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  • Writer's pictureZsofia NAGY

Frugal supply chains & how they can make the trick for circular economies

As part of the global fight to curb COVID-19 and its impact on businesses and supply chains the number of publications on circular economy and sustainability have thankfully increased and managed to cut through the deafening news of pandemic cases.

Many of these publications have brought a great deal of concepts (old and new, from Doughnut Economic model to Cradle2Cradle concept, sharing economy etc.) and helped all of us to really start understanding what we should do to abandon the linear way of thinking and start grasping the reality of diminishing resources around us.

What many companies still struggle with, especially bigger organisations but smaller companies likewise, is how they can make these happen in their reality.

If we take a closer look at supply chains, some could ask: "...but weren't supply chains already doing something like this as part of the big run for efficiency and cost cutting? Just take TPS (Toyota Production System) or Lean Management for instance! Aren't these there to take care of it in just need to connect the dots between the ends, right?"

That difference is the mindset combined with the right skills.

Almost stating the obvious, right? - Right. Not that obvious.

What we need to re-adopt is that frugal mindset that will allow us to utilise our resourcefulness again, find resources where we haven't been able to find and create economical, social and ecological value simultaneously.

These help us execute on the principles of circular economies: reduce-reuse/repair-recycle/upcycle-retire-regenerate.

What does it mean in reality of supply chains?

Using the so called closed-loop concept (coined by Deloitte) and applying it openly to our full value chain network. I call it a network of open-looped value chains (see depiction here below).

Beware: open-looped does not mean it isn't circular!

Open loop, as a term, solves the biggest problem behind circularity: the fact that we cannot close all process loops by ourselves as a company or individual. Therefore opening our loops to others and letting them close some of our dead-ends & vice versa is critical in creating circular ecosystems, where resources and value circulate openly for the benefit of all partners, just like in nature.

For those, who still like shortcuts: Please do not mistake the concept with "happily shipping our waste in huge quantities to Asia to take care of it"...that's not closing someone else's loop, that's just linear & transactional thinking.

The point is to create ecosystems that can also utilise each other's still useful, remaining materials, which would otherwise go to waste, to create value elsewhere in the network.

Otherwise put: we need to design out toxic waste from our value chains by circular product / service design, but also by correcting our supply chain designs and how we operate with our partners.

Why is this critical from a business point of view too?

Simple: some companies applied earlier methodologies and combined it with the wrong understanding of closed-loop resulted in what we call greenwashing, the exact opposite to what we need unfortunately.

To succeed with the model, we need to know our own value chain map and network map (VCM) in the first place and re-learn what can constitute value along these lines in collaboration with our partners.

So the other key part of the concept is how we observe and calculate value for the businesses in the network, so instead of using the old templates of TCC / TCO (total cost calculation and total cost of ownership etc.) and we need to use the TVC / TnVC models (total value calculation and total network value calculation).

These all will have an impact on our overall supply chain strategies, our organisational setup and how we manage our operative processes as well.

Let's embark on a short journey together to get a bit more familiar with frugal supply chains in more detail.

Hope you join me for this set of 3 articles!

As Albert Einstein said quite rightly so: "We cannot solve our problems with the same thinking that we used when we created them."

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