How to create momentum for your circular economy strategy

Sustainability is increasingly becoming non-negotiable for modern manufacturers and distributors. While business goals remain front of mind, the industry recognises the importance of introducing environmental-focused goals into the mix as part of environmental social and governance (ESG) programmes.

The circular economy is changing the game. Manufacturers’ commitment to eliminating waste through a cyclical model of ‘make, use, reuse, remake, recycle’ is already resulting in real rewards. Yet despite a widespread understanding of the benefits, many manufacturers and distributors are struggling to shift towards a sustainable circular economy strategy as they face big industry challenges. The immediate need to address higher costs, supply chain disruption, the move to ‘just in case’ inventory strategies and changing customer demands is inhibiting business’s ability to focus on sustainability.

Sage and Deloitte discovered that momentum is the key required to unlock the full potential of circular economy initiatives. Sage’s new research on the state of the circular economy’ in manufacturing and distribution finds that organisations can indeed thrive in the immediate, short and long terms, if they have the right tools and approach. Here’s how.

Manufacturers and distributors continue to work under immense pressure – not least those navigating a shift to the circular economy. Of those Sage surveyed, 72 per cent said their organisation is struggling with the immediate challenges of rising costs. Supply chain disruptions (71 per cent) and changing customer demands (68 per cent) are further challenging the industry.

The pressure to deliver products and services to customers amid tough circumstances could easily see sustainability sidelined. The negative impact of that decision doesn’t stop with the environment: 46 per cent of those Sage surveyed said this could damage their brand perception and reduce long-term profitability (also 46 per cent).

How can businesses survive and thrive, sustainably? One solution to overcoming these barriers is also the solution to kickstarting a great circular economy: agility.

Agility starts with a cultural change supported by the correct technologies. When it comes to technology, adopt platforms that promote efficiency and innovation. These will aid the impetus to reuse and recycle, because they give leaders the ability to look at existing assets, consider solutions, and make data-driven suggestions that could be far greener. Say, for instance, a disruption next week sees one of your suppliers unable to deliver parts. Technologies such as advanced ERP can quickly suggest new options, reduce losses from this event and recover costs down the line.

Such insights drive a culture of flexibility and agility that forms the perfect foundation for the circular economy to thrive.

Eighty-four per cent of senior leaders say building and implementing a circular economy strategy is now part of their role. This is a hugely positive first step, but action must follow – transformation of operations is vital, too.

A data-driven approach is key for this and must replace the current system of simply listening to the floor manager for advice on how to make operations flow more smoothly, as digital transformation expert Isaac Sacolick, president and founder of StarCIO, comments in Sage’s report. When you integrate data capture, analytics and insights into your workflows, the results can vastly streamline processes, cutting waste and boosting efficiency.

For example, ARA Foods was able to reduce its raw materials waste by 1.5 per cent within six months by simplifying workflows. The snack food manufacturer, which is a make-to-order enterprise, deployed an enterprise resource planning (ERP) system that has enabled it to better track processes in real time. It allows ARA to optimise raw material use, better manage seasonal variations and reduce the time from order to shipment.

Another way in which tech can drive efficiencies in manufacturing and distribution is through the Internet of Things (IoT). When devices such as sensors are included in your processes, the insights could proactively point out where there are reductions in operational equipment efficiency (OEE) metrics impacting effectiveness or when you need to replenish stocks, or blockages that could be costly later on.

Businesses now understand the critical role that emerging tech plays in helping leaders to navigate turbulence and achieve a circular economy strategy. However, the industry has more to do when it comes to technology adoption.

Sage’s research found manufacturers and distributors ranked cloud applications (74 per cent), data analytics (68 per cent) and automation (67 per cent) as the most important technologies for running a business more sustainably. Despite 61 per cent citing cloud apps as helpful in collecting, analysing, and reporting on their CE capabilities, public cloud usage is far from universal among manufacturers and distributors, according to the research. In fact, only a minority of respondents say they use public cloud for core apps such as supply chain (39 per cent), CRM (38 per cent) and business intelligence (35 per cent).

Only with the visibility provided by cloud-based applications can businesses truly prove the value of circular economy initiatives internally and externally. A cultural shift towards sustainability that’s embraced willingly by all stakeholders will unlock the long-term benefits of the circular economy: fifty per cent of respondents said it improved reputation, followed by the assertion that it increased energy efficiency (47 per cent), increased business resiliency (46 per cent) and reduces impact on the environment (46 per cent).

With the right cloud-based tools to analyse performance, the momentum of businesses that start thinking with the ‘make, use, reuse, remake, recycle’ model at the heart of their planning will increase.

The benefits of fantastic agility and strong data insights don’t stop at hitting your sustainability KPIs. One of the greatest assets to be gained from an effective circular economy strategy is the time to think creatively about further goals to reduce, refurbish/reuse, recycle and recover, thus creating a self-perpetuating cycle of sustainability.

With a commitment to embrace the circular economy, manufacturers and distributors have a huge opportunity ahead of them. By harnessing the agility to overcome today’s barriers, and the data to make operations flow more smoothly, they’ll gain the momentum needed to succeed against their long-term vision.

Rob Sinfield is SVP Product, Sage X3 and Sage Intacct Manufacturing at Sage.