Reverse logistics presents unique challenges and opportunities. To meet these challenges and take advantage of these opportunities, companies need to be both prepared and flexible.

Ikea, a company known for innovation, is facing the enigma of reverse logistics head on. As part of the company’s sustainability strategy, Ikea is challenging the perception that its products are disposable by creating opportunities to recycle and reuse products.

In a recent interview with Fast Company, Chief Sustainability Officer Steve Howard outlined several of the company’s initiatives. They include programs that allow consumers to return plastics, batteries, furniture, compact fluorescent light bulbs, mattress, and textiles to the store. These items are then sold “as-is” or recycled.

These programs have proven successful. For example, in just a few months, over 6 tons of batteries were collected in Moscow, and 25 tons of used textiles were collected in Norwegian stores last year.

Ikea is looking at other ways it can provide end-to-end supply chain solutions. One idea is to take returned products and recycle them into other products. In his interview with Fast Company, Howard shares: “We would basically be taking old bookshelves, old furniture, or an old door that’s finished its first life and sending it into new products. You’ll have a kitchen that used to be a bookshelf, without seeing any visible difference in them. It’s not a revolution, but you have to actually fundamentally change your supply chain to do that.”

Ikea has recognized that old, broken, and unwanted products are an opportunity. Through these innovative reverse logistics initiatives, Ikea is not only acting in a more sustainable manner and reducing the company’s environmental footprint, it is also increasing engagement with consumers and creating positive economic opportunities for the company. 

Editor’s Contribution: IKEA Leading the Way in the Circular Supply Chain

IKEA reverse logistics

5 Things to Aid in Setting up A Circular Supply Chain

If you recall from our blog post yesterday where we explained the evolution of the supply chain from a linear supply chain to a circular supply chain, we touted the benefits of a circular supply chain. We also shared a great infographic from Tradeshift.com and the CEO of Tradeshift.com also explains 5 things to aid in setting up a circular supply chain:

  1. Outputs become inputs because your goods don’t end their life with their customers, but become an input in your supply chain. This means your accounts payable and accounts receivable processes will form a loop instead of a straight line.
  2. Without a digital supply chain, it will be almost impossible to coordinate all the moving parts a circular supply chain requires in real time.
  3. Assess your suppliers and work with the top tier for a common vision and goals towards a circular supply chain and ensure your CSR standards are met as you assess reuse opportunities.
  4. Figure out the cash flow demands of a circular supply chain, compared to a linear one. Your margins might improve, but your suppliers’ need for cash may change.
  5. Make a plan to manage the components like the evidence, materials, production information and components for the entire lifecycle.

Given the changing consumer, business, and government attitudes toward consumption and the environment, the circular economy looks poised to make businesses operate smarter and more collaboratively – while discovering new sources of profit and a competitive advantage by redesigning supply chains.

 

Recycling and reuse of scrapped products have become hot-button topics in the modern world. A quick scan of Craigslist shows how entire businesses have been created on the sole purpose of reclaiming raw materials from existing goods. For example, some people are offering to pay up to $10 for old, discarded car batteries. Old computer equipment, such as monitors, printers, and hard drives, can fetch great value when recycled and reused properly. In a sense, these common occurrences reveal how much of an impact the concept of a circular economy and thusly, the circular supply chain is having on consumers.

What is the Circular Supply Chain?

At heart, the circular economy and circular supply chain refer to a transition from raw material to manufacturing center to distribution center to consumer to trash process. Unfortunately, the world’s resources are finite, as explained by Michael Hoban.  as a result, modern supply chain entities must be willing to transition to a circular supply chain, which includes the entire reverse logistics process, in order to continue to grow and become sustainable in a future without an unlimited supply of resources. Let’s take a look at some of the key considerations for the circular supply chain and how supply chain entities are stepping up to meet these demands.

Driving Forces of the Circular Supply Chain

For some manufacturers and supply chain entities, the push towards a circular supply chain comes from the federal government. The government imposes limitations on what products can go to waste, what products must be reclaimed, how much raw materials may be used by given entity, and what processes are required for supply chain entities who have stepped out of the traditional product-sale relationship. Yet, consumers stand out as the key driving force behind the circular supply chain.

Merging of Services and Products

Software-as-a-service and service companies, such as Netflix, Pandora, Spotify, and even the Cerasis Rater, operate in a digital space. However, the digital space is only achieved through the use and application of technologies and electronics in the physical world. In a sense, these software-as-a-service companies must look beyond current processes and determine what steps can be made to help the end users achieve a more sustainable profitability and life expectancy of the given software.

In the Netflix example, the probability is attained through a comparison of the cost of purchasing multiple DVDs to the cost of streaming video through the internet as part of a Netflix subscription. Yet, supply chain entities need to think about another aspect of the as-a-service phrasing: products-as-a-service.

A product-as-a-service is similar to software-as-a-service, but the supply chain entity is directly involved in the maintenance, repair, installation, and reclamation of a given product throughout the product lifecycle. For example, the jet engines made by Rolls-Royce for British Airways, as explained by source Christian Lanng, are not purchased but leased. As a result, Rolls-Royce is directly responsible for all installation, maintenance, and reclamation processes on the jet engines, eliminating the possibility of the engines being tossed in the trash. Ultimately, this forging of software as a service and products-as-a-service is the ultimate pathway towards transitioning from a linear supply chain to a circular supply chain.

Barriers to the Circular Supply Chain

Today’s manufacturers have grown exceptionally capable of being able to produce record-breaking volumes of products without any recycling or reuse capabilities. Driven by the Internet of Things, advanced analytics, and real-time data capture, modern manufacturers have been able to collect insight from a variety of resources, breaking down organizational silos and improving the overall efficiency of the company. Essentially, the barriers to the linear supply chain were improving collaboration and communication.  

Supply chain entities needed to reassess how they work together to create a better, lower cost product-flow.  In so doing, third-party logistics providers grew to meet the challenge and eliminate the threat of unfair competitive advantages in the linear supply chain. Unfortunately, the same barriers make up the barriers between a linear supply chain and a circular supply chain. Additionally, modern supply chain entities must be willing to embrace the use of technology in order to effectively manage and transition from a linear to a circular supply chain.

As explained by Deloitte University Press, a circular supply chain is similar to a spider’s web. Traditional, linear supply chains bottle a typical flow of goods. Starting with suppliers, the linear supply chain flows to manufacturers, to distributors, and to consumers. Alternatively, the circular supply chain has many lines between each of these parties. For example, consumers may be directly involved with the supplier or any other party in the supply chain. As a result, the relationships become increasingly complex, and manually tracking what parties interact would be impractical, if not impossible.

Infographic: The Circular Supply Chain

Tradeshift made a fantastic infographic about the driving forces of the circular supply chain and the various entities, which you can view below.

circular supply chain infographic

Supply chain entities face a crisis and opportunity simultaneously. The world’s resources are dwindling, but more companies and people demand sustainable solutions and more products. For supply chain entities, the question is not why should the supply chain entity implement sustainable, reuse cycles in the supply chain, but how quickly can these cycles be implemented? As the world grows more concerned over the environment, sustainability and cost, modern supply chains must evolve into a circular supply network, not a straightforward line-like network.

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