Want to save costs, meet consumer demands, and comply with regulations? Circular supply chains are the answer. Unlike the traditional "take-make-dispose" model, circular supply chains reuse, recycle, and reintroduce materials, cutting waste and boosting profits.

Why Circular Supply Chains Matter:

• Cost Savings: Reduce production expenses by reusing materials and improving resource efficiency.

• Consumer Demand: 73% of consumers prefer brands with sustainable practices, and many are willing to pay more for eco-friendly products.

• Regulations: Laws like California’s SB 54 push companies to manage and recycle packaging, with similar regulations spreading across the U.S.

• Profit Potential: 74% of supply chain leaders expect profit growth by adopting circular strategies.

Key Steps to Transition:

1. Design Products for Reuse: Focus on modular designs and recyclable materials.

2. Set Up Reverse Logistics: Create systems to collect, repair, and recycle products.

3. Leverage Technology: Use blockchain for material tracking and AI to optimize processes.

4. Measure Progress: Track metrics like recycling rates and resource efficiency, integrating results into ESG reports.

Quick Comparison: Linear vs. Circular Supply Chains

By shifting to circular supply chains, businesses can align with ESG goals, reduce costs, and thrive in a competitive market. Start now to secure a sustainable and profitable future.

The future of supply chains is circular

What Drives Circular Supply Chain Adoption

Three main forces are steering manufacturers toward circular supply chains: financial incentives, regulatory pressures, and shifting consumer preferences.

Saving Costs Through Resource Efficiency

Circular supply chains can significantly cut costs for manufacturers. By extending the life of materials and resources, companies minimize production expenses and reduce overall operational costs [5]. In fact, 74% of supply chain leaders expect profit growth by 2025 through circular economy strategies, with collaborative supply chains potentially lowering operational costs by 15–25% [6].

Take Philips' "Pay‐per‐Lux" model, for example. Instead of selling lightbulbs, Philips provides lighting as a service, retaining ownership of the systems. This approach reduces waste while creating a steady revenue stream [7]. Similarly, Sharp partnered with JUSDA to optimize its global e-commerce logistics, cutting costs by 20% and improving order processing cycles [6]. Practices like recycling and designing products for easy disassembly not only reduce manufacturing costs but also open up new revenue opportunities and enhance brand image. On top of these benefits, government regulations are pushing companies toward circularity.

U.S. Regulations and Compliance Pressures

In the U.S., evolving regulations are a major driver of circular supply chain adoption. California's SB 54 shifts the burden of plastic pollution from consumers to producers. This law requires companies to manage and fund the recycling of their packaging. By 2032, it aims for a 25% reduction in single-use plastic packaging, mandates that 65% of plastic packaging be recycled, and ensures all packaging is either recyclable or compostable. Additionally, the law is set to raise $5 billion from industry members over the next decade [8][10].

"Under California's plastic pollution law, producers must take a more direct role in how their packaging is designed, managed and recycled to collectively achieve the previously cited milestones by 2032."

• Melanie Turner, SB 54 communications manager at California's Department of Resources Recycling and Recovery (CalRecycle) [12]

Many companies are already adapting. For example, some are switching to compliant materials like thermoformed PET and moving away from materials such as PVC, PS, and EPS, which come with added regulatory fees [11]. Beyond California, states like Minnesota, Colorado, Oregon, and Maine are rolling out similar Extended Producer Responsibility programs, creating a regulatory landscape that favors circular supply chain practices. By 2026, it's expected that 60% of businesses will be well-positioned to achieve profitable growth through circular supply chain strategies [9]. But regulations aren't the only force at play - consumer demand is also reshaping the market.

Growing Consumer Demand for Circular Products

Consumers are becoming a powerful force behind circular supply chains. A 2024 survey revealed that 73% of global consumers are willing to adjust their habits to reduce their environmental footprint, and 55% prefer brands that embrace circular practices [4]. Additionally, a 2023 McKinsey survey found that 4–7% of consumers are willing to pay over 10% more for sustainable packaging [13].

