Circular Procurement: Achieving Operational and Environmental Resilience

Written By Guest User

Under a circular economy model, the supply chain is oriented around reducing waste and optimising resource longevity via a closed-loop system.  Practices such as refurbishment, sharing and recycling seek to minimise resource inputs and prevent negative environmental externalities. 

At its core, the circular economy should not just be thought of as an environmental model but also as a way to retain value.  The more value captured from our use of the world’s finite resources, the more sustainable our supply chains become over the long term.  Circular procurement is a catalyst for these principles.  Without the necessary changes to reduce waste in supply chains, we cannot create loops to retain that value.

Capturing value with closed-loop procurement practices

The Growth of Circular Practices

In the wake of increasingly urgent supply chain and environmental challenges, many organisations have accelerated the adoption of methods to become more circular.  Consumers and purchasers are increasingly sensitive to the pollution caused by linear supply chains and their inherent instability.  A departure from the ‘make, use, dispose’ approach can help companies get much more value out of the energy, materials, and other resources they use to assure fragile supply chains.

Reverse logistics operations are now frequently utilised to recapture value or facilitate proper disposal.  Many consumers are now familiar with examples of this, as purchasing refurbished phones or trading in technology has become commonplace.  Clothing retailers, responsible for around 10% of global carbon emissions, often facilitate in-store recycling to remanufacture garments for sale.  Internet Service Providers (ISPs) regularly grade and refurbish returned routers that are re-issued to customers, thereby reducing purchasing costs.

Reverse logistics for optimising supply chain value and resilience

Implementing Circular Practices

Despite the growing adoption of more sustainable procurement practices, the 2021 Circularity Gap Report found that only 8.6% of the global economy is currently circular [1].  Most procurement remains entrenched in more traditional linear methods. 

Unsustainable demand for scarce resources continues to endanger the construction supply chain.  The UK Green Building Council note that, “construction, demolition and excavation account for 60% of material use and waste generation” in the UK [2].  Construction materials continue to experience shortages and considerable inflation, which limits productivity and profitability across the industry.

Significant change is required to realise the operational and environmental benefits possible through circular procurement, particularly for improving supply chain resilience and supporting global efforts to reach net zero carbon targets. To establish a circular supply chain, purchasers are required to adopt a forward-looking procurement framework.  This requires top-down strategic intent to reevaluate end-to-end processes, particularly for organisations that deliver large-scale works such as construction projects.  Planning, tendering and contracting set the terms for how wasteful a project will be and thus determine its circularity.

For the construction industry to achieve circular goals, the level of knowledge required demands subject matter experts, particularly environmental specialists and life cycle planners.  Purchasers may therefore have to recruit and train people capable of planning circular projects.  Importantly, sustainability should not become siloed as a separate department as collaboration is required across organisations to implement closed-loop operations and sustain the resilience afforded by circular procurement. 

Increased organisational engagement should allow performance to be measured against circular targets. Reporting against circular indicators facilitates continuous improvement across supply chain operations, particularly where contractors are engaged.

Establishing Circular Tender Criteria

In public and private procurements, tender responses are typically evaluated against quality and price criteria to yield the Most Economically Advantageous Tender (MEAT).  Most tenders allocate some criteria against environmental, sustainability and social performance, yet these factors are often overshadowed by a narrower emphasis on time and cost.

Increased allocation of circular criteria in tender competitions is required to realise operational and environmental resilience.  This can be achieved by a greater emphasis on recyclability and reusability.  For example, a significant weighting could be allocated to a tenderer’s capability to provide or facilitate reverse logistics. Tender criteria may also place greater emphasis on suppliers’ carbon footprint, which can reduce a purchaser’s downstream emissions and ensure that its supply chain remains ahead of any regulatory changes.  Such criteria should also be utilised during the pre-qualification process to preclude the engagement of linear-operating suppliers. 

Additionally, purchasers can utilise circular technical specifications to stipulate a level of performance against closed-loop criteria.  A purchaser tendering construction services could mandate the use of sustainable materials; for example, bricks made of untreated clay, wool or used cigarettes.  Alternatively, a logistics services tender may require an electric vehicle fleet, prohibit the use of plastic wrap, or require service providers to utilise a distribution centre powered by renewable energy.  Closed-loop criteria can enable purchasers to access market innovations via sustainable technology and jump ahead of looming regulation, reducing dependence on finite resources and volatile supply chains. 

More traditional procurements typically understate operational costs such as energy consumption, maintenance and disposal.  Circular criteria can be used to improve the accuracy of cost forecasts, delivering increased long-term value and resilience across the supply chain.  When incorporated into a traditional quality-price tender, circular criteria can help purchasers to realise the long-term operational and environmental benefits of closed-loop procurement.

3 Key actions to build circular procurement capabilities

Closing Words: Achieving Sustainable Outcomes

Circular procurement is a fundamental catalyst for creating a more sustainable future.  Achieving supply chain and environmental resilience depends on an accelerated transition away from the linear ‘make, use, dispose’ economy to more regenerative practices.

While shifting businesses to become more circular will take time and entail upfront cost, organisations are encouraged to embrace the long-term value-adding benefits of implementing closed-loop supply chains.  Ultimately, establishing a circular procurement framework presents significant value creation and reduces supply chain volatility. Organisations can also benefit from revenue upside generated by secondary sales.

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