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Supply chain implications and challenges for new business models within the Circular Economy

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Presentation slides in Euroma Sustainability Forum 2017
Abstract: The Circular Economy concept drives innovative practices and business models targeting sustainable economic growth while increasing resource efficiency. In supply chain management literature, sustainability has been framed frequently with economic performance as main goal rather than sustainability. Our research aims at bringing together supply chain research and industrial cases inspired on circular economy. Our selected industrial cases are companies performing new ways of creating value from previously wasted materials. Our results indicate that there are significant challenges in the structure and processes of today’s supply chains. Yet, there are ways to overcome these, including close collaboration within the supply chain.

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Supply chain implications and challenges for new business models within the Circular Economy

  1. 1. VTT TECHNICAL RESEARCH CENTRE OF FINLAND LTD Supply chain implications and challenges for new business models within the Circular Economy Outi Kettunen and Anna Aminoff VTT Technical Research Center of Finland Maria Holgado University of Cambridge Euroma Sustainability Forum 2017
  2. 2. 216/08/2017 2 Our research aims at bringing together supply chain research and industrial cases inspired on circular economy. Our research question is: What are the supply chain impacts of new circular business models focusing on creating value from waste? What?
  3. 3. 316/08/2017 3 Why? As we move forward, we need to spend more time studying the presently small number of supply chains that are trying new things that do not fit expected patterns. In addition, we have to be open to studying small organizations, start-ups, various types of nonprofit and social purpose organizations and businesses because these under-studied organizations could be sources of inspiration for how to do things differently. Research in these spaces could help identify what the business models of truly sustainable supply chains might look like. A novel way to look at waste is to recognize waste management as a recovery of resources. This approach turns waste management to resource value management.
  4. 4. 416/08/2017 4 The Circular Economy, SCM and business models  The CE can be defined as a regenerative system in which resource input and waste, emission, and energy leakage are minimised by slowing, closing, and narrowing material and energy loops. This can be achieved through long-lasting design, maintenance, repair, reuse, remanufacturing, refurbishing, and recycling.  CE implications to supply chains and the research needs:  Research related to reverse loops is growing, but is still in a much more immature state than forward SCM.  Research on sustainable supply chains mainly studies existing unsustainable supply chains to determine what they are doing to become less unsustainable.  SSC research is also mostly conducted from the perspective of a focal firm and overlooks other members of the chain.  CE implications to BM’s: New actors are emerging, e.g. “scavengers” and “decomposers”. Scavengers collect the waste resources within companies or in other points of the chain and redistribute them into the system to reuse or recycle. Decomposers transform or recycle waste resources into new materials.
  5. 5. 5 Our conceptual Framework Strategic values Circular economy Supply chain management Structure Supply chain partner selection Supply chain partner development Collaboration management Information technology management Logistics management Risk management Processes Manu- facturing Distri- bution Retail Customer Return and disposal Recovery and pro- cessing The framework is built on supply chain management frameworks (Soni and Kodali, 2013; Carter et al., 2015) and sustainable supply chain categories and practices (Beske and Seuring, 2014).
  6. 6. 616/08/2017 6 Case research design Company pseudonym Alpha Beta Field Construction and waste management. Cross industry: battery waste separation technologies, waste processing, production of fertilizers for cultivation. Business model Construction waste treatment and production of paving stones out of secondary raw material. Used alkaline battery treatment, processing certain parts of the waste into a liquid fertilizer and selling the fertilizer. Later on also selling the processing technology. The current phase in executing the business model: Implementation. Increasing volumes can create SCM challenges for e.g. transport equipment. Development and set up Interviewees’ profiles Managing director Quality manager Head of production, Head of R&D, Head of Sales, Chairman of board, Logistics manager Managing director Chairman of the board No of interviews 2 2 Interviews length 1-2 hours 1-2 hours
  7. 7. 716/08/2017 7 SCM challenges in business models focusing in creating value out of waste. Implementing new CE business models and turning them into profitable businesses poses risks for the company and sets challenges to the SCM.  Structure:  Partners and stakeholders are required to adapt to the new models to create win-win situations.  Logistics management: New CE business models are without a reference system. The stakeholders have to be ready to learn new ways of operating, and new partners and actors might be needed.  There are various spots in the supply chain that do not support the CE business models, e.g. storage possibilities of waste and secondary raw material.  Risk management: investing into logistics, in addition to investing into product development, technology and manufacturing facilities, without certainty of consumer acceptance and volumes, contains high risks for an SME or a start-up.  Processes:  High volumes and low value of transported material, variation in the input material flow as well as seasonal variation both in supply and demand.  Regulatory issues for temporary storing of waste.  Tracking and tracing for origin and condition of the waste material, storage and transportation conditions of waste material, processed secondary raw material and the final products.  Distribution logistics is challenging due to e.g. multi channels and seasonal variation.
  8. 8. 816/08/2017 8 Overcoming SCM challenges of business models creating value out of waste  Strategic and tactical level:  Environmental issues are clearly visible in strategy.  Owning a little as possible.  Pursuit to make the supply chains lean, as it is possible when building them from scratch.  Structure level  Both companies utilize local suppliers and partners when possible. Waste is processed close to the origin and close to the production of the final product.  Aiming for long lasting partnerships and mutual trust, and acquiring also key knowledge through partnerships. Close cooperation with key partners is important to ensure pull instead of a push mode. In future the case companies see collaboration even with competitors necessary in order to improve efficiency. Competitors could share e.g. warehousing space and truck capacity.  Digitalisation could be better utilized in SCM, e.g. ordering the transportation; telling the transport companies when there is free capacity to receive waste without queuing; tracking materials along the chain e.g. for waste origin and conditions.  Logistics challenges are addressed also by keeping several roles in the supply chain for the focal company itself, at least in the set up and implementation phases of the CE business models.
  9. 9. 916/08/2017 9 Conclusions  This paper contributes to SSC literature by exploring industrial cases built on CE concepts by the lenses of SCM.  We apply our framework to industrial cases built on novel circular business models focusing on creating value from waste. Both cases represent innovative small organizations with strong sustainability strategy, and are new actors in supply chains, “scavengers” and “decomposers”.  Tight integration, regular information sharing, local partners, collaboration, coordination and trust among supply chain partners are required.  There are significant challenges in the structure and processes of today’s supply chains. The stakeholders need to be willing to learn new ways of operating. CE business models set new requirements for logistics infrastructure and regulation. There is a need to use digitalization in the supply chain.
  10. 10. Thank you!
  11. 11. 1116/08/2017 Circular economy in a nutshell A circular economy is an industrial system that is restorative or regenerative by intention and design (EMF, 2013; Lieder and Rashid 2016)

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