Circular-based products and services are a high-growth area, and Gartner predicts that by 2026, 60% of global enterprises will drive profitable growth through circular supply chain practices. However, the path to profitability has not been straightforward to date.
In this article, Anne Michelle Avolio, Senior Director Analyst with the Gartner Supply Chain Practice, discusses common circular economy misconceptions and why now is the time for supply chain leaders to embrace this disruptive market force.
With persistent inflation and concerns about an economic downturn mounting, is now the best time for organizations to experiment with new products or services based on a circular economy strategy?
Disruptive times often can present the best opportunities to introduce new market offerings and given the particular set of disruptive factors contributing to this economic environment, circular-based business models are beneficially positioned.
The ability to ease pressure on inflation-strained consumers can drive loyalty and a new revenue stream from customers that might otherwise be priced out. Beyond reaching new or expanded markets, circular economy practices can also help secure supply, minimize raw material dependencies, and improve end-to-end supply chain visibility.
This translates into clearer visibility into costs, supply, and the potential for fewer disruptions; all of which contribute to cost and risk management efforts at a time when most organizations are placing a premium on efficiency and minimizing disruption.
Some organizations have been hesitant to implement circular economy products over concerns about market share cannibalization. Are these concerns valid?
These are valid concerns that reinforce the importance of having a clearly defined strategy. CSCOs and other key stakeholders across the enterprise need to be clear on the specific circular opportunities that are a fit for which markets, with what type of consumer, via which specific channels.
If deployed strategically, in a well-differentiated way that is clear to both the customer and sales/distributors, circular-based products or services can reach new market segments and drive loyalty among sustainability-focused consumers.
How can supply chain leaders analyze the full spectrum of costs and benefits, both financial and non-financial, before launching a circular economy strategy?
Supply chain leaders will need to shift their mindset in several areas to fully analyze the circular economy opportunity. There are many indirect financial benefits to a circular strategy that should be considered in the business case, including more confidence in sourcing and securing materials, improved environmental outcomes (like reduced waste and GHG emissions), enhanced customer intimacy, and increased brand loyalty.
The environmental and social impact of any circular offering needs to be assessed and compared to the impact of current offerings. To be clear, there are investment costs in implementing a circular program to support the systemic shifts needed in structure, processes, and even partnerships.
However, our research suggests that many companies are seeing revenue gains outpace related costs, and there is a clear expectation that a majority of global enterprises will see profit gains as a result of their circular supply chain capabilities by 2026.
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