The circular economy has potential, but metrics are still evolving. We identify core measures and remaining questions.
We are in the Anthropocene: the period where human activities have become significant geological forces. Our activities have changed broad landscapes, permanently affecting biodiversity and pushing the Earth’s planetary boundaries.
Companies are under pressure to radically change manufacturing, production, and consumption. They’re trying to accommodate resource shortages and reduce waste emissions.
Circular economy principles can potentially reduce the damage. The circular economy is a closed-loop. That means reducing waste by keeping material in circulation in the economy. Material can stay in circulation in various ways — through reuse, repair, remanufacture, recycling and repurposing. (See the famous butterfly diagram from the Ellen MacArthur Foundation.)
The bad news: There’s no guarantee that circularity will solve the challenges of the Anthropocene. That’s because measures and metrics for the circular economy are still evolving.
Many options for circular metrics exist. But it’s not always clear what the core, most important measures are. So, businesses and other decision-makers can have difficulty deciding what to focus on.
A particular problem is that the connection between circularity and sustainability can be unclear. Ideally, circular practices reduce waste. But in some cases, they lead to greater resource use. For example, research shows that the “circular” process of turning food waste into edible ingredients is only environmentally sustainable if it is kept within a specific geographic range. Waste handling and other aspects of the circular economy can also have health and other social consequences.
This article focuses on how to use metrics to advance your supply chain toward circularity and sustainability, despite the uncertainty. It draws directly on our recent academic research.
Many Circularity Performance Measurement Options Exist
The circular economy happens at multiple levels. There are national and multi-national policies such as China’s circular economy policy, regional policies such as eco-industrial parks, and also individual organizations’ supply chains and practices.
Performance measures for the circular economy vary depending on the type of product, location, and industry. These measurement options come from suppliers, distributors, communities, regulators, and even investment firms – and members of these groups working together. Academics are also involved in metric development.
There are localized community programs and global metrics, such as Global Reporting Initiative and International Standards Organization. Some metrics come from industry associations: for example, the Global Electronics Council’s Circular Electronics Partnership. Even the Association for Supply Chain Management’s supply chain operations reference (SCOR) model has started to expand and consider performance measures for circularity.
Below are some key global and local initiatives for circularity metrics for business supply chains.
|Circularity-Related Measurement Frameworks for Supply Chain Management|
|Program||Sample Circularity Metrics|
|Circular Electronics Roadmap - Circular Electronics Partnership|| • Focus on longevity, reuse and recyclability (LRR)
• Roadmap and performance outcomes along the process
• Measuring progress using key performance metrics
|Circular Procurement Green Deal - Netherlands|| • Reduce total amount of materials
• Reduce non-renewable virgin input
• Extend the use and lifetime of products
• Optimize the potential recycling of products & materials
|Global Reporting Initiative (GRI) 306: Waste 2020|| • Percentage of new suppliers that were screened using environmental criteria
• Number of suppliers assessed for environmental impacts
• Significant actual and potential negative environmental impacts identified in the supply chain
|Circularity Gap Reporting Initiative (CGRI) – Circle Economy|| • Extracted resources
• End-of-life stage of material input and output
• Waste: mining waste, unregistered waste, and landfilled waste
• Cycled resources
• Consumption footprint
|Circular Transition Indicators - World Business Council for Sustainability Development|| • Organized by “close,” “optimize” “value” and “impact” of the loop
• New: impact of recycled sourcing on greenhouse gas (GHG) emissions reductions
• Lifetime extension strategies
How to Use Performance Measures for Circularity – and Sustainability
How can a supply chain manager start using circularity measures?
Here’s our answer: Get started — even as you recognize that these measures are still in early development.
Not all products, regions, and industries have consensus measures. Universal adoption of these measures requires broad-based agreement — an agreement that may not be forthcoming. And currently, measures are often too high level to make sure that circularity is indeed truly sustainable.
Yet, organizations need to begin somewhere.
Below we describe how to start out, despite uncertainties. Recognize that it’s a journey, and your first steps are valuable. Just understanding the need for these performance measures is the beginning.
