CIRCULAR SUPPLY CHAINS – GOOD FOR THE PLANET AND PROFITABILITY

DHL CEO Frank Appel on why fashion and consumer electronics have the potential to be pioneer sectors in driving circular supply chain models

WRITTEN BY: SEAN ASHCROFT

Most smartphones are exchanged after just 2-3 years’ use

Statistically, there is more gold in a ton of mobile phone than there is a ton of gold ore

In a sustainability context, circularity is about extending the useful life of products and then recovering those products at the end of their life cycle.

Supply chain is an integral part of this because it determines how products are designed, produced and distributed, with minimal waste and maximum efficiency.

Supply chain managers – the good ones, anyway – have always sought to minimise waste and energy use, by optimising transportation routes and reducing packaging, because that makes for better bottom-line results.

Now they also have to factor-in the use of renewable energy, and the phasing-out of environmentally unfriendly packaging materials, such as plastics.

By embracing circular supply chain principles, companies can reduce their reliance on finite resources, minimise waste, and reduce their carbon footprint.

Among the most pivotal players –along with manufacturers – in helping deliver circular supply chains are logistics companies.

One of the world’s biggest logistics providers is DHL, the international logistics division of Deutsche Post.

It operates in 220 countries, and in recent years, it has expanded its presence in the e-commerce market. In terms of sustainability, its goal is to achieve zeroemissions logistics by 2050, and it is investing in alternative fuels, electric vehicles, and other green tech.

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DHL is also vocal on the importance of circular supply chains. It recently published a paper called ‘Delivering on Circularity’, which focuses on the fashion and consumer electronics industries – both cornerstones of the e-commerce boom. In his foreword to the paper, Deutsche Post DHL Group CEO Frank Appel says the signs of climate change and environmental damage “are alarming and increasingly visible”.

He adds that, although a shift to renewable energy is important for curbing climate change, every industry must also “examine what they can do in their specific case”.

Circularity, he writes, is the likeliest source of “complementary strategies that addresses the impact of both emissions and waste”.

Appel feels circularity “holds the promise of saving the environment while driving innovation and growth”.

Frank Appel

TITLE: CEO

COMPANY: DEUTSCHE POST DHL GROUP

INDUSTRY: LOGISTICS

LOCATION: GERMANY

Appel says: “At DHL we define our purpose as connecting people and improving lives. Our 550,000 logistics specialists do this with pride everyday, as ambassadors of globalisation.”

Refurbishment crucial part of circular supply chain

‘Reduce, reuse, recycle’ is a common saying when referring to waste reduction during the production cycle, but it could provide a solution to supply chain issues too.

Refurbished or reconditioned parts could replace new components when spare parts are hard to find.

These are not to be confused with repaired or second-hand parts, which refers to components whose refurbishing and testing process cannot be verified.

The use of refurbished parts can reduce lead times for manufacturers, prevent unnecessary downtime and keep machinery up and running just like new.

Refurbished parts also have the added benefit of quality assurance checks and warranties that usually match the equivalent of a new component, both in length and specification.

If manufacturers are to overcome the worst supply issues in nearly 50 years, reconditioned or refurbished parts can go a long way by contributing to the circular economy, maintaining efficiency and shortening lead times.

Appel makes an important point, because in the past sustainability failed to gain significant traction because of cost. But now, the reputational cost of doing nothing far outweighs any financial burden, because stakeholders – particularly consumers and investors – vote with their wallets when it comes to unsustainable brands.

Appel says of this: “Circular business models not only diversify product and service portfolios but positive customer engagement also serves as a brand booster.

“In other words, while circularity makes products more sustainable, solutions that also deliver business benefits make circularity sustainable.” Regarding circularity, Appel feels it is consumer goods – particularly fashion and electronics –that “merit a closer look”.

“The presence of these industries in our lives is nearly universal,” he says. “The potential positive impact is huge.”

Appel feels brands in these spaces have “a unique chance to deepen customer relationships in ways that will quite literally help to save the planet”.

He has a point. Taken together, fashion and consumer electronics account for approximately 6% of global carbon emissions, and waste levels are shocking: up to 20% of garments produced are never worn, while most smartphones are exchanged after just two-to-three years’ use.

DHL feels that “post-sale interventions” will be especially important if circular supply chains are to become the norm – especially around reselling, repairing, refurbishing and recycling.

The company fully expects that, as a result of this, logistics will play a more pronounced role during the extended lifetime of products and raw materials.

As well as this, DHL feels tech-driven visibility will be needed, both to marshall increasingly complex flows of goods in circular supply chains and also to ensure ease of use for consumers.

“These activities are at the core of what we do at DHL,” says Appel. “We would like to lend our expertise to the important undertaking of circularity and play an even bigger role in addressing some of the biggest environmental and social challenges of our time.”

DHL says that transitioning from traditional, linear supply chains toward a closed and circular supply loop will require “close collaboration among players, as system-changing ideas are considered and new policy frameworks and business models are developed”.

The company has identified three core enablers of circularity:

Circular consumer behaviours

This it says will be needed to signal demand for circular products to brands. The DHL report suggests 50% of consumers are now willing to pay more for a sustainable product.

It adds that smart logistics solutions –multiuser repair warehouses, consolidated reverse logistics for returns and recycling – can also act as an enabler of circular consumer behaviours.

Circular supply chains

Two main challenges exist here, says DHL: how to reintroduce end-of-life products

Re-cycling fashion is a unique chance to deepen customer relationships in ways that will quite literally help to save the planet

Taken into the cycle; and how to design product flows and cycles in an efficient and environmentally friendly way.

The volume of return flows will increase as a result of circularity, says DHL, which adds that return flows need to be well integrated into the existing supply chain.

It adds that to successfully engage both manufacturers and consumers while protecting the planet, supply chains “have to be designed in a costeffective, convenient, and environmentally conscious way”.

Building a smart supply chain that incorporates circular flows involving repair, refurbishment and resale “sets a meaningful foundation for a successful circular setup”.

Visibility and orchestration DHL says with the increased complexity of circular supply chains, transparency and orchestration are vital.

It says production planning and inventory management will need to adapt to a circular world. “The purchase scheduling of materials needs to be adjusted to the availability of recycled materials,” it says, adding: “Plus flows of post-sale products need to be considered in inventory management.”

To achieve this, DHL says digital technologies and logistics players are “critical enablers”.

Appel says: “Logistics players are ideal facilitators of circularity by doing what we do best – orchestrating the intricate flow of goods.

“Circularity is about the flows of physical goods and relies on the careful orchestration of the physical supply loop across different elements.”