Turning to Circular Economy Strategies for End-of-Life Products
Raw-material availability has been one of the challenges of the coronavirus (COVID-19) pandemic, making circular economy strategies as a resilience measure more likely in the future, according to new research from Gartner.
More than half (51 percent) of the 528 supply chain professionals that the Stamford, Connecticut-based research consultancy surveyed in May and June said they expected an increased focus on circular economy strategies in the next two years and that it will be driven in part by a desire to improve raw-material security from end-of-life products. Another driver: product-as-a-service (PaaS) models will likely become more popular as consumers may be less likely to make big purchases, survey respondents said.
“The COVID-19 pandemic has shown that the strengths of globalized supply chains can become a weakness when raw material availability and access plummet during a crisis,” Sarah Watt, senior director analyst with the Gartner supply chain practice, said in a press release. “For CSCOs, the circular economy is a great opportunity to improve raw material resilience and decouple material consumption from financial growth.”
However, Gartner’s Supply Chain Executive Report: Close the Loop to Create Future-Fit Raw Material Strategies report states that organizations face four challenges to accessing and reprocessing end-of-life products. They are:
Ownership of end-of-life materials. Because organizations typically lose control of products and raw materials when they are sold, they must regain access from the consumer at the end of their life. Leasing and subscription models, favored by many, enable automatic return of the product.
“Organizations must engage with customers in new ways to gain access to end-of-life materials,” said Watt, who wrote the report. “Many supply chains rely on new business models or incentives; however, 35 percent rely on customer goodwill.”
Quantity of materials. Because it can be difficult to economically collect and centralize the location of end-of-life products, many organizations turn to collaboration with waste providers, raw material suppliers and reverse logistics providers to gain access to material.
Value of raw materials. The value of an end-of-life product can impact whether a company chooses to process it — those with less residual value are less likely to be processed, Gartner says. Most organizations base the decision on economics and risk, despite differences in environmental impact.
It can be advantageous to reclaim end-of-life materials with low residual value because they, as Watt noted, “can act as a hedge against price volatility and increase an organization’s raw-material security. Customer sentiment towards certain forms of materials such as single-use plastics has also changed, presenting a reputational risk, which has been a catalyst for action.”
Product complexity. It’s harder and more expensive to reprocess a complex product. And one easier method to overcome complexity — recycling to reclaim primary materials — can lead to loss of value. Refurbishment can be a good alternative: It reduces environment impact and allows the organization to achieve a quick second sale, Gartner says. Only a quarter (24 percent) of survey respondents reported that their organizations are involved in refurbishment activities.
“Product design is crucial to end-of-life management. Poorly designed products with toxic materials can be incredibly difficult and costly to process and put back into the market,” Watt said.