Circular Economy and Information Sharing – The Role of Logistics

Circular Economy and Information Sharing – The Role of Logistics

Feature Article by Beverly Lege, Research Associate and PhD Candidate at Hamburg University of Technology, Institute of Business Logistics and General Management, Thomas Twenhöven, PhD Candidate at Kuehne Logistics University and Prof. Wolfgang Kersten, Professor of Operations and Supply Chain Management and Director of the Institute of Business Logistics and General Management at Hamburg University of Technology

Increasing environmental pollution, global warming and growing resource scarcity – the effects of our current linear economy that follows the principle of “take, make, waste” are devastating for our society and our planet (Circle Economy 2023). Transitioning towards a Circular Economy is therefore crucial to tackle these global issues. But what is the Circular Economy, and w hat does it mean for logistics? In this article, we flesh out how the Circular Economy differs from a linear one, and how logistics can contribute to it.

The Circular Economy aims to change the way products are manufactured and used. Presently, raw materials are mined or farmed and subsequently manufactured into products. These products are then used by the customers and – usually – disposed of once they have reached their end of life. This linear approach requires substantial amounts of new raw materials and capacity in landfills to store waste. Only 7.2% of globally extracted and used materials are cycled back into the economy (Circle Economy 2023). In contrast, the Circular Economy seeks to minimize the extraction of new raw materials and the creation of waste, keeping products and materials in use for as long as possible. The Circular Economy distinguishes between the biological and the technical cycle: the biological cycle focuses on returning biodegradable materials to nature, e.g., through composting, and the technical cycle addresses reuse, repair, remanufacture and recycling of non-biodegradable materials (Ellen MacArthur Foundation 2015). This article concentrates on products made from non-biodegradable materials and thus only relates to the technical cycle. Since many products in our current economy do not allow to circulate them due to improper design features, the Circular Economy calls for circular product design. Following the technical cycle, repeated (re-)use through resale and especially sharing of products instead of owning them are – in addition to maintenance and repair to keep products whole – important ways to preserve their value. If the product cannot be used any longer, its components can be remanufactured, or, as a last resort, constituent materials are recycled to serve as the basis for new products.

The transition towards a Circular Economy will progress step by step, rather than instantaneously. Consider the German online fashion retailer Zalando, for example, which primarily sells new fashion. For some time now, Zalando has also been buying back used clothes from its customers as fashion items are frequently disposed of once they are no longer desired. After identifying an item and its present condition, it is resold to other customers as a used item to prolong the product’s life. It is easy to imagine an expansion of this new business model. Products may be leased and shared instead of sold. Moreover, they may be repaired to prolong their life.

The Circular Economy aims to change how products and materials move. This very movement of products and materials is the core of logistics. Therefore, the Circular Economy has consequences for logistics processes. Presently, most physical streams of goods consist of large amounts of products being transported over long distances from factories to consumers. In the Circular Economy, logistics is far more local, moves much smaller loads, and frequently consists of reverse logistics. Reverse logistics of used products from the consumer replaces (long-distance) transportation of new goods from manufacturing sites which can be seen in the Zalando example above. Thus, the consumer is now both the destination and the source of products. Especially in larger urban areas, products might be resold in the same area, resulting in extremely short logistical links. Companies like the startup GreenCircle (green-circle.co) operate this way. To make reusing and reselling as easy as possible, they aim to pick up used products from consumers and distribute them to others living nearby. Similarly, the consumer also serves as a source of secondary raw materials. Instead of moving raw materials from mines, discarded products are collected from consumers and recycled. Again, long-distance transportation of large amounts of resources is replaced with small-scale reverse logistics from the consumer.

The Circular Economy also expands the overall amount of transportation. At present, still-functional products are frequently thrown away and replaced by new products. In the Circular Economy, far fewer products will be manufactured. However, these products will be moved around between customers to make them available where they are needed. Essentially, industrial capacity will be replaced by logistics. This represents an opportunity for logistics service providers to capture a large new market.

Logistics service providers should choose an active rather than a passive approach when it comes to the Circular Economy. In a passive approach, the logistics service provider continues to do business as usual until this business is affected by external developments in the marketplace and changes only when absolutely necessary. With an active approach, the logistics service provider anticipates such developments and actively positions itself to take advantage of them ahead of time. More active logistics service providers are likely to increase their market share over time.

