Prevailing definitions of sustainability have evolved with growing awareness of the delicate interplay between the environment, human health and welfare, and economics. Product sustainability is now being viewed in the context of creating a circular economy — a sustainable system that eliminates waste, reduces pollution and ensures the continuity of resources.

In a circular economy, products are redesigned, reused, refurbished, repaired and recycled to reduce the use of virgin materials. They’re kept in use longer, and supply streams benefit from the remanufacturing of existing resources.

Today, only 8.6% of the world economy is circular, and more than 90% of the resources extracted and consumed don’t return to production cycles, according to the Circularity Gap Report. But three major trends have emerged in the past few years that are driving new interest in circularity: changing consumer expectations, global supply chain disruptions and growing environmental concerns.

Consumer Expectations

Consumers are making more deliberate choices. Shoppers today want access to deeper product information, such as where a product was sourced, how the product can be recycled and other insights into its lifecycle. Sustainability is increasingly becoming a factor in consumer purchase decisions.

As a result, circularity continues to emerge. The recent, wildly successful IPOs of second-hand e-commerce platforms Poshmark and ThredUp provide a case in point. Resale is growing 25 times faster than the retail market and is projected to double the size of “fast fashion” by 2030, according to Greenbiz.com, and some of the world’s most popular retailers and brands are investing heavily in resale markets, pilots, projects or partnerships to address consumers’ growing interest.

Circular opportunities for fast-moving consumer goods could amount to $700 billion in material savings each year, according to the Ellen MacArthur Foundation. Additionally, 85% of consumers surveyed in a recent study said they had shifted toward being more sustainable in the past five years, and that “sustainability will continue to become the expectation, rather than the exception.” Their report concludes, “Sustainability is not merely a question of a company’s ability to improve or expand its product range. Very soon, it might be a deciding factor for a company’s financial survival, as consumers increasingly ‘vote with their wallets.’”

Supply Chain Disruptions

Traditional supply chains aren’t optimized for unpredictable markets, and the past few years have significantly strained the global supply of goods. Pandemic-related disruptions — including fluctuating product demand, manufacturing shutdowns, port congestion, interrupted distribution channels and labor shortages — all contributed to widespread material shortages that persist even now. 

That’s partly because existing supply chains were built to serve a linear economy, which basically assumes a constant supply of natural resources. The result is a “take-make-waste” consumption model based on the extraction of resources, production of goods and services, and disposal of waste. Not only is it bad for the environment, but it also jeopardizes the supply of materials, raising prices and increasing demand that can’t be met.  

A circular supply chain can help mitigate scarcity through reuse and other waste-reducing practices.

Environmental Awareness

The dire environmental effects of human consumption are in the news every day, as scientists release new metrics on climate change and wildlife endangerment. As a result, people are becoming more conscious of their personal responsibility in the ecosystem. Additionally, some states and municipalities have passed new regulations aimed at reducing consumer waste, further reminding consumers to be more mindful. Eight states — California, Connecticut, Delaware, Hawaii, Maine, New York, Oregon and Vermont — have banned single-use plastic bags, and Rhode Island recently joined many other locales in banning plastic straws. Momentum has been building for similar measures to reduce the impact of a wasteful society on the natural environment.

On top of that, consumers have experienced scarcity of certain products, and are finally beginning to understand that ecosystems are fragile and resources limited. The linear supply-chain paradigm exacerbates material shortages and depletes natural resources. Circularity, by contrast, creates opportunities to minimize waste and preserve those resources through product reuse and recycling. Hence, many believe its time has come.

Why Data Standards Are Essential

Circularity necessitates the rethinking of production, distribution and consumption. It requires collaboration and information exchange between all supply chain partners and stakeholders in a product’s lifecycle, potentially including raw material sources, processors, manufacturers, distributors, retailers, resellers, refurbishers, recyclers and others. This can’t be achieved with closed-loop systems.

Modeling and implementing a truly circular economy will require a huge quantity of data using a standardized structure to share information in a common data language (using common semantics, ontologies and taxonomies). This is the only way to obtain the level of efficiency needed to make a circular system work. Also, because the data will be handled by machines (including artificial intelligence), trading partners will need interoperable IT systems using this common language, so that systems can communicate.  Three standards are crucial to sharing pertinent information and enabling a circular economy:

• Product identification. Standardized product identification allows all stakeholders to refer consistently and unambiguously to a single product across the supply chain and throughout the product’s lifecycle. Every product can be uniquely identified with a GS1 Global Trade Item Number (GTIN), the numeric sequence that uniquely identifies a product and is encoded in barcodes. The GTIN and other product attributes (e.g., expiration date, lot/batch number, etc.) can be included in a barcode on the product or package to enable product transparency and traceability. Product movement through the supply chain is recorded by scanning the product’s barcode to capture its GTIN at each stop along its journey. The GTIN is also used to connect a physical product with its digital record.
• Location identification. A Global Location Number (GLN) denotes the specific facility or location where the product is scanned, even down to a specific production line. This enables real-time visibility into a product’s journey throughout the supply chain.
• Chain of custody. GSI’s Electronic Product Code Information Services (EPCIS) standard enables trading partners with disparate applications to create and share event data both within and across enterprises. This information sharing is aimed at providing visibility into the physical movement and status of products as they travel throughout the supply chain. It helps answer the “what, where, when and why” questions to meet consumer and regulatory demands for accurate and detailed product information. It’s ideal for establishing an effective chain of custody and proving the provenance of raw material sources for the food, textiles and construction sectors, among many others. EPCIS is used by companies across the world to track everything from the origin and freshness of foods to the safety of pharmaceuticals.

Taken together, changes in consumer expectations, rampant supply-chain disruptions and growing alarm about the future of our planet are creating keen interest in circularity.

Transitioning to a truly circular economy will take time, but momentum is building and some companies are already prioritizing circularity business plans. Data standards will be foundational for system-wide collaboration to consistently recover used products and turn them into new ones. The standards already exist, however, and are widely used in retail, healthcare, food, textile and other industries to enable unique product identification, transparency and traceability. 

Ultimately, circular supply chains will transform the “take, make, waste” model into one that’s far better equipped to weather unpredictability, identify and mitigate disruptions as they occur, and make product distribution more resilient — as well as helping assure continuity of product availability and preserving natural resources to benefit society and protect the planet.

Melanie Nuce is senior vice president of innovation and partnerships at GS1 US.

Read more of SupplyChainBrain's 2022 Supply Chain ESG Guide here.