Brands are responding with innovative solutions. Many have introduced trade-in and refurbishment programs, while others are focusing on rental and leasing models that align with ethical and transparent supply practices. L'Oréal USA's Seed Phytonutrients brand, for instance, launched a recyclable, shower-proof paper-based bottle made from recycled materials. This product taps into the growing demand for paper-based packaging, which is increasing at a rate of 3.5% annually [13].

These shifts in consumer preferences, combined with regulatory and economic drivers, are making circular supply chains more than just a trend - they're becoming a necessity for businesses looking to thrive in the modern market.

How to Build a Circular Supply Chain

Shifting from the traditional "take-make-dispose" model to a circular supply chain involves creating systems that allow materials to be reused through multiple lifecycles. Achieving this transformation requires focusing on three key areas: product design, reverse logistics, and strategic partnerships. Let’s break down how to tackle each area effectively.

Design Products for Multiple Lifecycles

The starting point for any circular supply chain is product design. By adopting modular design principles, manufacturers can significantly reduce waste - manufacturing waste alone contributes to 16% of global waste production. Modular designs allow for up to 90% less material waste by enabling products to be disassembled, repaired, and upgraded more easily [17].

For example, Ross Video's Ultrix platform uses modular components that customers can upgrade individually. This approach not only cuts down on electronic waste but also extends the lifespan of the equipment [17]. The focus here is on creating products that prioritize durability, repairability, and ease of disassembly.

Material selection is another critical factor. Companies like First Solar convert mining by-products into solar modules that are designed with recycling in mind, recovering over 90% of their materials [1]. Similarly, Ecovative Design uses mushroom roots and plant-based materials to create biodegradable packaging that rivals synthetic alternatives in durability. These materials, now adopted by several Fortune 500 companies, showcase how sustainable design can align with business goals [1].

A circular design checklist can help manufacturers evaluate both existing and new products to ensure sustainability is considered at every stage of development [16].

Set Up Reverse Logistics Systems

Reverse logistics serves as the operational backbone of a circular supply chain. It involves moving goods from consumers back to manufacturers for returns, repairs, recycling, or disposal. The global reverse logistics market is projected to reach $812.6 billion by December 2027, underscoring its growing importance [21].

"Reverse logistics is simply the art of getting goods back from where you sent them." - Anthony Settipani, FourKites [18]

A centralized return center is a key component of an efficient reverse logistics system. These centers sort returned items and determine whether they should be repaired, refurbished, recycled, or disposed of [20]. Clear and user-friendly return policies are essential to encourage customer participation [19].

Technology plays a significant role in making reverse logistics more efficient. Returns management systems and automated portals streamline the process, cutting costs and improving customer satisfaction [19]. Data analytics is particularly valuable for predicting return volumes, identifying trends, and optimizing inventory management [19]. This is especially important given the higher return rates in e-commerce - 17.6% of online purchases are returned, compared to 10% for in-store purchases [20].

Companies like Nike and IKEA have embraced reverse logistics with notable success. Nike’s Reuse-A-Shoe program collects old sneakers - regardless of brand - and sorts them for recycling or reuse [1]. IKEA’s furniture buyback program, launched in 2020, offers customers store vouchers worth up to 50% of the original price for returned items in good condition. These programs highlight how businesses can integrate reverse logistics to promote sustainability while engaging customers [14].

Partner Across Your Supply Network

Building a circular supply chain requires collaboration across the entire network, involving suppliers, customers, and third-party partners. Working together ensures that circular principles are embedded at every level [17].

Transparency is key to fostering trust and collaboration. For instance, Levi Strauss publishes detailed maps of their primary and secondary suppliers, showcasing their commitment to an open supply chain [1]. This level of transparency not only builds trust but also facilitates better coordination for circular initiatives.

Technology partnerships can accelerate the adoption of circular practices. Google, for example, worked closely with suppliers to incorporate recycled plastic into their Nest smart home devices. By conducting site visits, engaging in technical discussions, and auditing recycling processes, Google ensured that the materials met quality standards while supporting supplier development [1].

