Addressing the need for circularity in retail supply chains

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(Image credit: FREDERIC J. BROWN/AFP via Getty Images)

The retail industry continues to be one of the largest contributors to climate change. Resource-intensive processes throughout the supply chain are creating annual greenhouse gas emissions that are 80% higher than the total of all UK road traffic. From the way raw materials are sourced to the production and transportation of goods, each stage has an environmental impact. With concerns around sustainability more significant amongst consumers than ever before, retailers are under pressure to act quickly.

About the author

Ellie Lamey is Industry Director for Retail & Wholesale Distribution at SAP.

Plans are being put in place, with the industry setting itself a target of becoming net-zero by 2040. It’s ambitious, but achievable. Retailers need to take innovative approaches to their business models and anticipate and eliminate environmental impacts. Moving away from the ‘take-make-waste’ linear approach, retailers should incorporate circularity into their supply chains to ensure that waste is minimized, and resources are reused.

The traditional linear model adopted by most retailers creates business value through taking natural resources and making products for consumers that eventually become waste. A circular model requires retailers to innovate in two aspects of their business - products and supply chains, while adhering to the circular economy’s three fundamental principles: design out waste and pollution, keep products and materials in use, and regenerate natural waste. Technology is vital to this transformation. But how can this be achieved? Let’s look into how retailers can introduce circularity into their products and supply chains and deliver on consumers’ sustainability demand.

Incorporating circularity into the supply chain

Retailers are now renewing their commitments to sustainability to act on and demonstrate purpose. In fact, the number of retailers setting science-based targets to add credibility and accountability to their sustainability efforts more than doubled between 2019 and 2021. While a step in the right direction, retail and CPG brands must have the right infrastructure in place to meet these commitments.

One of the key challenge retailers face in incorporating circularity into their business models is managing materials, whilst also complying to regulatory standards. To address this, retailers need technology that allows them to take a ‘sustainability by design approach,’ recognizing areas for potential impact, such as the environmental damage caused in the sourcing of raw materials or carbon emissions products during the manufacturing of products and adopting new approaches to minimize this.

Cloud-enabled supply chain solutions that leverage blockchain and machine learning technology can provide enhanced visibility across the value chain, allowing retailers to track material flows from source to market. This means that as materials move throughout the supply chain, retailers can assess waste, such as carbon emissions, in the process, whilst also ensuring compliance with regulations associated with plastics and packaging. In turn, this drives improved decision making as retail and CPG organizations leverage the tools to identify and address the points of greatest impact, whilst also being given the insight needed to determine areas where resources can be better managed and reused. Through this, circularity principles are embedded into the core of business operations.

Remodel, renew, restore

While retailers have faced scrutiny on the environmentally unfriendliness of their supply chains, organizations in this space are already acting by implementing cloud and AI technology to help adopt more sustainable business practices.

Business models such as re-commerce are on the rise and becoming increasingly popular amongst consumers driven by the desire to shop responsibly and sustainably. The global fashion resale market is expected to more than double by 2026, three times faster than the traditional retail clothing sector. Now, from fashion to consumer electronics, businesses are quickly adopting this model to reduce waste and reuse materials that could have a second life. We’re seeing brands championing this approach to their entire value chains, designing out waste associated with fabric production from their business structures and giving materials a second life.

The fashion industry has a problem with polluting. From excess water to toxic chemicals and high carbon emissions associated with the manufacturing of fabrics – retailers are taking innovative approaches to counteract this. Some brands are even creating online marketplaces that allow users to list, sell and buy second hand clothing and deadstock fabric, promoting a more sustainable approach to the production of clothing. To make this possible, brands are utilizing supply chain software powered by artificial intelligence to connect to company inventory systems and pair buyers and sellers of unused fabrics. Through this, textile waste can be identified and repurposed, preventing it from going to landfill or being burned. This innovative approach to resale has the potential to transform the retail industry’s green credentials.

Securing a sustainable future

Businesses play a vital role in securing a sustainable future, and consumers know this. With the retail industry amongst the largest polluters, the potential benefits of acting with purpose for the planet are huge. Prioritizing sustainability is also a sound business strategy, and many retailers recognize this, with 35% of brands already investing in long-term sustainability goals. Determining those goals can be challenging, as it often includes rethinking a wide range of business practices – from manufacturing and through to supply chain.

Taking meaningful and comprehensive environmental action requires a holistic and regenerative approach. Implementing cloud-based technologies that provide actionable data is the first step. Then, leveraging analytics technologies, retailers will have the oversight needed to design waste out of the value chain, reducing emissions, limiting waste, and protecting valuable resources. Furthermore, technology such as AI allows retailers to map, track, and trace material origins, ensuring end-to-end supply chain visibility and transparency. Only when supply chains are transformed from linear to circular models can irreversible climate damage be avoided.

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Ellie Lamey is Industry Director for Retail & Wholesale Distribution at SAP.