- Around 33% of executives expect their industry to be disrupted by circular start-ups that reintegrate products or materials into the supply chain.
- Companies and leaders need to understand the challenges of implementing circularity at scale and design their own models.
- The traceability of goods and materials is crucial for the success of this circularity strategy.
Circularity – finding ways to get products, components and materials back into the supply chain rather than dumping them after their first use – has become a strategic business imperative. It is an increasingly important strategic differentiator for senior executives and a critical demand from customers, consumers and regulators. Those who choose not to pursue circularity do so to their long-term strategic detriment, but it is proving difficult to make the circular transition and find models that work successfully at scale.
According to a 2021 survey by Bain & Company, approximately 33% of executives expect their industry to be disrupted by start-ups that have placed circularity at the center of their business model and 50% of executives expect that circularity will become the “new normal” for all businesses over the next decade. A circular business model is not a trend but strategically essential. It will require new ways of thinking, the ability to build new partnerships across your value chain and with your competitors, and the propensity to adapt and scale existing operations and build new supply chains to enable circular business models.
Companies engage in circularity in a variety of ways. They are piloting different programs focused on sourcing recycled materials, manufacturing with less waste, and implementing “second life” approaches for products they have already produced. Most are focused on incrementally improving their existing supply chains rather than building a new business model. They have high expectations of what they expect to achieve and are driven by environmental sustainability, short-term financial returns and improved operational performance. Although the journey has begun, 46% of the initiatives featured in the survey are still in their early stages and success has proven difficult: half of survey respondents report low financial value of the initiatives they have launched.
Why has success been so elusive? The circular business model requires a fundamental shift in the way a business operates, including changes to its business model and shifting to new profit pools; new operations and supply chains create new steps in the process (goods retrieval is consistently listed as a new step to manage) and there is a high burden of proof for the sustainability and financial benefits of this change . The concept of circularity is met with near universal approval, but the operational reality of its implementation is a hurdle that must be overcome and is consistently listed by leaders as the biggest impediment to its success.
To build a traceability strategy that enables circularity, companies must consider five key factors: understanding market dynamics; establish business objectives; prioritize data and select technology; select and develop partnerships; and test, learn, and scale.
A successful example is CaaStle, which allows retailers to offer “clothing as a service” (CaaS) as an alternative to buying clothes. They partner with companies such as Express to offer clothing rentals as an alternative to outright ownership. CaaStle's traceability offerings include product tracking and reverse logistics allowing companies to retrieve their garments after rental. CaaStle started out using fabric stickers and markers, moved to barcoding, and now uses washable RFID (radio frequency identification) stickers to track garments. This RFID technology enables the most important elements of traceability – permanence, readability and speed – allowing CaaStle to track the journey of each item. CaaStle provides a strong value proposition to retailers, allowing them to acquire additional customers and achieve higher profitability.
Implementing circular business models brings many benefits: according to the survey, more than 80% of those who have piloted or scaled circularity initiatives say they would do so again. While operational hurdles should not be taken lightly, traceability can be an essential element in enabling successful circularity initiatives.
Demand for increased circularity will continue to grow; Companies can better position themselves by identifying the circular business model they want to implement (taking a retrospective approach) and taking small steps now (linked to tangible short-term results) to build capacity circularity and traceability. Companies must act to test, learn and evolve rapidly to build momentum for future supply chains.
Work from the World Economic Forum's "Accelerating Sustainable Production Through Digital Traceability" initiative will explore how best companies can choose circular business models to achieve their goals and begin implementing change in their organizations. Join us on this journey.
Note : Figures are based on data from Bain & Company's 2021 Circularity Survey. Total N of 191. Some questions are based on responses from a relevant subset of respondents
Josh Hinkel , Senior Partner, Bain & Company
Francisco Betti , Head of Shaping the Future of Advanced Manufacturing & Value Chains; ExCom Member, World Economic Forum
Ian Cronin , Community Curator, Shaping the Future of Advanced Manufacturing and Value Chains, World Economic Forum
Anne Hirvonen , Project Officer, Shaping the Future of Advanced Manufacturing and Value Chains, World Economic Forum
- World Economic Forum - World Economic Forum.