Cross-industry partnerships can also lead to creative solutions. Toast Ale, for instance, collaborates with bakeries to repurpose unsold bread into beer, reducing food waste and creating a unique product. The company has set a goal of achieving a net-zero carbon footprint by 2030 [14]. Another example is DLL Group, which helped the UK’s National Health Service save costs by reusing ambulance rear boxes on new chassis, extending the vehicles’ lifespan by five to seven years [1].

Educating consumers is another vital aspect of successful partnerships. Companies must help customers understand proper waste disposal and recycling practices [1]. To ensure long-term success, partnerships should establish shared metrics and accountability systems. When every partner understands their role and has clear performance indicators, the entire network operates more efficiently, transforming isolated efforts into a cohesive, circular ecosystem that benefits everyone involved.

Digital Tools for Circular Supply Chains

Digital tools are reshaping how circular supply chains operate, offering better visibility and efficiency. These technologies are not just about tracking materials - they're about redefining how businesses meet ESG goals while cutting waste and costs. Two standout technologies - blockchain and artificial intelligence - are helping companies make measurable improvements in their circular supply chain processes.

Blockchain for Material Tracking

Blockchain technology creates an unchangeable record of a material's journey through the supply chain. This is a game-changer for manufacturers who need to back up their sustainability claims. With over 80% of consumers willing to pay more for ethically sourced products [23], blockchain provides a transparent, real-time ledger that ensures compliance and slashes administrative burdens [23].

For example, in May 2022, De Beers launched a blockchain-powered platform to guarantee diamond origin transparency. Similarly, in November 2022, Mitsubishi Logistics rolled out a blockchain tracker for drug deliveries [22]. In circular supply chains, blockchain ensures that products marketed as eco-friendly truly meet those standards. It can also boost recycling efforts by tracking materials across multiple lifecycles [24]. Plus, smart contracts built into blockchain systems automate data sharing while safeguarding privacy [25].

For businesses looking to adopt blockchain, starting small with a pilot project is key. Maintaining high-quality data, investing in employee training, and collaborating with tech partners are also critical steps. To gain executive buy-in, supply chain leaders should clearly communicate how blockchain directly benefits the business and integrates with existing ERP systems [22].

But blockchain is just one piece of the puzzle. Artificial intelligence takes circular supply chains even further by refining operations and predicting future needs.

AI for Process Optimization

Artificial intelligence complements blockchain by diving deep into supply chain data to uncover opportunities for material reuse and operational improvements. Companies using AI have reported impressive results, such as cutting material waste by 10–20% during production, reducing greenhouse gas emissions by 5–10% across operations, and extending equipment lifespans by 15–25% through predictive maintenance [31][27]. AI-optimized logistics have also helped lower transportation costs and emissions by 5–15% [31].

Take Schneider Electric's EcoStruxure platform, which uses AI to optimize energy usage by analyzing data from sensors and meters [28]. Siemens' Mindsphere platform, on the other hand, combines AI and IoT to enable predictive maintenance [26]. Big names like Cisco, Dell, and Michelin are also leveraging AI to improve product lifecycle management and streamline reverse logistics [29].

Andy Moses, Senior Vice President of solutions and sales strategy, highlighted AI's potential:

"The merger of human and machine is going to do great things for the business community. Machine learning and artificial intelligence will help you think faster. Then you apply the human expertise and experience to take full advantage of the information and make it useful." [30]

AI isn't just for factories. Cities using AI-powered waste sorting systems have seen recycling purity improve by 30–40% [31]. To get started, manufacturers should evaluate their current practices, invest in training, and test AI through pilot projects - especially with IoT integration. A 2019 global survey revealed that 34% of supply chain professionals had already adopted advanced analytics for circular economy initiatives, highlighting AI's growing role in achieving ESG and efficiency targets [32].

How to Measure Circular Supply Chain Performance

Building and refining circular supply chains is just the first step. To ensure these efforts lead to real-world environmental, social, and economic benefits, accurate measurement is key. By using both traditional business metrics and targeted sustainability indicators, companies can track their progress effectively. With only 8.6% of the global economy being circular and a potential $4.5 trillion market by 2030, having precise metrics is more important than ever [36][35].

