Starting nearly 60 years ago, off-shoring previously domestic manufacturing proved to be a go-to executive decision to boost corporate value by reducing labor costs and the cost of goods sold. Pioneered by U.S. economic juggernauts such as General Electric, off-shoring was attractive because increased efficiencies, relaxed regulations, and product margin outweighed increased transportation rates, supply chain hiccups, or headline-grabbing lack of labor rights.
Over the past decade, this trend has shifted, with more companies seeking on-shoring, in-shoring, back-shoring, near-shoring, or even re-shoring solutions. All of these “shoring” options vary slightly by geographic differences. Still, they are all a concerted effort to bring manufacturing of goods back to or close to a manufacturer's country of operation. Turns out, the practice of off-shoring might simply be arbitrage at the scale of national economic development. Once a developing economy begins to reach a point of maturity, advantages on wages, policies, material costs and environmental regulations erode to the point where off-shoring manufacturing there offers minimal benefits.
Over the last few years, off-shoring may have proved to be a market disadvantage. Pervasive supply chain disruption due to an abiding pandemic, splintering global politics, and climate-related pressures have caused continued delays, increased costs to consumers, and reduced margins. If not for price inflation, the toll on company revenues would likely be even more evident. The only benefit might be new prompts to rethink, re-imagine, or reverse status-quo supply chain practices. The good news, these seismic supply chain shifts are bringing a new “shore” of manufacturing — circular manufacturing.
Circular manufacturing presents clear benefits for both a reduction of material consumption, as well as value recaptured in our economy. The Ellen MacArthur Foundation states 45% of current CO2 emissions can be tackled by transforming the production and waste surrounding our cars, clothes, food, and other products we use every day. At the same time, Accenture estimates that our current manufacturing economy will result in a resource loss equivalent to $4.5 trillion of lost economic growth by 2030, and as much as $25 trillion by 2050.
Rooted in three core principles of social responsibility, environmental regeneration, and economic success, circular manufacturing is not just theory anymore. When it comes to the fashion industry, brands have already embraced circular manufacturing in the form of re-commerce to spur new digital sales, customer retention, and retail foot traffic.
Transitioning to circular manufacturing practices often encourages re-shoring efforts, especially as leaders look for opportunities to reduce their environmental impacts through reuse while localizing their operations. Manufacturers must expand their reuse strategies, not only to include the products they manufacture, but the resources they depend on to build and maintain their manufacturing infrastructure, and the equipment they need to operate.
According to SAP’s Suneet Agera, maintaining direct relationships with customers to build seamless product take-back, with local options through refurbishment or re-manufacturing, would enable manufacturers to:
● Retain and recapture the value inherent in the original equipment manufacturer’s existing products
● Reduce demand for new materials by 50% to 98%
● Reduce energy consumption used for new manufacturing by 55% to 90%
As mentioned in the 2023 Circularity Gap Report, reuse activities make up a quarter of the 16 circular solutions that can reduce global material usage by 34%. These solutions span the built environment — the buildings, infrastructure and activities that surround manufacturing — as well as the manufactured goods and consumables themselves, and are centered around making the most of what already exists. This means reusing waste, extending the lifetime of machinery and equipment, and replacing fast fashion with sustainable textiles. If organizations can build these solutions into their everyday operations, society can begin reversing our overshoot of five of the nine planetary boundaries that are crucial for the planet's health.
The environmental, social, and business pressures pushing society towards a global circular economy are building faster than you may expect. The World Economic Forum (WEF) anticipates the elimination of the linear economy by the 2030s and presents forecasts as early as 2029 by Gartner. Consumer pressures and government policies are expected to be some of the main drivers for this shift. Companies will be forced to adopt at least one of the five circular business models outlined by WEF in order to survive in future competitive markets. These include circular inputs, sharing economy, product as a service, product use extension, and resource recovery. Re-locating manufacturing facilities can play a significant role in the global transition over the next decade, especially in operationalizing reuse, ranking near the top of the waste management hierarchy.
The demand for circular manufacturing and local supply chains will be unprecedented. Resource constraints will continue to increase, and any company seeking a competitive advantage should quickly embrace circular manufacturing to drive long-term growth, avoid future regulatory pressure, and deliver an environmentally conscious product that clients will demand.
Garr Punnett is the Chief Impact Officer at Rheaply.
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