The circular supply chain is a business model aiming to extend the life of products and materials through reuse, repurposing and/or recycling. Until recently, most supply chains have projected linear patterns from production to consumption. This pattern is starting to change in a big way as more consumers and businesses begin to resell and redistribute preowned products in response to increasing demand for sustainability. 

This trend is especially popular among the younger generations who favor products with sustainably sourced materials and are willing to pay extra for them. A second driver of a circular supply chain is the economy of scale needed to recirculate preowned products, used parts or residual materials. The latter is especially important because businesses often find it difficult to recover enough quantity to sustain reprocessing; or it is too costly to do so. In both cases, product tracking and tracing plays a foundational role when designing a circular supply chain model.

Here’s a to-do list to jumpstart your sustainability strategy and business model.

Define unique product ID requirements. Many consumer goods often “disappear” after the point of sale with little traceability. This is because no attempt is being made to track such products after sale. In a linear lifecycle, a preowned product is likely to become disposable after some period of usage. In a circular model, a product no longer goes from raw material to waste. It will allow extended or exhaustive usage. Circularity can already be evidenced at scale in certain electronics such as mobile phones or in the famed Xerox copiers which have multiple refurbished or remanufactured parts and products in addition to the original and “new” products. 

Other consumer products such as apparel lag in circularity development. This is because preowned apparel is relatively low in residual value except for high-end designer brands. The typical clothing manufacturers and retailers historically had less interest in recovering preowned apparel as the value greatly exceeded logistical costs. Sustainability has changed how consumers view preowned apparels and recycled material used in new clothing. Unlike mobile phones which have a unique digitized serial identifier (IMEI). Most apparels such as garments do not traditionally have a unique product ID encoded into the product labels. Nonetheless, such a unique ID attached to the physical item is exactly what is needed to track products after the point of sale.

Implement smart labeling. A product ID should uniquely identify the garment, its manufacturer, fabric content and other relevant information — such as instructions for return or any incentive for the return that’s offered by the retailer or clothing manufacturer. These are the information necessary to guide and incentivize consumers to return preowned apparel which can be cleaned, sanitized and prepared for resale or redistribution. Propelled by strong consumer demand for sustainability, consumer brands have been adopting “smart tags” or AutoID labeling technology to manage preowned products at an ever-increasing scale.

Near-field communications (NFC) and radio frequency identification (RFID) tags are technologies that can embed product ID and return instructions into a washable label or the very fabric of a garment. A consumer can use his or her mobile phone App to scan the NFC to gather all the information necessary upon purchase and use such information later to return the preowned garment to a rightful place per the instructions and redeem the reward if offered. This smart tag combined with point-of-sale data provides clothing manufacturers or retailers with an effective means to collect preowned consumer products at scale and economics.

Design and enable a closed-loop system. In shipping, wooden pallets and containers are often purchased by shippers and disposed of in recycling or landfills after evidencing wear and tear. This usage-disposition pattern resembles the linear model and creates material waste. CHEP is the world’s leading provider of wooden pallet rental services. It uses a “pooling” concept to keep pallets in continuous circulation among a pool of renters from manufacturers to retailers or distributors. 

In the pallet pool, CHEP pallets are managed by CHEP for sanitation and repair for use in a circular supply chain to load and deliver full pallets to the retailer and picked up or returned to depot locations, repaired and inducted back into the product flow, thereby reusing the pallets throughout the product supply network. This closed-loop circular system in turn generates great benefit for the parties involved both financially and efficiency wise, while reducing the overall carbon footprint and raising the level of sustainability achieved.

CHEP also incentivizes recyclers to return the pallets upon receiving them from customers who turned them in by mistake. Similarly, PepsiCo partnered with Replenysh in a program called BottleLoop to recover empty Pepsi bottles from residential communities and return them to PepsiCo’s own recycling facilities. The system benefits PepsiCo with greater speed of bottle recovery than it otherwise could.

Consider blockchain. For industries that are highly regulated and/or require safety or quality certification, additional technology may be used to capture such data for reprocessing. Blockchain, a distributed ledger technology, is often used to track movement of a product when it changes hands from one party to another in a multi-party supply network ecosystem. Blockchain can capture each transaction identified to a party or a node of the blockchain and record such transactional data and certificates with immutability via proof-of-stake or proof-of-work protocols. These certificates or transaction data may be further referenced in downstream recycling or reprocessing operations. 

Single-use medical items are a classic example. These items generate 7,100 tons of waste every day on average, according to Health Affairs. Reprocessing such single-use items includes collection, sorting, cleaning, disinfection, testing, sterilization and redistribution to hospitals and clinics. This reprocessing not only saves 30%-40% cost in comparison to new devices, but also prevents environmental pollution due to incarceration and landfill. Healthcare is a highly regulated industry. Quality, safety and testing requires certification along the value chain, and no exception is given to the reprocessed medical devices. Therefore, using blockchain technology can effectively capture the lifecycle certificates of devices from “first mile” raw material suppliers to “last mile” point of use consumption. Furthermore, it reduces carbon emissions in the medical devices supply chain. Recycling medical devices can significantly reduce medical waste and drive towards a circular economy.

In a circular supply chain, tracking uniquely identifiable products/components, capturing events associated with those products and sharing such product-event data points with relevant stakeholders are all keys to success. Furthermore, such information and lifecycle-oriented data can help R&D teams design supply chain functions to enable a circular operating model. The two outcomes combined will take businesses to the next level of sustainability.

Rich Sherman is senior fellow, and Li De “Tony” Chen is a global supply chain consulting partner, at Tata Consultancy Services (TCS).

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