To truly understand the impact, businesses must balance economic, environmental, and social performance while using circularity metrics to measure operational and sustainability outcomes [37]. These metrics are essential for embedding circular principles into broader environmental, social, and governance (ESG) strategies.

Core Metrics for Circular Performance

Start by identifying the key metrics that matter most for circularity. The Circular Transition Indicators (CTI) framework, developed by the World Business Council for Sustainable Development (WBCSD), offers a clear and structured approach. It’s designed to be transparent, quantitative, and applicable across various industries [36].

Diane Holdorf, Executive Vice President of WBCSD, highlights the importance of CTI:

"Built for business, by business, CTI provides a simple, consistent and sector-agnostic way to measure circularity. Its transparent, quantitative and comparable indicators support companies in taking action to increase circular sourcing, identify opportunities to improve resource recovery and effectively close loops. Going through the CTI process creates real value for businesses, helping them set SMART targets, mitigate risks and build relationships across departments and value chains. Companies that use CTI develop organisational resilience and are better equipped to respond to investors, customers and regulators' increasing pressure for transparency, stability and measurable progress in sustainability performance." [36]

To measure circularity effectively, track metrics like material recycling rates, reuse percentages, and the use of renewable materials. Evaluate product lifecycle extension by considering reuse rates, recycling potential, and initiatives that promote recycling. For instance, Waterhaul provides a lifetime warranty on its products made from recycled materials [35]. Additionally, monitor resource efficiency, waste reduction, and energy optimization. A notable example is H&M, which aims to use 100% sustainable raw materials by 2030, having already reached 57% by 2019 [35].

Focusing on strategies like product reuse, repair, and refurbishment often delivers greater environmental and economic benefits compared to end-of-life approaches like recycling or remanufacturing [33].

When choosing metrics, align them with your specific operations. For example, if your business prioritizes recycled materials or take-back programs, focus on those. Use scorecards to weigh circularity metrics against other supplier selection criteria, and gather data through supplier questionnaires to evaluate their circular practices [34].

ESG Reporting Integration

Once you’ve collected data, the next step is incorporating these circular metrics into established ESG frameworks to ensure accountability. Many companies are aligning with frameworks like the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB) to maintain consistency and comparability [39].

James Pearson, Senior Product Manager at Sphera, explains:

"ESG frameworks help identify what sort of metrics [product manufacturers] should be concentrating on. If we're looking at circular economy, we're mostly focusing on product actors. And so when a product manufacturer is trying to identify metrics for disclosure, what they really want to do is look to their core business activities and the areas where they can drive for the most improvement." [38]

Life cycle assessments (LCAs) are a crucial tool for integrating circular metrics into ESG strategies. By conducting LCAs, businesses can measure waste generation, raw material usage, and greenhouse gas emissions. This helps pinpoint problem areas and create improvement plans that align with ESG reporting requirements [38].

For example, HP’s Sustainable Impact Program incorporates ESG criteria into supplier management, tracking progress through audits and publishing annual reports that cover areas like carbon emissions, labor practices, circular economy efforts, and diversity goals [39]. Similarly, PepsiCo’s Supplier Code of Conduct sets clear ESG standards for suppliers, using audits and self-assessments as part of its sustainability strategy [39]. Unilever’s Planet & Society Program applies principles like responsible sourcing and climate action consistently across its global operations [39].

To integrate ESG effectively, standardize your supplier onboarding processes, require independent certifications, and conduct regular audits to track supplier performance. Connecting ESG outcomes with measurable business metrics demonstrates how circular initiatives contribute to overall success [39]. Integrate procurement and sustainability teams, and upgrade procurement systems to include ESG data management capabilities, ensuring smooth data flow into broader ESG reporting.

Key performance indicators to track include sustainability ratings like CDP scores, resource efficiency metrics (e.g., energy, water, and raw material use), revenue growth and profit margins before and after circular initiatives, and reductions in carbon footprints [3].

With 74% of supply chain leaders expecting profits to grow in the next two years due to circular economy principles, measuring and reporting these metrics is essential to proving value to investors, customers, and regulators who demand transparency and progress [3].

