Analyzing Supply Chains in Supporting Circular Economy Processes

This report examines the role of supply chains in supporting the restorative processes advocated by the circular economy, contrasting it with the linear economy model. It details the fundamental aspects, concepts, and characteristics of a circular economy, including circular value chains, recovery and collection, durability, personalization, product service systems, and collaborative economies. The report highlights the importance and benefits of circular economy for businesses, society, and the environment, emphasizing waste reduction, resource optimization, and economic growth. It uses McKinsey Company as a practical perspective, showcasing how adopting circular economy principles improved their operations, reduced costs, and increased productivity by recycling products and implementing new technologies. The analysis underscores the significance of circular economy in addressing market challenges, promoting sustainability, and enhancing overall business performance through effective supply chain management.

Circular Economy
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Table of Contents
Introduction......................................................................................................................................2
Theoretical Perspective....................................................................................................................3
Fundamental aspects of circular economy...................................................................................3
Concepts and characteristics of circular economy.......................................................................3
The main drivers of circular economy, ie why it is important and benefits for businesses,
society and environment..............................................................................................................4
The role of supply chains in supporting restorative processes advocated by the circular
economy.......................................................................................................................................5
Practical Perspective........................................................................................................................6
McKinsey Company....................................................................................................................6
Operations....................................................................................................................................6
Supply Chain................................................................................................................................8
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
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Introduction
The term supply chain is used to describe the flow of goods or services for an organization.
And, to monitor and manage such activities supply chain management process is used.
Circular economy helps businesses to form strategies to have a growth in business. It makes
the products recyclable so that it can be modified later. Circular economy provides scope to
the businesses to adopt for better opportunities in the future. Market demands are increasing
day by day creating risks for the existing companies which can solved by using circular
economy. On the contrary, supply chains are used to monitor the stock management process
in a business. When the customer’s demands are clear then it is easier to launch new products
in the market. This report will describe about the role of supply chain managing the business
activities appropriately. The report will also provide information regarding the circular
economy that benefits the business.
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Theoretical Perspective
Fundamental aspects of circular economy
The aspect behind using circular economy is that it provides sustainable development for the
business processes. It is a kind of regenerative system that slows down the process of input,
leakage and waste to them. Circular economy provides a way for the businesses to use their
existing resources in continuation. This saves a lot of money and time for the managers to
keep a track about the current business activities. Circular economy provides high utility
value of any product, goods or services for the customers. It is essentially used by almost all
companies worldwide. According to the given case study, the circular economy is defined for
the different countries globally.
Concepts and characteristics of circular economy
Most of the businesses are trying to embed the processes of circular economy for their
business to achieve success which is really complex process for them.
 Circular value chain- using this type of chain, the products are designed to be
renewable or recovered later. Biodegradable material is used to design and develop a
product so that it can be customized later. This helps in reducing cost for a product
hence increasing its predictability which is beneficial for a business. The production
cycle is based on providing value to the proposed product without affecting the
performance of that particular product.
 Recovery and collection including industrial symbiosis- in terms of circular economy
when the product is not in use it can be collected and recovered. This characteristic of
circular economy allows the waste products to be re-used again for a different or same
purpose. The by-products are obtained from the waste which are used by the
businesses.
 Durability, modularity with repair services- this process focuses on increasing the life
of a product for the business. This includes maintenance of the product, repairing of a
product, remanufacturing and so on. This helps the business to save the cost of
manufacturing new products. This also helps in enhancing the design before
manufacturing.
 Personalisation, made to order and lock-in: this is to ensure the customers that they
will be able to use products that are build according to their requirements. When the
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requirements are cleared, it becomes easier for the manufacturers to design and
develop cost-effective products. The ‘lock-in’ process allows potential customers to
stay connected with the businesses so that they can make suitable changes in the
product.
 Product service system and dematerialised services- this characteristic provide
freedom to choose a service model rather than the product. The customers are then
able to connect freely with the manufacturers and also the overall cost of ownership is
paid by the manufacturers only.
