Circular Value Chain

How To Create A Circular Value Chain

As brands strive to improve sustainability and boost economic performance, building a circular value chain becomes more important than ever.

Amongst other benefits, the circular economy provides a framework to bolster corporate social responsibility strategies and receive external accreditations for material stewardship (e.g. ISO or Cradle to Cradle). Therefore, this novel approach to keeping resources in the loop can incentivize various stakeholder groups to increase business activities with the company showing such commitments.

Moreover, many case studies show that building a circular value chain can allow brands to save money, reuse resources and materials, reduce the consumption of energy and the emission of greenhouse gasses. In turn, the reduced environmental impact increasingly provides brands with the opportunity to reduce taxes, mitigate regulatory risk and benefit from subsidies and incentives gratified for the responsibility taken in this field.

First, Map Your Circular Value Chain

To start their journey, brand leaders should map their value chain and identify the key activities supporting their business. A transparent value chain model is the real cornerstone of corporate sustainability and the gateway to environmental stewardship.

As business processes and internal dependencies become clearer, opportunities for improvement and circular economy integrations become easier to decipher. Not only does this apply to internal operations, procedures, and steps that are executed during the manufacturing of products, but value chain transparency can also support the selling strategy, the structure of the company itself, technological innovations, and logistics.

By applying Michael Porter’s legendary Value Chain Model, we analyzed the typical value chain of consumer brands with a specific focus on the beauty industry. With little changes and modifications, our model can be transposed to any kind of company in the consumer goods industry.

The circular value chain is characterized by the presence of two main sections:

  1. Primary activities: including inbound logistics, operations, outbound logistics, marketing and sales and services; and
  2. Secondary activities with the global infrastructure of the company, human resources management, technological development and procurement.

Next, Prioritize Your Circular Value Chain Potential

Among all the activities that a brand can adopt, we listed a priority scale considering the actions that are already present in the value chain. Additionally, we considered actions that can be adopted in a short period of time, as they are rather simple to be implemented. For the actions that are more complicated to implement, a lower priority can ensure that these initiatives are not forgotten, albeit not of the highest importance.

As illustrated in the visualizations below, for each activity in the value chain model, we provide an explanation of the general operations followed by the identification of the opportunities to increase circularity and the highlighting of already adopted policies and those that are in the pipeline.

Primary Circular Value Chain Activities

Secondary Circular Value Chain Activities

Here’s the color scale that we used for the prioritization:

  • Green are those actions that are already adopted by a brand.
  • Yellow are those activities and modifications that are planned for the short-term and are expected to be the first to be developed.
  • Blue are those that are further in the scale of priority but they must be seen as the final goal to reach to never stop improving the sustainability and the environmental commitments of a brand.

Once Ready, Realize Your Circular Value Chain

It goes without saying that some activities are easier to be adopted by brands than others. For example, in inbound logistics, preferring recycled materials over virgin materials is a choice that can often be realized without revamping the entire supply chain. In contrast, it can often be harder to change the design of the products manufactured.

The biggest benefit of the circular value chain model is that it does not require a narrow focus on long-term objectives, but allows for incremental progress with small actions that can be implemented over time while pursuing the commitments of the brand. All without facing great changes from one day to the next but showing efficient transitions with smart projects behind.

In conclusion, to reduce the negative impacts of business activities, brands should prioritize the analysis, balancing, and improvement of their actions along their value chain. During this process, leaders should constantly consider their duty to mitigate climate change and global warming. Not only because of environmental reasons but also because showing the value of a company on this theme can lead to economic benefits. For instance, by increasing the awareness of employees on each one’s ecological impact and becoming a guiding light for others, leading companies can accelerate a more sustainable and climate-friendly future.

How does your brand’s value chain look? Are you already circular?

Figure it out and start your assessment today.