Building Your Circular Supply Chain Future

Shifting to a circular supply chain is more than a move toward sustainability - it’s a smart business decision for staying competitive in a fast-changing market. This transformation goes beyond environmental goals, offering manufacturers a chance to tap into new opportunities and adapt to evolving consumer demands.

To get started, focus on designing products built to last. Think about how they can be disassembled, refurbished, or recycled. Set up reverse logistics systems to reclaim value from returned materials, and work closely with your supply network to strengthen partnerships. Digital tools can play a big role here, helping you track and optimize every step of the process. It’s also crucial to establish clear metrics to measure progress. These should tie into your ESG reporting, ensuring accountability and showing stakeholders that you’re serious about results. Keep in mind that consumers are willing to pay 2-10% more for products from companies that prioritize supply chain transparency [15].

"Traceability enables circular chain collaboration... Companies that are looking to make their chain more resilient can get started by mapping out their ideal chain partnership, what we call a Minimum Viable Ecosystem, which creates enough value to drive commercial traction for all chain partners. When financial incentives align, successful chain collaboration follows." - Guy Vincent, Program Lead of Amsterdam Circular [2]

The financial upsides go beyond charging a premium. For example, well-executed ESG programs can offset rising costs and drive a 60% increase in profits [3]. Take Microsoft as an example: by redesigning its supply chain and using advanced planning tools, the company cut North American trucking emissions by 60% [3]. These achievements highlight why staying flexible and proactive in your circular supply chain approach is so important.

Adapting to change is non-negotiable. Regulations around environmental, social, and governance issues are evolving quickly, and your strategy needs to keep up while maintaining efficiency. This means staying informed and ready to pivot when necessary.

To make this transition smoother, seek advice from circular supply chain experts and invest in educating your team about the benefits - both economic and environmental. Reassess your procurement policies and prioritize sustainability when choosing vendors. Use KPIs and other metrics to track your progress and refine your approach over time [3].

Ultimately, building a circular supply chain isn’t just about responding to today’s ESG challenges. It’s about creating a business model that’s resilient, profitable, and ready to thrive in the economy of the future.

FAQs

What steps can manufacturers take to shift from a linear to a circular supply chain?

Manufacturers looking to shift toward a circular supply chain should prioritize product design, partnerships, and resource recovery. It starts with creating products that are built to last, easy to repair, and recyclable. By focusing on these qualities, manufacturers can extend a product's life and cut down on waste. For instance, designing items that can be upgraded or fixed easily reduces the need for constant replacements.

Equally essential is building strong partnerships. Work closely with suppliers, customers, and other key players to establish systems for reclaiming and reusing materials. This could involve refurbishing returned products or recycling parts. These practices not only reduce waste but also make the supply chain more efficient and adaptable.

How do technologies like blockchain and AI improve circular supply chains?

Technologies like blockchain and AI are transforming how circular supply chains operate by making them more transparent and efficient. With blockchain, manufacturers can track the entire lifecycle of materials and products, ensuring accountability at every step. This technology helps confirm the origins of materials and encourages responsible practices throughout the supply chain.

AI complements these capabilities by improving resource management, predicting maintenance needs, and supporting smarter decision-making. By analyzing data on usage patterns and product lifecycles, AI minimizes waste, optimizes inventory, and boosts efficiency. Together, these technologies help manufacturers align their operations with sustainability objectives while addressing growing ESG demands.

What are the best ways for companies to measure the success of their circular supply chain efforts in ESG reporting?

To measure the effectiveness of circular supply chain efforts in ESG reporting, businesses can track key performance indicators (KPIs) that align with their sustainability objectives. These might include metrics such as resource efficiency, waste reduction, recycling rates, and the percentage of materials reused or repurposed. Monitoring these KPIs offers a clear picture of how well circular strategies are being executed.

Companies can also broaden their focus by including metrics tied to carbon emissions, ethical sourcing, and product lifecycle assessments, which highlight wider environmental and social impacts. Using established frameworks like the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB) can help maintain consistent and transparent reporting. This approach not only simplifies communication with stakeholders but also ensures compliance with regulatory expectations.