The last few decades have seen a huge amount of effort and resources poured in to sustainability and corporate responsibility initiatives.
Despite the valuable intentions, many have struggled to make a real difference, or at least on the required scale. This is no-one’s fault in particular, but because production has outstripped planetary boundaries and the environment is contending with mass-scale pollution.
But why is this? Succinctly put: “Companies can’t be sustainable in an unsustainable society.”
The idea of a sharing economy was borne out of a need to rectify this situation. It is a system built around the sharing of human and physical resources and there are hundreds of compelling new businesses tapping into this idea. The likes of Uber, AirBnB, Lyft, and Kickstarter, are transforming how goods and services are concepted, created, procured, and sold – and are in fact, changing the whole distribution model.
The trio of Internet ubiquity, cloud computing, and mobile broadband makes the sharing economy possible. Similarly, content subscription services like Netflix and Spotify are displacing many physical goods with on-demand digitised alternatives.
And software-as-a-service (SaaS) models allow companies to forgo owning IT infrastructure, ultimately reducing the footprint of their hardware and electricity use.
Indeed this has also been reflected in manufacturing. Major companies like Rolls Royce and Caterpillar have started the transition from manufacturing to managed services, taking care of product life cycles end-to-end. Today, you don’t buy a Rolls Royce jet engine: you lease it and the British manufacturer will manage the process end to end, installing, servicing, monitoring in the air, replacing and recycling parts, and ultimately delivering a service, not just a product.
The sharing economy trend is a step in the right direction to helping companies be sustainable. But it is putting heavy demands on the modern supply chain. As such, there is the growing consensus that the only way forward with sustainable production and growth is to shift from sharing to a circular economy.
A circular economy aims to make every process within a value chain dramatically more efficient, in every way possible. This is by stewarding precious resources through the value chain and returning them as inputs to new, refurbished, recycled, remanufactured or repaired products.
Suppliers are complicit in its execution because the circular economy requires all parties involved in a product or service to be intrinsically linked and to pull in the same direction. But leaders also have to rethink their supply chain economy as a network, not as a collection of single companies. Everyone needs to work in union, choreographing the movement between materials and goods.
McKinsey, Ellen MacArthur Foundation and other large companies such as Philips and Accenture are getting behind the circular economy. Companies on the forefront of this wave can create new product-to-service approaches, new materials recovery methods, and smarter projections and preparedness for future costs. And while it may take years or decades for the ultimate vision of the circular economy to take hold, the transition has begun.
To be a true player in the circular economy, businesses must rethink their supply chain economy as a network. We almost need to mirror social media platforms such as Facebook or LinkedIn: Enterprises need to connect with their suppliers on one platform via the Internet and cloud; make it accessible so that all businesses can participate and also make it easy for them to communicate through one language.
We’ve seen this with NHS SBS, which has changed the way it interacts with its 100,000 suppliers by digitising over 30,000 daily paper documents into e-invoices.
Because NHS SBS now communicates with its suppliers predominantly over a cloud-based platform, it has to-date reduced turn-around time for invoices by 10-15 days and reduced the number of query calls it receives from suppliers by 15 per cent; ultimately saving public money, resources and reducing its carbon footprint.
Pioneers all over the world are showing that not only is the idea of a circular economy sustainable, it’s great business. Given the changing consumer, business, and government attitudes toward consumption and the environment, the circular economy looks poised to make businesses operate smarter and more collaboratively – while discovering new sources of profit and a competitive advantage by re-designing supply chains.
An open, networked business-to-business platform that connects entire supply chains can serve as the enabler for progressive enterprises with the foresight to seize the opportunity.
Christian Lanng is CEO of Tradeshift.