A recent report from Bain & Company, the World Economic Forum, and the University of Cambridge reveals that while a significant majority of manufacturing executives recognize the value of circularity, many struggle to implement it effectively in their supply chains. The study, which surveyed 491 executives across ten manufacturing-centric industries, indicates that 79% of respondents view circularity as essential for their business today. However, only 20% believe their circular supply chain capabilities are adequate.
The findings underscore a pressing need for companies to bridge the gap between recognizing the importance of circularity and executing it at scale. Despite the challenges, 95% of executives expect circularity to gain importance in their organizations within the next three years, with over two-thirds rating it as “very important.” Furthermore, 80% anticipate that revenue growth from circular initiatives will surpass company averages, while 70% expect higher margins from circular activities compared to traditional linear models.
Barriers to Implementation
The report highlights several barriers that hinder the scaling of circular supply chains. These challenges fall into five main categories:
1. **Operations and Logistics**: Companies encounter issues such as low availability of secondary materials, varying return quality, and the complexity of reverse logistics.
2. **Business Opportunity and Profitability**: High upfront costs and uncertain demand can make achieving profitability elusive.
3. **Technology, Data, and Infrastructure**: Insufficient reverse-logistics networks and poor data systems limit transparency and efficiency.
4. **Organization**: Skill gaps and internal resistance can impede progress within companies.
5. **Regulation**: Cross-border restrictions and inconsistent standards regarding refurbished or remanufactured goods create costly bottlenecks.
To effectively navigate these challenges, the report outlines three strategic steps that leading companies are adopting to scale their circular supply chains.
Strategic Steps for Scaling
First, companies are encouraged to set clear priorities. This involves focusing on products with higher residual value and targeting customer segments more receptive to circular offerings.
Second, firms are advised to design hybrid supply chains that integrate both linear and circular flows. The survey revealed that 56% of companies reported having mostly integrated supply chains, while only 5% operate fully independent ones.
Lastly, activating key enablers is crucial for success. The report identifies four primary catalysts:
1. **Technology and Data**: Utilizing digital tracking, IoT, and AI to manage unpredictable flows and enhance connectivity.
2. **People and Culture**: Integrating circularity into governance frameworks, skill development, and incentive structures.
3. **Finance and Investments**: Addressing startup costs and supporting medium-term returns to foster growth.
4. **Policy and Regulation**: Establishing consistent frameworks and market incentives to facilitate circular initiatives.
According to Xavier Houot, a partner in Bain & Company’s Sustainability & Responsibility practice, “The question is no longer whether circularity matters but how it can be implemented at scale.” He emphasizes the need for business leaders to embed circularity into their core strategies and operations.
Hernán Sáenz, senior partner and chairman of Bain’s Performance Improvement practice, concludes that while businesses increasingly recognize the economic potential of circularity, successfully scaling their supply chains remains a complex endeavor. Those that prioritize and design effectively can transform circularity into a significant source of growth and resilience.
As the manufacturing sector continues to evolve, the integration of circularity appears not just advantageous but essential for long-term success and sustainability.
