The Circular Economy – Useful Analysis from Tradeshift

The circular economy is becoming a concept that leading procurement practitioners need to be familiar with, as it establishes itself as the next stage of thinking beyond some of our “traditional” environmental concerns, which form form one of the elements of CSR (corporate social responsibility) in most major organisations.

Live every new big idea, we need to be careful to sift the people who actually know what they are talking about form the charlatans who are just in it to make a quick buck. Many of the firms offering “carbon offsets” or credits turned out to be scams, for instance. But here is a sound concept at the heart of the circular economy thinking – it is really the logical conclusion of the whole-life cost philosophy that good procurement folk have followed for years.

We featured here Alis Sindberg Hemmingsen, an expert on CSR and this topic, when she spoke at last year’s Trade Extensions conference. Now, there is another worthwhile short paper that’s worth taking a look at the subject, available from the Tradeshift website.

It features Vishal Patel, the firm’s Director of Solutions Marketing, and also Ida Auken (the former Minister of Environment, Denmark) and William (Bill) McDonough (a globally recognised leader in sustainable development). The paper covers highlights from their discussion with Tradeshift CEO, Christian Lanng, and more. The definition of the circular economy given in the paper is this:

It is a practice that encourages buying decision makers to prefer products which are designed and made taking into account their full lifecycle as well as the potential of reuse and recycling of those products.

So we would take that traditional whole-life cost thinking, but for example rather than considering disposal costs for IT equipment or furniture, at the procurement (or even design) stage, we would look at the options for recycling or reusing the materials. That can have a hard business benefit as well as obviously having a more positive effect in terms of conserving the resources of the planet.

Clearly, procurement has a key role to play here, although as always we would counsel caution in the sense that we need to take top management along with us. A circular economy initiative that is the brainchild of the CPO but is not socialised with Board-level colleagues is unlikely to succeed. So we should think about the function playing the role of the business champion for the process, not a lonely trail-blazer!

Taking this approach will have some challenges though. As the paper says, “Procurement can lead the charge by challenging suppliers (existing or new) to come up with innovative solutions that support the circular economy. However, the traditional “sourcing” process may not work here; it will require a much more collaborative and integrated approach—an approach that does not prioritize short-term cost reduction but instead long-term sustainability. That said, the outcome may be a lower total cost of use”.

So this fits with the sort of approach many have preached around supplier relationship management and capturing innovation generally from suppliers. It does not fit with a tactical “beat the suppliers’ across the head” approach. It’s also important to get this in perspective; it is never going to apply to every spend category, or at least not in any depth, so choosing just where we can have the most impact is another important point to consider.

But as we say, procurement needs to be getting on board with the thinking here, we’d suggest, and the Tradeshift paper (as well as our previous article) is a good start.


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