Towards a circular supply chain
What is a shared or collaborative economy?
As per Ellen MacArthur foundation, a value is generated in a circular economy through 4 principles:
- Power of inner circle,
- Power of circling longer,
- Power of cascaded use,
- Power of pure material.
A shared or collaborative economy enhances the power of inner circle by sharing of underutilized resources and assets. The power of inner circle leverages the advantage of staying in the innermost resources flow loop such as sharing, reuse, refurbish, repair than the outer resource flow loops such as recycling due to lesser resource use and reduced cost.
In a shared economy, the users gain temporary access to underutilized assets owned by another at a low cost. Greater utilization of the assets/resources maximizes the return on investment and produce a new revenue stream in the form of rental fees for the providers. In addition to financial gains, the shared economy also reduces the environmental impacts due to the fewer need to produce new assets and the maximum utilization of the existing assets.
Many companies are successfully operating within the shared economy, especially in the hospitality and transport sectors. These companies work on a peer to peer business models using digital sharing platforms providing easy access to the customers and providers for checking availability, getting quotes, booking etc.
Embracing digital platforms and new business models built around collaboration and sharing presents a significant opportunity for the supply chain/ logistics providers. Sharing of warehouse space, transport vehicles, workforce, and other assets are some examples of effectively employing a shared economy in logistics.
Why do we need a circular economy?
Since the industrial revolution, the linear economy i.e. take, make, dispose of tradition has definitely increased the standards of living and fueled the economic growth. However, it has come at the high cost to the planet and also the people living on it. The current strain on planets natural resources and climate act as a wakeup call to transition into a circular economy where all the resources flow in a closed loop within the economy. As per researchers, the world is currently only 9% circular with the majority of the resources disposed of as waste.
The three different strategies or business models to design resource flows in a circular economy are:
- Slowing resource loops – The utilization period of the products is extended through sharing, reuse, maintenance, repair etc. resulting in slow down of the flow of resources.
- Closing resource loops – A circular flow of resources is achieved through recycling or remanufacturing the product after the post use phase.
- Narrowing resource loops (otherwise called as resource efficiency) – It aims at using fewer resources per product or in production process. This strategy has been successfully applied in linear business models and the same approach can be used in conjunction with the other two strategies for a circular system.
How can businesses transition to a circular economy?
For businesses to operate in a circular economy, focus should not only be given to streamline circular flow of their products but also of by-products, waste materials and the organizations assets. Circular models usually involve networks of businesses that generate new economic value through exchanges of resources facilitated by supply chain, innovative logistics, enabling digital technologies and infrastructure.
The major obstacles faced by companies transitioning to circular economy are high logistic costs, missing services along the supply chain and less collaboration between companies. Supply chain and logistic providers thus have a significant role in making the transition smoother from linear to circular economy. This article focuses majorly on how the supply chain and logistic operations can operate themselves in a circular way to reduce the cost of logistics and warehousing for other businesses.
How can supply chain/ logistics operations work in sharing economy or collaborative economy?
The current system of leasing multi customer warehouse is inflexible with a fixed amount of space allocated for a fixed period. Almost 80% of the warehouse spaces are usually empty and underutilized during the non-peak demand period. The cost borne by the company on such long-term contractual basis for space allocation in warehouse is quite huge.
The concept of shared/ on demand warehousing evolved to reduce the excess space in the warehouse (i.e. increase the maximum utilization of resource which in this case is unused space) and to also reduce the cost of leasing. This novel concept creates an open marketplace for excess warehouse space to new customer enabling pay per use billing of space in the warehouse. From an environmental point of view, shared multi customer warehouse reduces the need to build new warehouse thereby reducing the land use and the avoiding the emissions from constructing new storage facilities.
Using a digital platform to create a network of different warehouses enables easy access for customers to receive quotation and to book necessary space. Highly customized and integrated solutions for warehouse space sharing are provided to the customers by combining it with transport capabilities and other value-added services. Such short-term shared storage facilities are valuable for retailers and seasonal businesses. Visibility of available warehouses spaces closer to demand enables customers to store large amount of fast-moving inventory which further expedites the delivery.
Most of the logistic providers often have delivery trucks, forklifts, pallet movers and other material handling equipment’s that are idle after the working hours and especially during weekends. Access to share these idle assets using a digital platform would not only benefit other businesses but a lot of urban dwellers with weekend moves, other private events etc. Leasing these idle assets would create new revenue streams for the logistic providers. Apart from sharing the assets, the logistic providers can also provide advice to the customers from the huge experience and knowledge gained through use of such assets. Large emissions and related environmental impacts are avoided from the reduced need to manufacture new assets.
Researches have shown that 1 in 4 trucks on the roads in US and Europe is driving empty and the ones loaded are only 50% loaded. Real time digital freight brokerage platforms have evolved to match shippers and carriers to maximize truck load utilization thereby reducing the number of vehicles on road. The emissions from the transport fuel usage and manufacturing of new vehicles are reduced through shared vehicles. These digital platforms help in real time communication, shipment tracking using GPS, secure payment and critical document capture through apps.
Challenge of shortage in labor has led to adoption of robotics and automation for highly repetitive tasks. However, there are still tasks in logistics operations that require knowledge and dexterity of humans. An on-demand temporary labor recruitment through digital platforms provides a flexibility to the logistic industry to cater to the peak demands. Such digital platform also assists in finalizing contracts by substituting the need for paper works, phone calls, signatures etc.
The digital sharing platform used in a shared economy services are data driven and collecting anonymized user data through their mobile apps. The data harvested in a shared logistics sector is useful for various stakeholders to plan efficient transport and mobility in cities, to measure the environmental impacts (CO2 emissions) etc.
Benefits of circular logistics operation:
Benefits in all aspects of sustainability are achieved through a shared economy. A shared warehouse, assets, transport capabilities and workforce of a logistic provider bring about benefits to both the providers and the customers. A third-party logistics who own the digital sharing platform also earn some amount of commission from the provider and the customer for each transaction. The benefits of shared logistics are summarized and categorized into different pillars of sustainability i.e. economic, social and environment in the figure below.
What is essential for a successful transition towards the circular supply chain economy?
- Improved communication and collaboration
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The opportunity for new business creation promoting shared and the collaborative economy does not come without challenges. Risk liability, insurance, transparency and workforce protection are some of the issues that still need to be addressed. Would evolution of blockchain technology substitute the sharing platforms to promote in developing an effective and efficient shared economy?