 Collaborative/sharing economy- Digital technologies allow businesses to connect with
the outside world. Companies can share their resources with other companies and
create an association with them to have growth in their business. Collaborations with
different companies allow exchange of ideas and contribute in better productivity
(Bioregional, 2017).
The main drivers of circular economy, ie why it is important and benefits
for businesses, society and environment
Circular economy is in contrast with linear economy in which resources can be re-used. It is a
lifecycle process that involves interaction with the customers. When an existing product
comes to an end it can be again processed into a new product by the processes of circular
economy. This allows companies to make less use of finite resource can decay soon and
cannot be renewed. This increases the sales rate of a business to its maximum value. Circular
economy extends the life of a product by modifying into a different product by incorporating
advanced specifications. The demand of raw materials in increasing day by day due to
increase in population, therefore, circular economy is important for businesses to manage
their sales functional area (Europarl, 2015).
Importance of Circular Economy- it helps to overcome market challenges faced by the
companies. This makes the company to create innovative products for the customers. It
prioritizes the requirements of customers first and then the internal and external factor.
Customer satisfaction is the main focus for the companies. Technological advancements
contributes in tracking the economic activities of the company. Circular economy provides
sustainable growth in business by reducing complexities of the applied business strategies
(Dedicoat, 2016).
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Benefits of Circular Economy- The researchers have drawn better results of circular economy
by McKinsey & Company. The company managers say that they have noticed a change in
their organisational performance and also increased productivity. Statistics are counted to
measure the productivity level of e the company which was approximately 3%. McKinsey &
Company started using renewable energy materials to manufacture a product which lowered
the overall cost of ownership providing sufficient amount of tangible and intangible benefits.
Circular economy provides strength to compete in the market even if the company has limited
resources. It ensures that the companies are achieving success in their business by managing
costs and budgets used for different projects (Mckinsey, 2017).
Benefits for society- people are benefitted by receiving good quality products from the
market as per their expectations. When the economic rate of company is better it provides
opportunities for the unemployed people. It also improves trade balance of an organization.
Benefits for Environment- it helps in reducing waste and recycling products helps in
maintaining pollution free environment. This creates a healthy environment for people living
in nearby area of industries. It enhances energy efficiency that creates less pollution like the
other products. Reduction in carbon emissions creates healthy environment (Wijkman and
Skånberg, 2015).
The role of supply chains in supporting restorative processes advocated by
the circular economy
Considering economic growth for different industries of Europe, it has been found that
circular economy has widely affected the political agenda by providing job opportunities,
managing cost and others. Almost every company struggles to have a finite economic growth
in their business and therefore circular economy is most commonly used. Improvement in
supply chain process also affected environmental factors by reducing them. The Government
of Europe has decided to promote circular economy in different industries to expand the
businesses and attain higher economic value in the market. Strategies of circular economy
have conducted major change in the lives of entrepreneurs and other business related
stakeholders. Potential risks of a business can be reduced and possible business strategies
can be developed.
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Practical Perspective
McKinsey Company
I am choosing McKinsey as a company for performing practical perspective. The company is
based in Europe and uses circular economy to manage their business processes. Earlier, this
company used linear economy but it created loss to IT assets and decreased productivity.
After the years of hard work company finally came to a solution for implementing circular
economy for their business. The activities of circular economy helped the company to
generate leads more frequently than before. Company also used the procedures of supply
chain to enhance their process of stock management. The company is using restorative
process for recycling their products. This helped the company to eliminate the potential risks
from the business. The company has also observed changes in the process total cost of
ownership. It enabled the company to implement new technology by improving the resource
productivity. According to census, the company has gained 3% market share and increased
productivity in their business.
Operations
Operations of European economy- It has been found out from the researchers that most of
the industries in Europe used circular economy and used recycled products including
McKinsey.It was calculated that for about 31% of food in Europe was wasted which created a
great loss to the companies. Therefore, it became mandatory for Mc Kinsey to incorporate
circular economy for their business.
