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What Is a Circular Supply Chain?

Mark Jackley | Content Strategist | Nov 9, 2023

In 2019, American explorer Victor Vescovo dove to the depths of the Mariana Trench, the lowest point in any ocean. He returned with an incredible find: a plastic bag that had sunk all the way down, proof that nowhere on Earth was safe from human-made waste.

Every day, millions of marine animals—sea turtles, fish, birds, and mammals such as dolphins—die from swallowing plastic mistaken for food. Other types of waste take their own tolls on ecosystems. Oil spills can begin on land and extend to rivers and seas. Sewage sludge from activities such as mining and manufacturing often contains high amounts of phosphorus and nitrogen, causing algae to overgrow ponds and suffocate fish.

Under pressure from consumers, activists, and government regulators, manufacturers are striving to reduce waste and protect fragile ecosystems. Circular supply chains play a key role.

What Is a Circular Supply Chain?

A circular supply chain is one that uses materials and goods as long as possible, instead of letting them go immediately to waste. In a circular supply chain, manufacturers reuse raw materials such as plastic, metal, cardboard, paper, steel, and glass. They refurbish and resell previously owned goods. They and their retailers rent products instead of selling them. And they choose recycled pallets and other green storage and packaging solutions. As in all supply chains, materials and finished goods make their way from suppliers to manufacturers, retailers, and consumers.

For example, cell phone makers reclaim old phones containing copper, gold, and tungsten and use the metals to produce new phones. Beverage makers or their container suppliers recycle plastic bottles and metal cans. And sometimes companies refurbish or repair products instead of recycling them.

How Circular Supply Chains diagram
Used materials and products flow back to manufacturers for recycling and reuse instead of going to waste.

Linear vs. Circular Supply Chains

Circular supply chains form a kind of loop, returning used materials and goods to manufacturers.

Linear supply chains, on the other hand, proceed in a straight line from suppliers to manufacturers, distributors, retailers, and consumers. In these conventional models, consumers dispose of packaging and products instead of recycling them. Waste ends up in landfills—where it can take decades or longer to decompose, sometimes releasing harmful emissions—or pollutes fields, streams, and other habitats.

Key Takeaways

  • In circular supply chains, materials are recycled, not immediately disposed of, reducing human-made waste in landfills and natural habitats.
  • The main benefits of circular supply chains are environmental, though experts point to business benefits, such as reduced spending on new raw materials and the preservation of rare earth metals and other precious materials.
  • Circular supply chains are a step in the right direction, but companies alone can’t shoulder the burden of recycling. They must work with governments, consumers, and other stakeholders to safeguard the environment.

Circular Supply Chains Explained

In a circular supply chain, manufacturers think green every step of the way. They use recyclable materials when designing products and packaging. They ensure that products are easy to disassemble and return for repair. They collaborate with stakeholders—retailers, local governments, and green nonprofit groups—to educate consumers on proper waste disposal, making it easier to collect and recycle various materials.

PepsiCo, for example, sponsors a Recycle Rally program in K-12 schools, in which students compete to recycle the most cans and bottles, winning prizes such as gift cards and Pepsi merchandise. Companies also encourage customers to return used products, either in stores or by mail, for refurbishing and resale.

7 Rs of circular supply chains diagram
In a circular supply chain, manufacturers use recyclable materials in packaging, ensure that products are easy to return for repair, and help educate consumers on proper waste disposal.

Eco-conscious consumers and government regulators are the driving forces behind circular supply chains. For example, the EU requires all member countries to recycle 50% of their packaging waste. California now requires that plastic bottles be made of 15% recycled materials—a standard that will increase to 25% in 2030. A 2021 survey by manufacturing and service holding company SG Group showed that 72% of Americans are likely to favor products whose packaging is easily recycled or reused.

Circular Economy

A circular economy is much bigger than one supply chain. It’s a national economy based on circular practices such as recycling, reuse, and waste reduction.