We’ve reviewed academic research and practical applications to assemble a table of core circular economy measures for organizations (more detail on our sources in the research article).
|Core Circular Economy (CE) Metrics for Organizations and Suppliers|
|Consumer Use||CE-related consumer training||The supplier has tailored consumer training that entails implementing CE in a specific function or business unit.|
|Consumer Use||Potential recycling of products||The supplier’s practices contribute to product recycling at the consumption stage.|
|Consumer Use||Incentive mechanism for recycling and reuse (products and packaging) for stakeholders||The supplier has involved an incentive mechanism for products and/or packaging recycling and re-usage for stakeholders, for example customers.|
|Materials||Material recycling||The supplier focuses on material recycling optimization in its business processes.|
|Materials||Material reuse||The supplier extends the usage and re-usage of input (procured) materials.|
|Materials||Renewable materials||The supplier primarily uses renewable materials in business processes.|
|Materials||Non-renewable virgin input||The supplier is reducing the use of non-renewable material as virgin input in business processes.|
|Production Processes||Technological and Infrastructure||The supplier has suitable information technology (IT) and digital systems in place to support a circular business model.|
|Production Processes||CE-oriented organizational policy||The supplier has a CE-specific mission and objectives in its organizational strategic planning.|
|Production Processes||CE-related employee training||The supplier has tailored employee training that entails implementing CE across business functions.|
|Production Processes||Resource efficiency||The supplier emphasizes resource efficiency improvement in its business processes.|
|Production Processes||Systems risks||The supplier has specific processes for identifying, assessing, and managing system risks related to the transition to a circular economy.|
|Production Processes||Potential reuse of products & components||The supplier focuses on products & components reusage optimization (greater longevity and reparability) in its business processes.|
Choose a Circular Supplier
One of the most important aspects of making a supply chain circular is through building the right partnerships. This requires organizations to form partnerships with suppliers and others who have or can instill circularity. The identified performance metrics can help manage this process.
We’ve developed a decision model for circularity supplier selection. If you are comfortable with algebra, we encourage you to use it. Access it through our article: Circular economy and circularity supplier selection: a fuzzy group decision approach.
You can also build circularity into a more standard supplier selection process. For example:
Choose circularity measures. Look at the chart above. Should suppliers be using recycled or reused materials? Do you need them to use renewable, recyclable or biodegradable materials? Do you want them to take-back materials or products? Do they need to have circular-economy-related training programs or offer Design for Environment services?
Weigh circularity against other supplier selection criteria. This relative importance evaluation can be made using a variety of tools, like a scorecard that includes a weighted comparison of decision criteria.
Determine which suppliers to consider. Your company probably works with tons of suppliers. To decide which to work with first on integrating circularity, ask: Are there certain products or material suppliers that your company is especially concerned about? Are they core to your organization and your profit margin? Are these products and materials sensitive—to your reputation, liability, or potential for improvement? Determine which suppliers to source from.
Gather data and information from the set of suppliers. Not all information will be easily accessible or available. Be prepared to have suppliers fill in a questionnaire. Many of the circularity performance sources we mentioned can help you develop such a survey or questionnaire. Have suppliers fill the questionnaire out and/or work closely with them to confirm accuracy and reliability of circularity information.
Evaluate the data and suppliers and decide. This means getting weights for each metric, and how well each supplier does on each metric. A simple approach is to simply multiply weights of the measure with supplier performance and aggregate to arrive at a weighted sum. Or you can use the more complex technique which we recently published. You can then rank based on the aggregate scores.
This is the selection process. Of course, after initial selection, there will be negotiations, contracting, procuring and monitoring steps. To comprehensively integrate supply chain circularity, each of these will also require performance measures.
Circularity and Sustainability Are Uncertain – But Necessary
There’s still no single “right” way to use circularity metrics to select suppliers and build a sustainable supply chain. But one thing is clear: it’s time to start.
You’re a pioneer in this journey. As companies race to reduce waste and emissions by implementing circular practices, they risk unintended sustainability consequences. Incorporating performance measures will be a critical step to success.
The good news is that global frameworks will keep improving. With time and practice, these new processes will become clearer and easier for supply chain managers. Getting your hands dirty now can lead to a cleaner planet in the long term.
Read our related articles:
Bai, C., Zhu, Q., & Sarkis, J. (2022). Circular economy and circularity supplier selection: a fuzzy group decision approach. International Journal of Production Research, 1-24.
Bai, C., Zhu, Q., & Sarkis, J. (2021). Joint blockchain service vendor-platform selection using social network relationships: A multi-provider multi-user decision perspective. International journal of production economics, 238, 108165.