many cases hard to achieve in the immediate future,” says the article, which is entitled “Circular supply chains are more sustainable. Why are they so rare?”

Professor Christoph Loch is Dean of Cambridge Judge Business School; Dr Khaled Soufani is Faculty (Professor level) in Management Practice, Director of the Executive MBA programme and Director of the Circular Economy Centre at Cambridge Judge.

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