Walter Westphal
CEO
GRUBSA, S.A. de C.V

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Circular Economy a Long-Term Sustainable and Profitable Strategy

By Walter Westphal | Tue, 06/28/2022 - 10:00

The circular economy has an important role in a sustainable and profitable business strategy. This article presents the key impacts of a circular economy in three critical business areas: strategic planning, cost management, and supply chain management.

Business concern regarding environmental management has been growing worldwide.

A new economic system, called circular, aims to include practices like reducing, reusing, recycling, and recovering in traditional systems.

The definition of a circular economy considers both the environmental and economic advantages simultaneously. The circular economy also demands a shared conscience, responsibility, and performance involving the entire life cycle and all the stakeholders of both the organization and the product.

A circular economy contributes to greater resource efficiency and a more sustainable economic development by using its main principles to gain strategic advantage. In the current environment, a circular economy is considered strategic and relevant to the profitability of companies and for creating value.

As for environmental aspects, the adoption of circular economy principles enables companies to close resource loops, providing ways to align the company's strategic planning with circular principles. A company may, for instance, outline its supply chain management practices to maximize resource efficiency through the reduction, reuse, and recycling of waste and attain environmental goals.

Furthermore, the adoption of circular economy principles as main philosophies for strategic planning provides companies with the elements to identify different sources of revenue. Companies that follow this path are able to reduce operational costs.

Organizations may strategically develop their business models to attain greater circularity within their supply chains, by leading their suppliers into adopting practices like the recycling of products and reuse of materials/resources to make circular business models fully viable.

When it comes to cost management, the adoption of circular economy principles and practices plays a significant role, as it allows companies to turn products that are at the end of one of their life cycles into resources for the conception of other/new products. This allows the minimization of waste and simultaneously decreases the need for inputs of new raw material. On top of that, resource scarcity causes prices to go up and become more volatile, negatively impacting a company's value creation and capture. It is important to mention that changing from linear to circular business models, both efficiently and sustainably, may require investments from all parties involved in the company's network.

Circular supply chain management encompasses the configuration and coordination of organizational functions within and across business units to close, slow, or narrow energy and material flows. This results in the minimization of resource input into the system and also prevents waste and emissions from leaking out of the system, thus improving operational effectiveness and increasing competitiveness.

To integrate circular economy principles into supply chain management, it is necessary that the company achieve a balance of environmental, economic, logistics, organizational, and marketing performances. Circular supply chains have the potential to be more independent and also to avoid volatile and high prices.

Similarly, an organization is able to proactively manage its stakeholders either by engaging their partners to make their business models viable or pushing their partners toward the adoption of input materials that are made mostly from recovered materials/resources, thus enabling the market of such materials to grow.

A long-term perspective with short-term actions can be observed from building economically viable businesses to disseminate circular economy principles or using certain materials to show that they may not need to end up in landfills. A circular approach might rearrange a supply chain altogether if compared to a traditional chain. The circular economy, therefore, presents itself as a strategy that is adaptable and has the capacity to be integrated into supply chain management.

Circular businesses are a branch of sustainable businesses. Although not necessarily sustainable on their own, circular business models help achieve greater sustainability. Nevertheless, designing a sustainable business or making an existing business more sustainable by implementing circular practices might incur a range of management issues and changes to the business model and the company's organizational culture.

Pursuing a circular economy implies a fundamental transition of society. The company might want to or have to deploy actions to encourage circular behavior, as its own culture can play a critical role in enabling the implementation of a circular economy.

Understanding the circular economy and being able to apply it in different areas within companies may be a key point for organizations to move forward with material and energy recirculation, recycling, reuse, remanufacturing, and other deployments of a circular economy.

The synergies among business areas could also yield further business opportunities. The impact of circular economy practices on each of the areas presented here will also indirectly impact the entire value chain of the business. Collaborations among different actors along the supply/value chain are necessary to make better use of the resources being dealt with, and they can help reveal and also boost opportunities for new businesses.

It is important that organizations understand and accurately internalize circularity principles within their strategic plan, thus coupling their strategic goals with maximizing efficiency, reducing waste, and most importantly, discovering new sources of revenue that enable both business success and the regeneration of the environment. Adopting a circular strategy might enable an organization to obtain more sustainable (economic) results while reducing impacts. For instance, making a supply chain more circular allows companies to lower environmental and social impact not only for the company itself, but throughout the entire supply chain.

Companies with more circular practices are given the opportunity to reduce tangible costs, such as material usage and waste disposal, through resource recovery initiatives, as well as intangible costs, such as the potential negative reputation for companies that disregard sustainable practices. Moreover, specifically with regard to environmental management, the transition from the control and prevention of pollution to a strategic era, where generating disposable waste is no longer an option, is an essential point for the future of the planet.

Photo by:   Walter Westphal