In such an economy, the government can play a leading role, providing incentives and assistance to companies that follow circular practices while imposing financial penalties on those that don’t. In the UK, for example, companies that violate pollution regulations pay fines; the government removed a limit of £250,000 on these fines in 2023, making higher charges permissible. In most EU nations, public sector spending accounts for more than 50% of the GDP, giving governments more leverage to set economic rules. Local governments take a similar carrot-and-stick approach with consumers. In Spain, for example, people who don’t follow prescribed recycling methods are fined from €90 to €250.

Still, it’s not easy to build a circular supply chain or economy. In addition to the compliance of companies and consumers, it also requires the cooperation of manufacturers and their hundreds or thousands of suppliers, all of whom need guidance and assistance to meet changing standards. The Netherlands, for example, has one of the world’s most ambitious plans to run a circular economy—yet even if all goes well, it won’t be 100% waste-free until 2050.

The Importance of Circular Supply Chains

Circular supply chains harm the environment less than older models. They’re a systematic way for companies to collect and recycle materials, which keeps the materials in use longer instead of piling up in landfills or degrading natural habitats. They encourage companies to use green materials in product design, team with suppliers to source such materials affordably, and work with consumers to recycle products and packaging. Even in the US and other countries where the economy is mostly linear, a single reshaped supply chain is a step in the right direction.

Circular Supply Chain Benefits

Besides safeguarding the environment, circular supply chains offer business benefits:

  • Lower costs: Through recycling programs, manufacturers can lower costs by spending less on new materials, including some that are in high demand and subject to large price fluctuations—for instance, lithium mined for use in electric car batteries.
  • Supply chain resilience: Recycling can also help manufacturers withstand supply disruptions.
  • Increased sales: Skeptics note that manufacturers absorb higher costs when they collect, transport, and reprocess waste. But even nonbelievers concede that circular methods help manufacturers win eco-conscious customers—witness the loyalty outdoors brand Patagonia enjoys.
  • Improved employee relations: Circular supply chain methods also win plaudits from environmentally conscious employees and shareholders who closely examine a company’s environmental, social, and governance performance.

Circular Supply Chain Strategies

To create a circular supply chain, manufacturers must rethink each aspect of their operations—including product design, material sourcing, and tracking goods in transit—to produce less waste. The following strategies can help.

1. Design for circularity

Design products that are easy to recycle and repair. Dutch company Ahrend designs modular office furniture that’s simple to disassemble and fix. They call their offerings “furniture as a service,” whereby they rent desks, chairs, and conference tables, all of which customers can return when they no longer need the furniture.

2. Reuse and refurbish

Reuse products and refurbish them for resale. To help Britain’s National Health Service reduce the cost of replacing run-down ambulances, DLL Group, another Dutch company, recommended salvaging the rear boxes—the spaces in the back where patients travel—and mounting them on new chassis along with new engines. This retrofitting can extend an ambulance’s life between five and seven years.

3. Recycle materials

As much as possible, use recycled materials when making new products. Roshambo Eyewear, a US company that manufactures in Italy, produces their lines of children’s eyeglasses in this way (exactly which materials they use is a trade secret). In 2022, they reported manufacturing more than 30,000 pairs of glasses using recycled materials, reusing more than 750 pounds of waste, and they aim to make 100% of their products with recycled materials in the coming years.

4. Minimize waste

Create less waste by using recycled materials or designing products consumers can safely dispose of. New York–based Ecovative Design uses mushroom roots and plant parts to make packaging that decomposes safely and is just as sturdy as synthetic packaging. A growing number of Fortune 500 companies now use it.

5. Focus on transparency

Be clear with the public about your circular practices, including which suppliers you use and the materials they furnish. For example, Levi Strauss publishes a map of their primary and secondary suppliers (those that supply their suppliers).

6. Collaborate with suppliers

Work closely with suppliers to source recyclable materials. For example, Google teamed with suppliers to use recycled plastic in their Nest smart home devices. Google materials scientists, design engineers, and top-tier suppliers developed a custom plastic using recycled materials. The company visited plastic makers’ sites, held technical discussions, and audited their recycling process to ensure materials met Google’s quality requirements. Google Product Design Manager Adi Narayanan called it “a great example of how we can partner across our value chain to drive real change.”