Productivity and reduced costs- advancements in technology affected the business activities
of McKinsey adversely. Due to this, company faced many challenges like improper
management for economic resources. Up to 75% loss was handled by the company before
using circular economy. Later, company was successful in managing the bridges that came
into their success. Food and agricultural sector created degradation in economic growth of the
company. Company then used business strategy to lower the prices of products to attract
more number of customers for their business. Hence, during the stage of drawbacks company
somehow managed to take competitive advantage in the market.
Business growth by adopting principle of circular economy- using circular economy
company managed to increase their sales and productivity rate with the existing products
only. The products materials were recycled and sold out in the market at a higher rate than
expected which was then became profitable to the company. The three main principles
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of circular economy were followed that is enhancement of the capital for the company,
optimization of used resources, elimination of external risks and to preserve the assets.
Better outcomes for the company- the business model followed by Mc Kinsey was proved
to be effective for the overall business growth. Company made investments in some of the
financial resources which has provided them profits. Different assumptions were taken by the
company to increase their economic rate. This profit does not influence the current business
processes and provided expected results. The cost was used on the resources reduced to 32%
in a year which is a matter of great success in the economy rate of the company.
Operations performed by McKinsey in terms of circular economy aspects
 The most important business operation that took place in the company was designing
innovative products for the customers. This attracted a countable number of customers
to purchase the products of McKinsey.
 New standards were designed for performing business activities in an appropriate
manner. A different formula was generated to attract customers for a product.
Company designed various creatives and banners for advertising their products.
 `The business operation of performing open fires in the backyard of company's
warehouse. This had positive impact on environment by improving the atmosphere.
Using the open fire process, metals were extracted which does not create harmful
pollution in the air. This extraction process of the industry enhanced the
environmental factors.
 Using circular economy, managers of the company were able to take effective
decisions to enhance business activities in future. This also helped in deciding the
scope of the company. Earlier the decisions were taken by the higher authorities of the
company only. But when the procedures of circular economy were started to be
followed by the company, employees got a fair chance to share their ideas about
improving business processes for the company.
 Contract with Government agencies helped the company to start different programs in
which customers and other external stakeholders like vendors could take part to
enhance the business procedures and also to have an effective business growth.
Therefore, it is cleared from the above-mentioned business operations that circular economy
proved to be the best tool for Mc Kinsey for managing their economic growth. Business
growth of the company is not only defined by its economic value but the relationships that
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companies have with their customers. It is essential for the companies to satisfy the
requirements of customers in the best way possible. The circular economy provided
sustainable development to the McKinsey company by optimising the cost and properly
managing the company’s resources.
Supply Chain
McKinsey is the global service provider that has adopted circular economy and the principles
of supply chain management to run their business effectively. Company expanded their
business to industrial and retailing process also. This provided them profits in terms of
increasing economic value within the global market. Supply chains were significantly
managed by the company using exact logic about the economic factors trending in the
market. The trade-related costs were managed as the products are exported to the
international market also.
Another aspect that has bothered the company is the change management within the ongoing
processes of supply chains. Improving the current business operations was challenging for the
company but later on change management procedures were taken into consideration by the
higher authorities of the company. The functions, customer handling process, dealing with
vendors and other processes were affected by the change management strategies. But the
result was tremendous. Company achieved dignified economic growth in its business with
almost all the optimized business processes (Mckinsey, n.d.).
The practice of supply chain for McKinsey allowed the company to optimize the use of
resources for their business. The products were used to be sold at an affordable range to the
customers. Due to globalization McKinsey & Company faced challenges regarding loss to
their economic growth. But with the procedures of supply chain management, company stood
up once again and achieved competitive advantage in the market.
 The company has expertise of different functional areas like accounts and human
resource to take care about the internal processes. Mutual cooperation within the
employees allowed managers to develop new and better strategies for their business.
