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Circular economy inevitable, explains AMHSA

What does the rise of the circular economy mean for the supply chain? Dave Berridge, secretary of the Automated Material Handling Systems Association (AMHSA), takes a look.

The presence of 17-year-old campaigner, Greta Thunberg, at the World Economic Forum in Davos earlier this year underlined the importance of climate change on the global agenda. All around us we see signs of change: from reusable coffee cups and bars of shampoo to the resurgence of doorstep deliveries of milk in glass bottles. Consumers, shareholders and governments are beginning to embrace sustainability – and organisations are under increasing pressure to reduce the amount of waste they produce. We are witnessing the change from a traditional, linear economy to a circular one – and logistics executives need to wake up to the fact that the supply chain will play a key role in this process. 

What exactly do we mean by the term circular economy? It’s an environment in which business models encourage continuous reuse of materials to minimise both waste and the demand for additional natural resources. For the supply chain, this means a shift away from the linear pattern of the past, which began with raw material firms supplying items to a factory, which shipped finished goods to a distribution centre for delivery to customers, who used them and eventually disposed of them. In a circular supply chain, the beginning and end of the chain are connected by processes such as returns and recycling. The research firm, Gartner, predicts that the circular economy will be the only economy by 2029. 

Regulation

Retailers are reacting to consumer pressure for sustainability – especially concerning single-use packaging waste – and the market is providing an incentive for them: research by management consulting firm, McKinsey, found that over 70% of consumers across multiple sectors would pay an extra 5% for a green product, if it offered the same performance. In addition to consumer demand, retailers and FMCG companies are under pressure from government regulation, such as the EU Packaging Directive and the UK Landfill Directive.  

Recent examples of moves toward sustainability include Tesco’s pledge to remove one billion pieces of plastic from products in its UK stores by the end of this year and John Lewis’ piloting of eight green initiatives in its Oxford store. 

Digitalisation

Some progress on sustainability has been achieved through digitalisation – such as gains from the sharing economy (through brands such as AirBnB, Uber and Rent the Runway) and from content subscription services (such as Netflix and Spotify). Digitalisation also holds the key to further progress, by enabling co-ordination of all the elements of a circular supply chain in real time. By integrating AI and machine learning, a supply chain becomes perceptive and agile.  

Returns

Innovative companies are now developing product-to-service concepts that feature returnable packaging. One example is Loop, a shopping platform designed to eliminate single-use packaging. This is a consortium of leading brand owners (including Procter & Gamble, Nestlé and Coca-Cola) with logistics provider, UPS, and recycling company, TerraCycle. Currently available only in the Northeast of the United States and the Paris area, Loop offers home delivery – within its own long-life tote – of household products that feature reusable packaging. After use, Loop picks up the empties for return, cleaning, refilling and redelivery. The operation is being scaled up across the US – with a tie-up with Walgreens and Kroger allowing in-store pick-up and drop-off soon – with plans to start the service in other countries, including the UK. This is effectively an evolution of the container deposit schemes that are popular on the Continent to encourage the return and reuse of glass bottles. AMHSA members have been involved in a number of projects in Europe to automate the identification, sorting, cleaning and handling of beverage bottles, so there is potential for increased demand for logistics automation in any such closed-loop projects in the future. 

Visibility

It is clear that implementing circular supply chains is neither easy nor without significant investment in new infrastructure. When adapting packaging to meet sustainability goals, it must be remembered that packaging not only preserves the condition of the goods and presents them in an aesthetically optimal way, but it also has an important role in facilitating their stacking, storage and transport. How should companies meet the challenge of the trend towards the circular economy? The first step is to gain a clear understanding of their suppliers’ operations in order to monitor and manage the supply chain. Visibility is key, with information being made available to customers and partners.  

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