posted by Supply Management
in Procurement, Sustainability, Transformation
Environmental sustainability has been breathing down the necks of supply chain professionals for a long time, and in the last few years the challenges have continued to multiply.
From the Covid pandemic to Russia’s invasion of Ukraine, supplies of energy and essential raw materials are far from stable. Yet relief may come from a solution we have known about for some time – circular economies.
It’s a well-known concept, and the engineering aspect of it has been studied for nearly two decades. But so far, relatively little attention has been paid to the management and governance side. This is a problem, as circular economies pose specific governance issues regarding the reuse of residual – or waste – materials, most of which are privately owned and without a clear market price.
Alongside our colleague, Professor Laura Albareda of LUT University, we co-authored a study on how three circular economy systems based in Finland, the US and Spain, were able to overcome challenges related to the management of residual resources using polycentric governance structures.
True collaboration means sharing information
Polycentricity is a form of governance in which multiple organisations collaborate to create and enforce rules. This works well in circular economies where several companies are required to share information, resources, and sometimes even workers.
Firms can be reluctant to divulge information about their residual resources as this can reveal details about the composition of their products, among other reasons, yet this is essential for a circular economy to function. If polycentric governance systems are to thrive, all participating organisations must adapt towards the common goals of the system. This involves role adjustments as corporations step out of a strictly linear supply chain context and into a cooperative environment.
For example, one non-profit organisation involved in the Basque Circular Economy (Spain), which had previously worked in textile and appliance waste recovery, transitioned into helping entrepreneurial projects and developing new remanufacturing products in collaboration with private companies. We also found that public-sector actors had an important role as co-innovators, as in the case of the Finnish Industrial Symbiosis System, where they orchestrated new material exchanges between businesses.
Community progress not individual wins
Companies also need to be open to changing their styles of corporate governance, moving away from individualistic practices and outlook. In private-sector firms, this means sharing resource information. In the circular economy systems we analysed, organisations typically did not allow full public access to information about their resources, instead operating through a semi-open database so they could restrict access to information except for select groups.
However, sharing information about resources needs to be coupled with structures for sharing the resources themselves. This includes a long-term plan to optimise resources, and platforms for exchange. Devens eco-industrial park in the US gathered information through a spreadsheet list and kept a warehouse stocked with samples of resources.
Forming shared strategies and protocols also helped firms integrate their operations into the circular economy system. For instance, introducing standardisation practices, such as ecolabels, allowed companies to create shared sustainability goals and recognise milestone achievements.
Devens awarded firms with an Ecostar based on their sustainability performance in 25 categories. Meeting the agreed standards in 15 categories was enough to receive the label. Creating inter-organisational standards allows companies to continue to demonstrate and celebrate their achievements while simultaneously working for the overall benefit of the business community.
Circular economy models are crucial for ecological and socio-economic resilience, as linear supply chain systems are being shaken ever more roughly by escalating global tensions. To thrive and survive, business may need to turn away from models built on competition and look towards a more collaborative future.
Samuli Patala is assistant professor of organisation and management at Aalto University School of Business, Finland. Minna Halme is a professor of sustainability management at Aalto University School of Business.