7. Use technologies that enhance recycling and reuse

Coca-Cola uses blockchain, the digital ledger technology, to record the work of local residents collecting waste in certain African communities. The goal is to learn if waste (cans, bottles, and other packaging) has already been recycled or reused, which helps the company report more clearly on business sustainability programs. Grocery chains are another example. They use Internet of Things (IoT) technologies to monitor the condition of perishables in transit, ensuring they don’t spoil and thus cutting down on waste.

8. Educate consumers

Most consumers know the importance of environmental sustainability, but many are still confused about what and how to recycle. Working with groups such as the nonprofit How2Recycle is one way for companies to educate their customers. Supported by a coalition of brands that includes Beyond Meat, Lowe’s, and Wendy’s, How2Recycle created simple visual instructions making it easier for consumers to know what to recycle and how.

Circular Supply Chain Examples

Companies large and small are adopting circular supply chains.

  • Nike’s Reuse-A-Shoe program encourages customers to bring old sneakers to local Nike sellers. Nike sorts the shoes and determines what can be recycled and what can be cleaned, donated, and reused by someone else. The program accepts any brand of athletic shoes, not just Nike.
  • Patagonia’s Worn Wear program lets customers trade in or buy used clothing, footwear, and outdoors equipment. The company is transparent about their green failures, such as their failed attempt to recycle the polyester in stretchy garments, as well as their successes.
  • Renault has long blazed trails in circular manufacturing. Back in 1949, the French automaker started selling used vehicle parts at discounts of up to 50% off the retail price, extending the same warranties and guarantees as for new parts. Now they’re running a plant they call the Refactory, where cars and trucks are refurbished and some are converted to electric vehicles.
  • First Solar, a solar power technology company, converts mining by-products into eco-efficient solar modules that use less energy and water. They design their modules with recycling in mind, recovering more than 90% of their module materials.

Improve Sustainability with Supply Chain Management Software

Oracle Fusion Cloud Supply Chain & Manufacturing (SCM) offers comprehensive support for circular supply chains. Key applications include Oracle Fusion Cloud Product Lifecycle Management, which lets companies build recycling and reuse into product design; Oracle Fusion Cloud Intelligent Track and Trace, which is built on blockchain technology to keep tabs on recyclable materials and supplier compliance; and Oracle Fusion Cloud Product Hub, which serves as a centralized record of products, materials, and sourcing.

Circular Supply Chain FAQs

What is a closed loop supply chain?
“Closed loop” is another way to describe a circular supply chain. It refers to the loop materials and products make as companies collect them for recycling, refurbishing, and repair. No matter what you call it, a circular approach aims to recycle more and waste less.

What is a circular economy?
A circular economy is one in which the government sets rules for making and reusing products. In such economies, most forms of waste—whether clothing, scrap metal, or old electronics—come back through the supply chain to be reused. Circular economies apply the principles of circularity to systems much larger than a single supply chain.

What is the circular supply model?
The circular supply model is the theory that supply chains should recycle materials, refurbish products, and reduce waste. While no one person pioneered it, Swiss researchers Walter R. Stahel and Genevieve Reday-Mulvey popularized the model in the 1970s.

How do you create a circular supply chain?
Although there are many ways to create one, three strategies are key. One, design for circularity. Use recycled materials and ensure that products are easy to repair or refurbish. Two, collaborate with suppliers. Get their input on sourcing or developing sustainable materials. Three, leverage technology. Use blockchain to track and trace products moving through the supply chain and use IoT solutions to evaluate returns, send usable products to inventory, and cut down on waste.

Are circular supply chains the future?
It depends on whom you ask. Advocates point to the growing number of laws that require manufacturers to recycle and reuse, as well as consumer demands for products that are sustainably sourced, manufactured, and distributed. Critics argue that circular methods have few business benefits, noting in particular the high cost of collecting, transporting, and reprocessing waste. Although the concept of circularity has been around for decades, its practical applications are in their infancy. Nurturing them will require innovation and commitment.

Deliver bottom-line results faster with a supply chain command center

Supply chains are now at the core of any business decision. With increasing supply and demand variability, supply chain leaders need to make big decisions faster than ever before. To stay competitive, you need to quickly detect, decide, and execute on any business condition.