Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Closed-Loop Supply Chain — What You Need To Know
Key takeaways
- A closed-loop supply chain (CLSC) is a sustainable system that reduces material waste by recycling or reusing materials.
- CLSC fosters resource conservation, reduces pollution, and promotes a circular economy for long-term profitability.
- Success in CLSC requires designing for recycling, tracking materials, finding recycled resources, employing proper programs, and efficient asset management.
If you are in the business industry, you are well aware of the fact that supply chains are becoming increasingly complex. Most businesses work hard to attain more efficiency and sustainability, and this often leads to supply chains becoming complicated with minimum benefits.
A Closed-Loop Supply Chain (CLSC) is a sustainable system that reduces or eliminates your waste. This type of supply chain management not only helps the environment but can also lead to cost savings for your company. Although CLSC is a bit more complicated than the regular way of doing things, it offers many advantages.
In this blog, we will learn about the definition and importance of CLSC, its components, and all you need to know to implement a CLSC.
What is aClosed-Loop Supply Chain?
To put it simply, the closed-loop supply chain is used by businesses to repurpose their production waste into valuable new products. CLSC is a supply chain that creates value from otherwise waste materials rather than discarding them. It focuses on the full chain of activities for a product’s lifespan, merging forward and reverse logistics.
A Closed-loop supply chain (CLSC) is different from the usual way things are done in a typical supply chain. Materials are taken and made into a product, sold to people on a regular basis, and when they’re done with it, they throw it away. This, in turn, creates a lot of waste that may harm the environment. It costs money to get rid of the trash, too.
In CLSC, things are done differently. The waste from the products isn’t thrown away. Instead, you look for ways to use some of that waste to make new products. That way, not much materials are wasted, which is good for sustainability and eco-friendliness.
Benefits of aClosed-loop Supply Chain
A Closed-loop supply chain is like an extensive recycling system. Instead of throwing things away after you use them, you find ways to use them again. A Closed-loop supply chain appeals to eco-conscious organizations and businesses that aim to lower their procurement budget while being innovative. Here are some of the benefits of adopting a closed-loop supply chain:
1. Saving Resources
There are a lot of benefits in reusing your materials. When you reuse things, like recycling old paper to make new paper, you’re doing the planet a favor. By using the materials you already have instead of digging up new ones from the ground, you save valuable resources, like trees, minerals, and water.
2. Less Pollution
Manufacturing things from scratch can cause pollution and gasses that destroy the ozone layer. Not to mention, pollution can have a detrimental effect on our health. However, when you reuse your materials, you are decreasing the need to source products or services that cause pollution.
3. Saving Money
Sourcing raw materials and resources to create new products costs a lot. You deal with bulk materials and gradually amass resources or “trash” that gets discarded or stocked in warehouses or factories. A closed-loop supply chain can be the solution. By looking through what you already have and repurposing it into a valuable product, you are saving money through cost cutting.
4. Circular Economy
Keeping things in a closed loop is like being in a circle. By close-looping your supply chains, you keep resources in circulation, extending their purpose and worth. It’s a win-win situation for both the environment and the organizations.
Components of aClosed-loop Supply Chain
To make a closed-loop supply chain work, there are a few components you need to keep in mind:
1. Keeping track of your materials.
Businesses have to keep a record of the materials they use. Keeping track of your materials helps determine which materials you can use again and which should be discarded.
2. Finding recycled materials.
To find good-quality recyclable materials, you must befriend suppliers who can give you used and second-hand materials at a fraction of the cost.
3. Having the proper programs.
The right tools/programs for capturing value or promoting proper disposal require an initial investment. However, it is a crucial component of the closed-loop supply chain. Examples of these programs are the Return of goods by customers, the Return of unsold goods by distribution partners, and the Reuse of packaging.
4. Asset management.
You must manage your assets to ensure every supply is utilized to its full potential. Keep track of everything and how they are used. By managing your assets, you create less waste and utilize your resources in the smartest way possible.
Implementing aClosed-loop Supply Chain
To implement a closed-loop supply chain and make it work, you need a plan to collect and recycle materials so they can be used again to create new products. The plan doesn’t mean simply having a recycling bin; it starts from the beginning, from designing a product to its disposal by the end user. You should have a plan for the product’s life cycle. Let’s break this plan into two things:
1. Design for recycling
When you create a product, you must think about how easy it is to take apart and reuse its parts. This is to ensure that recycling comes smoother.
2. Collect and Process
You need to determine the processes required to gather used products or materials and how they will be processed correctly for recycling.
Challenges of AdoptingClosed-loop Supply Chain
While closed-loop supply chains offer many benefits, like cost-saving and being eco-friendly, they also come with challenges. Collection of materials back for repurposing can be challenging—especially on a big scale. It often takes a lot of work and a lot of money for new machines and buildings. As mentioned earlier, it requires initial investments. Additionally, it may be challenging to shift to a closed-loop supply chain system from a traditional supply chain because some businesses might be so ingrained in their existing supply chain that changing to a closed-loop system becomes a giant leap.
Even with these challenges, CLSCs are worth investing in terms of long-term profitability. When you make an effort to collect and recycle materials, you are actually cutting costs and saving the environment, which is a grand gesture in itself.
Conclusion
To sum it up, implementing a closed-loop supply chain undoubtedly benefits organizations that value sustainability and being eco-friendly. Despite its challenges, the array of advantages it offers outweighs the challenges of implementing it. Not only does it benefit the businesses that implement it through cost-savings and innovative solutions, but it also helps the planet by reducing the environmental impact often attributed to manufacturing industries.
Overall, the question of whether implementing a closed-loop supply chain for your organization is beneficial should be determined by your goals and principles.
Frequentlyasked questions
What is a closed-loop supply chain?
A Closed-Loop Supply Chain (CLSC) is a sustainable system that reduces your business’ material waste by recycling or reusing the materials.
What is an example of a closed-loop production?
An example would be when Patagonia used plastic soda bottles to create some recycled polyester clothes, and Allbirds footwear used water bottles to form their shoelaces.
How to implement a closed-loop supply chain?
To implement a closed-loop supply chain, you have to have a detailed plan to collect and recycle materials to use them again as new products. You need to consider how easy it is to take apart and reuse its parts. You also need to set up ways to gather used products and materials and then ensure they’re processed properly for recycling. You also need to keep in mind the key components to make your closed-loop supply chain implementation successful.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
