Tuesday, March 12, 2013

Obstacles and incentives for implementing supply circles

Traditionally, recycling has been thought of as a measure for protecting the environment.  It certainly helps the environment by keeping hazardous and unnecessary waste out of landfills.   Unfortunately, not everyone is environmentally conscious and many individuals and organizations are unable to relate to the environmental benefits of recycling.  For corporations that struggle with the concept of corporate social responsibility, additional benefits of product reuse and recycling have been recognized and can be used to incentivize sustainable practices.  Some companies are only able to think in terms of maximizing profits, even at the expense of others and the environment.  By providing more material incentives such as cost savings, we might be able to convince these companies to operate more responsibly and move towards more of a supply “circle” mentality.  As simple as this sounds, there are also obstacles created by implementing supply circles that must be reconciled from a business perspective.  This blog will address some of these obstacles and consider them from a business perspective.

In Manufacturing Resource Productivity,[1] we learn about the fundamental elements of a supply circles.  These can be depicted in the following diagram:
Source: http://www.mckinsey.com/Features/circular_economy
Repair and Maintenance:  How might this step create obstacles to a company implementing a supply circle?  Consider the alternative to repair and maintenance--replacement.  Some companies may think that it is more profitable to develop products that favor replacement over repair and maintenance.  Take consumer electronics for example.  When a device breaks it is usually much easier, more convenient and cost effective to purchase a new device.  Companies must love this because it gives them an additional source of revenue.  Why would they want to design products that can easily be fixed, especially if the alternative is selling more products?  

Recycle:  Manufacturing Resource Productivity mentions that recycling would be a good way to help companies save on materials costs, so why do major companies like Philips, JVC and Hitachi not have recycling programs?  This might be explained by examining the recycling process.  A common trend that I noticed is that companies don't perform their own recycling.[2]  This is probably because recycling is not part of their core business and it is much cheaper and more efficient for a third party to perform these tasks.  The real question is, where do these recycled materials go after they're processed?  Are they sent back to the company to be used in new products?  If so, how much cheaper is it for the company to buy back these recycled materials from the recycler?  Also, how much extra expense is incurred by adding this complication to the logistics system?  It might not be cost effective to operate under this process.  If the recycled materials aren't sent back to the company after recycling is complete, how does this qualify as a supply circle?

As you can see, there are some business related obstacles to implementing supply circles.  Depending on the organization, the costs and benefits of supply circles might vary.  Strictly from a business perspective, do you think the benefits of supply circles outweigh the costs?


1.  Mohr, S., Somers, K., Swartz, S., & Vanthournout, H. (2012). Manufacturing Resource Productivity.  McKinsey Quarterly. Retrieved 13 Mar, 2013, from http://www.mckinseyquarterly.com/Manufacturing_resource__productivity_2982
2. Electronics TakeBack Coalition. (2013). Manufacturer Takeback Programs in the U.S. Retrieved 13 Mar, 2013, from http://www.electronicstakeback.com/how-to-recycle-electronics/manufacturer-takeback-programs/

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