Logistics is challenging in a circular economy

Blog post

Circular economy is growing. We hear an increasing amount of stories about both successful and failed business models. Logistics plays a key role in the success of new business models for circular economy. At the same time, the required logistics poses a challenge, since it is significantly different from current operating models and logistic structures. How can the logistics of circular economy be made efficient, smooth and reasonably priced in Finland?

VTT’s recent AARRE project studied logistics and associated networks from the perspective of various business models for circular economy. The keys to functional future logistics are improving the sharing of information, close collaboration between companies and consumers, matching logistic infrastructure to the needs of circular economy and creating novel logistic services.

What is logistics like in circular economy and what challenges are involved?

In circular economy, materials will not end up as waste. Instead, they circulate within and between different supply chains, and are often transformed. The logistics of circular economy faces several challenges, such as poor predictability of material streams, small batches, low financial value of the material and variation of the material and its quality. For example, how can we transport low-value material cost-efficiently, ecologically and at the right time to a factory that manufactures products from secondary raw materials? Logistics will also grow in importance as companies and consumers switch from ownership to the use of services. How can one obtain a shared steam cleaner or a rented welding machine easily and economically, and how does the return logistics work?

Cost-efficient and ecological supply chain management will be a fundamental requirement of a well-functioning circular economy. According to companies working in circular economy, the logistics costs of circular economy are, for the most part, too high. The supply chain is missing services and operators. Collaboration between companies and segments is still low. In many cases, these shortcomings form an obstacle for new business in circular economy, or impair its profitability significantly.

How to respond to the challenges?

One of the key factors is the use of digitalisation in all phases of the supply chain, from the designer’s desk to return logistics. Circular economy highlights the importance of efficient control of material streams: accurate monitoring, traceability and novel logistics solutions. Building functional logistics requires collaboration among the parties, including cross-segment collaboration and co-operation between competitors. Legislation should also support logistic solutions of circular economy, for example by allowing more flexible intermediate storage for waste that will end up as secondary raw material.

Check list for circular economy logistics

Below is a summary of key factors identified in the AARRE project, and good practices for responding to the associated challenges.

Collaboration and the lack of collaboration in the network

  • Who are your key partners? Increase collaboration with them by developing new operating methods together.
  • Invest in establishing trust.
  • What information is critical for the logistics of circular economy? Create new ways of sharing this information.
  • If necessary, find partners outside your segment.

Digitalisation! What can you do with it?

  • Digitalisation will be an important enabler of the management of the supply chain (circle) of circular economy
  • Built-in ID tags detailing the content and usage history of a product will help in the refurbishing of products and reuse of product materials.
  • Information about location and needs improve the predictability and transparency of streams.
  • Various platform solutions enable material streams to be connected between parties, which improves the efficient utilisation of storage and transport capacity.
  • Forecast return streams by leveraging Big Data and information obtained from consumers themselves.

Logistic costs

  • Join forces with local actors. Combining volumes across sectors increases the efficiency of transport and warehousing.
  • Use your transport capacity at its maximum capacity. This too requires collaboration across companies and sectors.
  • Leverage digitalisation.

Efficiency or inefficiency of the entire supply chain

  • Actions that support the logistics of circular economy can be made already at the product design phase.
  • Encourage consumers to participate in return logistics by adopting a use-based business model or awarding users for returns.
  • Study start-up companies to get ideas about novel supply chain arrangements.

Logistics service providers as pioneers of circular economy

Circular economy requires a large number of new services from logistics companies. Recycled materials need flexible, versatile, correctly located or mobile storage services. Consumers are predicted to adopt a more active role, which creates more business opportunities, for example in trade between consumers. Logistics of circular economy needs a wide range of IT services, for example utilisation of data from sensors along the delivery circle, and a smarter combination of transport needs. The logistics of circular economy will also need a significant amount of new technologies. Development of services serves to promote wide-scale adoption of circular economy, while opening significant business opportunities for logistics and technology companies both in Finland and in export markets.

For more information, please visit:  www.vtt.fi/sites/AARRE
or follow on Twitter @AarreResearch

Headed by VTT, the AARRE project created new, user-driven circular economy business activities. The project was a networked research project (2015–2017) being undertaken in partnership with the business sector, with Tekes as the main funder. In addition to VTT, the other research organisations involved were the Finnish Environment Institute (SYKE) and the Consumer Society Research Centre of the University of Helsinki. The partners in the AARRE project were Lassila & Tikanoja, Destaclean, Kierrätysverkko, CoreOrient, Eurokangas, Not Innovated Here, as well as the Chemical Industry Federation of Finland, and the Federation of Finnish Technology Industries. The AARRE project ended on 30 November 2017.

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