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Fostering collaborative partnerships, incentivizing customer engagement, and assessing global risk all play important roles in improving circularity. 

 

TAKEAWAYS:
● Advanced technologies can provide industrial companies and their networks with more precise information to plan inventory levels effectively.
● Companies must find ways to communicate to customers that sustainability and reuse are priorities.
● Mapping out supplier networks is essential for identifying areas in the chain that may be most vulnerable to disruption.  

 

Manufacturers seeking to develop more circular supply chains face numerous challenges—both behavioral and structural. These challenges include consumer behavior, nuances in supply chain networks, limited economic incentives, restricted sourcing options for key materials, and geopolitical shifts.

But industrial companies can take tangible steps to make progress, even if the journey toward completely circular operations is still distant (for instance, achieving zero-waste production may be a more achievable initial goal). To work toward circular supply chains, manufacturers can design products with circularity in mind, foster collaborative partnerships, establish reverse logistics infrastructure, engage and educate customers, and map out supply chains to minimize waste.

Advanced technologies—such as Internet of Things-enabled devices, additive manufacturing, advanced recycling technologies, and digital twin simulations—will play a critical role in all these efforts.

Partnerships: Key to Understanding Product Life Cycles

Mapping out the entire product life cycle is usually an effective way to assess a product’s environmental impact, from material sourcing to end-of-life, while identifying opportunities to incorporate circularity and reduce waste throughout the chain.

Partnerships are vital for diagramming these life cycles. Manufacturers can collaborate with suppliers and distributors to determine the following:

• Opportunities to use more sustainable alternative materials that enhance recycling or that are less affected by global supply chain disruptions;
• How to make designs more modular, standardized, and easier to assemble, reassemble, reuse, and repair;
• Technologies to track various parts and components throughout their supply chain journeys;
• Improvements to production and distribution processes that reduce waste and embed circularity, including mapping out reverse logistics infrastructure;
• Effective methods for collecting specific items from customers at the end of their useful life, as well as companies that can assist with remanufacturing and materials recovery;
• Implementation of more efficient recycling practices throughout the supply chain; and
• Estimating and communicating the value of circular products to customers, and tailor distribution systems, customer rebates, and warranties to encourage participation in circular practices.

In most, if not all, these areas, harnessing advanced and emerging technologies will be crucial. For example, Internet of Things-enabled devices on the factory floor and integrated into inventory tracking systems can provide manufacturers and their suppliers with visibility into key metrics, equipping all relevant parties with product traceability data.

Digital twin simulations and additive manufacturing may be particularly beneficial for manufacturers and their suppliers working together to model scenarios and potential changes needed for a more circular environment before making specific investments, such as redesigning for modular components that can be easily removed, replaced, or refurbished. Simulations can also help identify waste in production and distribution and propose solutions to optimize those areas. Modeling supply and demand can equip companies with the information needed to scale back production of certain items, addressing excess inventory issues.

“Modeling supply and demand can equip companies with the information needed to scale back production of certain items, addressing excess inventory issues.”

 

The balance of supply and demand will always be delicate, especially as manufacturers have reevaluated their approaches to just-in-time inventory in recent years. Technologies can provide industrial companies and their networks with precise information to plan inventory levels effectively.

Companies can enhance their return on investment by collaborating with their supplier networks; operating in isolation is not a viable strategy for progressing toward zero-waste goals.

Customer Engagement

In addition to strengthening supplier partnerships, manufacturers will increasingly need to view customers as partners to facilitate greater circularity in the supply chain. For many companies, a significant hurdle is incentivizing customers to engage more actively in the value chain; this may require rethinking business models, shifting from traditional sales to product-as-a-service or subscription-based models.

In some industries, this shift is already occurring through leasing arrangements and battery return programs. Such initiatives give businesses more control over the second life of their products and can enhance production efficiency on the front end, particularly concerning critical minerals, such as those used in electronics and electric vehicle batteries.

“Increasing the recycling and reuse of certain materials to reduce the need for reliance on raw inputs on the front end of production can help mitigate some of these [volatility and geopolitical] challenges.”

 

Beyond return programs, education will be foundational. Companies will need to explore ways to communicate their commitment to sustainability and reuse, as well as develop incentives that promote recycling at the end of a product’s life. Methods might include discounts, rebates, or replacements for participating customers, or deals on other products in collaboration with third-party companies. This is yet another area where digital twin simulations can assist manufacturers in evaluating the financial implications of various scenarios before committing to a specific program.

Assessing Global Risk

Many US manufacturers are navigating the impacts of a volatile trade environment and constant shifts in geopolitical considerations regarding material sourcing. Increasing recycling and reuse of certain materials to reduce reliance on raw inputs can help mitigate some of these challenges. While many manufacturers may not be able to completely sever ties with suppliers in Asia, Africa, and elsewhere for critical components like semiconductors and minerals, there are steps companies can take now to bolster their resilience against geopolitical risks.

Mapping out supplier networks down to the nth tier is essential for identifying areas in the chain that may be most susceptible to disruption. Digital twin simulations and/or third-party risk assessments can aid manufacturers with these tasks:

• Visualizing multiple layers deep into the supply chain to analyze potential geopolitical, operational, and other risks;
• Identifying risk mitigation strategies across the supply chain;
• Evaluating areas of improvement regarding sustainability-related metrics; and
• Modeling various tariff scenarios and their implications for planning.

Equipped with information from simulations and assessments, manufacturers can decide whether to seek alternative sourcing for materials from regions with high geopolitical risk or to increase their goals for sourcing production inputs from recycled materials. Organizations that collect and reuse materials already within their value chains may be better insulated from certain geopolitical supply shocks.

The Takeaway

Manufacturers that take action now to enhance the circularity of their supply chains will be better positioned for the future, especially given the growing focus on sustainability among various stakeholders. To achieve more circular manufacturing supply chains, industrial companies will need a strong economic imperative. In some areas, this is already happening; the European Union’s Circular Economy Act—currently under development and expected to be published in 2026—will impact companies operating there. Additionally, incentives originating in the EU often influence other countries, potentially signaling future trends for US manufacturers.

“To achieve more circular manufacturing supply chains, industrial companies will need a strong economic imperative.”

 

In assessing the economic feasibility of circular operations and weighing costs against benefits of relative investments, companies should consider savings from waste reduction and recycling, as well as potential new revenue streams, market share growth, and access to new markets by offering more sustainable products.

Building fully circular manufacturing supply chains is a monumental task that will likely take companies years to achieve. However, prioritizing sustainability is here to stay, and there are numerous ways to embark on that journey.  M

About the authors:

 

Jon Caforio is a principal at RSM US LLP.

 

 

 

Irina Im is a senior manager at RSM Canada.