Employees handled the clientele by explaining them about how to manage their stock
effectively. Employees made customers understand about the advantages and
disadvantages of a product.
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 Company planned their goals and objectives to be accomplished in the coming years
and were capable enough to manage in achieving the expected outcomes. This
became possible with the principles of supply chain management.
 Research programs were conducted to gather the valuable responses from clients.
Effective communication with clients helped the company in generating new product
ideas. Employees could analyse the performance of the supply chain they were using.
 Pre-planning about the integrated solutions for the company was also the part of
supply chain for McKinsey. Production process of the company was given first
priority so that requirements of customers can be previously specified before the
manufacturing of the product (Mckinsey, n.d.).
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Conclusion
This is to conclude from the detailed report about circular economy and supply chains that
companies need to make continue improvements in their business processes. This will help
them to achieve their targeted goals and objectives. This enhances the customer and vendor
relations with the company. This report has described about the theoretical and practical
perspective of implementing circular economy for a business successfully.
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References
 Bioregional, 2017. Six Simple Features of Circular Economy Business Models
Explained. [Online] Bioregional. Available from: https://www.bioregional.com/six-
features-circular-economy-business-models/ [Accessed: 16 May 2018]
 Dedicoat, C., 2016. The importance of a circular economy. [Online] Newsroom.
Available from: https://newsroom.cisco.com/feature-content?articleId=1738213
[Accessed: 16 May 2018]
 Europarl, 2015. Circular Economy: definition, importance and benefits. [Online]
Europarl. Available from:
http://www.europarl.europa.eu/news/en/headlines/economy/20151201STO05603/
circular-economy-definition-importance-and-benefits [Accessed: 16 May 2018]
 Friedman, J., 2015. The “Circular” Economy- What it is, and why it is important.
[Online] Huffingtonpost. Available from: https://www.huffingtonpost.com/john-
friedman/the-circular-economy-what_b_6349602.html [Accessed: 16 May 2018]
 Heshmati, A., 2017. A Review of the Circular Economy and its
Implementation. International Journal of Green Economics, 11(3-4), pp.251-288.
 Kalmykova, Y., Sadagopan, M. and Rosado, L., 2017. Circular economy–From
review of theories and practices to development of implementation tools. Resources,
Conservation and Recycling.
 McKinsey & Company, 2016. The Circular Economy: Moving from theory to
practice.
 Mckinsey, 2017. Mapping the benefits of a circular economy. [Online] Mckinsey.
Available from: https://www.mckinsey.com/business-functions/sustainability-and-
resource-productivity/our-insights/mapping-the-benefits-of-a-circular-economy
[Accessed: 16 May 2018]
 Mckinsey, n.d. Supply Chain Management. [Online] McKinsey. Available from:
https://www.mckinsey.com/business-functions/operations/how-we-help-clients/
supply-chain-management [Accessed: 16 May 2018]
 Prendeville, S., Sanders, C., Sherry, J. and Costa, F., 2014. Circular economy: is it
enough. EcoDesign Centre, Wales, available from: http://www. edcw.
org/en/resources/circulareconomy-it-enough, Accessed on July, 21, p.2014.
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 Rizos, V., Rizos, V., Tuokko, K., Tuokko, K., Behrens, A. and Behrens, A., 2017. The
Circular Economy: A review of definitions, processes and impacts. CEPS Research
Report No 2017/8, April 2017.
 Simon, A.T., Serio, L.C.D., Pires, S.R.I. and Martins, G.S., 2015. Evaluating supply
chain management: A methodology based on a theoretical model. Revista de
Administração Contemporânea, 19(1), pp.26-44.
 Wijkman, A. and Skånberg, K., 2015. The circular economy and benefits for
society. Club of Rome.
 Wilts, C.H., 2017. Key Challenges for Transformations Towards a Circular
Economy–The Status Quo in Germany. Int J Waste Resour, 7(262), p.2.
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