The Circular Economy: How To Implement A Sustainable Supply Chain

The Importance of Sustainable Supply Chains

Increasing regulation and growing consumer consciousness are just some of the factors ensuring that, more than ever, businesses must assume responsibility for their impact on the planet and society.

According to a recent Capgemini report, the proportion of top executives who feel there is a strong business case for sustainability tripled between 2022 and 2023. The same report found that the majority of executives planned to increase investment in sustainability over the next 18 months.

As companies endeavor to reduce their negative impact, supply chain—the mechanism by which organizations get their products into consumers’ hands—becomes increasingly fundamental to this transition.

What is a Sustainable Supply Chain?

A sustainable supply chain refers to a process whereby every part of a product’s life cycle is accounted for: from procurement of raw materials to the point where the product must be repaired, reused, or recycled.

Also referred to as ‘closed loop supply chains’, they contribute to the establishment of a circular economy—a system of consumption based on products and materials that can be reused for as long as possible.

Why are Sustainable Supply Chains Important?

Historically, there have been companies focused on operating within a sustainable business model which have taken steps to implement closed loop supply chains.

Outdoor clothing brand Patagonia, for example, began measuring and publishing the environmental impact of its clothing products back in the 1990s. The company also has a reverse distribution system allowing customers to return their products at end of life. However, companies like Patagonia have typically been the exception, rather than the rule.

However, heightened awareness of sustainability issues among businesses and consumers alike is bringing about change—even at an industry level.

Palm oil, a resource that from the 1990s onwards became integral in the production of a whole host of products ranging from lipstick to baby soap, developed a controversial image during the 2000s for industry practices that were detrimental to the environment, particularly deforestation.

However, since the industry came under scrutiny, palm oil firms have made efforts to change their ways. While the industry remains far from perfect, over the last decade palm oil deforestation has largely declined year-on-year, hitting record lows in 2021.

Another factor that’s helping drive a change in practices is the increasing move towards ESG (environmental, social, governance) regulation. Across the globe, there have been more than 1,200 new ESG regulations introduced since 2011.

Compliance within this ever-increasing regulatory landscape means that making supply chains more sustainable—closing the loop—is therefore a key focus within business, particularly among larger companies, which face more public scrutiny.

How Can Businesses Make Their Supply Chains More Sustainable?

Developing a sustainable supply chain is a large focus within teaching of supply chain management on the ASB MBA program. For Dr Asad Ata, associate professor of Operations and Supply Chain Management at ASB, it starts with tracing the very beginnings of a product.

“Traceability is the core factor to even begin having a sustainable supply chain,” he explains.

He recommends those in charge of implementing supply chain changes start by focusing on the source materials—asking who the producers are and what practices they use. Understanding how a product’s life cycle begins can provide the framework to then map out the entire chain. Depending on the length of the chain, this mapping process can be laborious requiring significant time and multiple team members.

Once complete, the next stage is to enact positive changes within the various stages of the product life cycle.

“This almost always requires you to change the incentives in the system,” explains Dr Phadnis. “You have to change the incentive to change the behavior.”

For example, this could be through relaxing the specifications on materials to reduce waste, or providing longer time windows for suppliers to maximize efficiency. At the early stages of the process, educating stakeholders on sustainability may also be necessary.

Encouraging all stakeholders within the supply chain to take responsibility, and implementing a process allowing this to be traced and held accountable, is fundamental in successfully developing a sustainable supply chain.

How Can Business Schools Help the Transition to a Circular Economy?

With sustainability in supply chain proving fundamental in achieving a circular economy, business leaders of today must understand how to close the loop. For this reason, the subject is taught within core and elective modules on the ASB MBA program.

However, theory is not necessarily enough to allow graduates to successfully navigate the problems that an organization may face when trying to implement supply chain changes, explains Dr Phadnis.

“For us at Asia School of Business, this matters a lot. We focus on these skills and not only do we teach them, we also talk about action learning. Our students actually work with companies and get to experience these issues first-hand. So when they go into the workplace, they are trained on the job.”

When working with stakeholders and attempting to implement changes, business school graduates benefit from the soft skills they have developed such as communication and negotiation, as well as the responsible mindset they develop throughout the experience.

This mindset shift places graduates in a strong position to not only lead but also bring

SDGs, Targets, and Indicators

1. SDG 12: Responsible Consumption and Production

   • Target 12.2: By 2030, achieve the sustainable management and efficient use of natural resources.
   • Indicator: Proportion of domestic material consumption, including imports, that is sustainable sourced.

2. SDG 13: Climate Action

   • Target 13.3: Improve education, awareness-raising, and human and institutional capacity on climate change mitigation, adaptation, impact reduction, and early warning.
   • Indicator: Number of countries that have communicated the strengthening of institutional, systemic, and individual capacity-building to implement adaptation, mitigation, and technology transfer.

3. SDG 15: Life on Land

   • Target 15.2: By 2020, promote the implementation of sustainable management of all types of forests, halt deforestation, restore degraded forests, and substantially increase afforestation and reforestation globally.
   • Indicator: Proportion of important sites for terrestrial and freshwater biodiversity that are covered by protected areas.

Explanation

1. SDG 12: Responsible Consumption and Production

   The article discusses the importance of sustainable supply chains in transitioning to a green economy. It highlights the need for businesses to assume responsibility for their impact on the planet and society. This aligns with SDG 12, which aims to ensure sustainable consumption and production patterns.

   The specific target mentioned in the article is Target 12.2, which focuses on achieving the sustainable management and efficient use of natural resources. The article emphasizes the need for closed-loop supply chains, which contribute to the establishment of a circular economy—a system of consumption based on products and materials that can be reused for as long as possible.

   The indicator mentioned in the article is the proportion of domestic material consumption, including imports, that is sustainably sourced. This indicator measures the extent to which businesses are using sustainable materials in their supply chains.

2. SDG 13: Climate Action

   The article mentions the increasing move towards ESG (environmental, social, governance) regulation, which includes initiatives to address climate change. This aligns with SDG 13, which focuses on taking urgent action to combat climate change and its impacts.

   The specific target mentioned in the article is Target 13.3, which emphasizes the importance of improving education, awareness-raising, and capacity-building on climate change mitigation and adaptation. The article highlights the need for businesses to understand and implement sustainable supply chain practices to reduce their negative impact on the environment.

   The indicator mentioned in the article is the number of countries that have communicated the strengthening of institutional, systemic, and individual capacity-building to implement climate change adaptation and mitigation. This indicator measures the progress in building capacity to address climate change at various levels.

3. SDG 15: Life on Land

   The article mentions the efforts made by palm oil firms to change their practices and reduce deforestation. This aligns with SDG 15, which focuses on protecting, restoring, and promoting sustainable use of terrestrial ecosystems, sustainably managing forests, combating desertification, and halting biodiversity loss.

   The specific target mentioned in the article is Target 15.2, which aims to promote the implementation of sustainable forest management and halt deforestation. The article highlights the decline in palm oil deforestation over the last decade as an example of progress towards this target.

   The indicator mentioned in the article is the proportion of important sites for terrestrial and freshwater biodiversity that are covered by protected areas. This indicator measures the extent to which biodiversity-rich areas are being protected and managed sustainably.

Table: SDGs, Targets, and Indicators

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Source: businessbecause.com

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