This active approach is not limited to anticipating changes. On the contrary: logistics service providers themselves play an important role in pushing the business models of the Circular Economy forward. Think of product-as-a-service models where consumers pay for a certain service, rather than the product itself. Logistics service providers could act as an intermediary between consumers interested in using a certain product, and manufacturers or retailers possessing the product, matching supply and demand. This opens up new possibilities for enhancing logistics service providers´ product portfolios and entering new markets (EY 2022). In addition to collecting and distributing used products, logistics service providers could also take over other value-adding services. Spare parts logistics combined with repairing damaged items and assessing the condition of used products fits well into this paradigm (DPDHL 2022). Nevertheless, this requires familiarity with the specific product, but logistics service providers have long gone beyond the movement and storage of goods, into manufacturing-adjacent tasks such as sorting and assembly.

The Circular Economy may also give rise to another aspect of logistics: information logistics – the management of information flows – which plays a central role in enabling the Circular Economy and accelerating the transition, as EY (2022) and Fennemann et al. (2018) have stated. Sharing product-related information is a key requirement for the Circular Economy: A repair shop needs to understand the product design to repair it, a recycler needs to know about components and raw materials to recycle them, and finally, the manufacturer needs to understand repair and recycling to develop a product that can be repaired and recycled easily. Apart from basic or mandatory information directly associated with products, usually, additional information or data sheets are needed, e.g., the amount of recycled content or detailed repair documents. Consider the Zalando example above – reselling used products depends on identifying the precise make and model of an item of clothing. This identification process can be exceedingly difficult, especially when tags are missing from the clothing. Information about the respective item would greatly simplify this process.

The key question is how information can be made available at the right places. While companies like Apple have chosen to integrate manufacturing, repairing, and recycling under one roof and avoid sharing information outside of their company, information will have to move between companies in most cases. Potential information as well as material flows are shown in Figure 1.

This is where information logistics comes in to act as a data hub, create safe data spaces, and offer possibilities to share information (EY 2022; Fennemann et al. 2018). Utilizing and providing IT infrastructure is not new to logistics, for example when it comes to planning and monitoring transport or sharing production-relevant data. As the connective link between all actors, logistics service providers are well-positioned to operate information sharing platforms. Existing systems will have to expand to accommodate Circular Economy-related information that all authorized actors can access. This expansion will be an opportunity for logistics service providers, but running such platforms is new for the ones who have so far focused on their core business of physical transportation.

As we have outlined above, logistics will play a key role in the Circular Economy. Conversely, the Circular Economy will also play a key role in logistics. This mutual interdependence will be of great importance as consumers and regulators demand a greener economy. Ignoring these demands is not a sustainable business model – neither from an environmental nor from a financial perspective. Therefore, logistics service providers need to prepare for the logistics of the future. They need to focus their attention on more local and reverse logistics, which are relatively well-known. But to stay competitive, they also have to identify new opportunities that go beyond their current role. Actively expanding offerings with value added services like repair and recycling will be crucial here. The Circular Economy will be a challenge for logistics – but as the saying goes, problems are just thorny opportunities.About the Authors” heading_tag=”h5″ alignment=”left”]

Beverly Lege studied industrial engineering with focus on logistics at Hamburg University of Technology (TUHH). Being a research associate and PhD candidate at the Institute of Business Logistics and General Management at TUHH, she addresses ways to improve product information sharing among actors of the Circular Economy in her research.

 

 

 

Thomas Twenhöven studied industrial engineering at the Berlin University of Technology and is currently a PhD candidate at Kühne Logistics University. His research concerns applications of Blockchain technology in Supply Chain and Logistics, particularly for Sustainability. Beyond BlinK, he has participated in the HANSEBLOC and ChainLog research projects.

 

 

 

Prof. Wolfgang Kersten is a professor of operations and supply chain management, and the director of the Institute of Business Logistics and General Management at the Hamburg University of Technology, TUHH, Germany. His research focuses on logistics and supply chain management, in particular risk management resilience, sustainability and digital transformation.[vc_text_separator title=”MORE FROM THIS EDITION” border=”no”][vc_single_image image=”19533″ img_size=”medium” qode_css_animation=””][ult_layout layout_style=”4″ list_style=”6″ s_image=”0″ s_excerpt=”0″ s_categories=”0″ s_metas_o=”0″ s_metas_t=”0″ quick_view=”0″ taxonomies=”post_tag” price_font_weight=”” atcb_font_weight=”” title_font_weight=”normal” title_font_style=”normal” title_text_transform=”capitalize” metas_font_weight=”” excerpt_font_weight=”” filter_font_weight=”” tab_font_weight=”” pagination_font_weight=”” title_font=”Lato” title_font_size=”12pt” i_taxonomies=”353, 354″ d_i_filter=”353″]