Sustainability has been on the business agenda for some time and most are familiar with circular economies, although it’s one thing to understand the concept and quite another to make it work.
At this time, when many are struggling with rising material and energy prices and trying not to shift weight down the chain, circular systems could act as a safety buffer. But it’s not as simple as swapping one item line for another, so it’s important to have a company-wide view of these projects, with sourcing front and center.
Dr Vicki Mekler, Senior Consultant for Integrated Supply Chain Optimization at software firm Arkieva, who has more than 20 years of experience working with organizations in building systems, says the four main steps are process analysis, change management, integrated supply chain planning and optimization models.
He believes that, on the whole, people don’t understand the impact of integrated planning, let alone the importance of early-stage decisions, such as setting the right performance metrics and removing departmental silos. And the risk of project failure is very real.
“I saw it firsthand,” he says, “when I was working on a project to build an integrated supply chain system and the company said, ‘We don’t want more than five days of supply and inventory’, that’s what it was. set as a goal. We came up with a plan and took it to one of the manufacturing facilities, the response to which was, ‘We would never do that. We keep 11 days of supply because we completely run out. Our performance metric is utilization of the plant ‘.
“You can bet that the same person who set the KPI for the plant is probably the same person who set the five day supply goal but didn’t connect the points.” The teams failed to agree on a common business process and eventually hit a dead end. “It’s a perfect example of how we spent two years building this model, which was functional in all respects, but the company failed to align the different departments, so it never reached approval.
“That’s why it’s so important to have the right KPIs that drive desired behavior and ensure they can be applied consistently across the organization. Otherwise you end up in a situation where teams are focused on achieving their individual goals while the company is stuck in a dead end. “
Don’t cling to shoddy processes
While the complexities of circular systems vary by organization, such as gathering excess resources from one process to feed another, they generally include replacing cluttered spreadsheets with digital systems. Ideally, these would link procurement, production and distribution to bring synchronicity between operations.
“Getting the data right is the first big milestone and it always takes longer than everyone thinks,” says Mekler. Production systems are heavily data-driven, he says, but you’d be surprised at the number of information gaps. “It is important to define a data structure, to be objective when considering what data is required and how it should appear. Is it currently available in good enough condition? “
This is essential because the data is what drives the model, so it needs to be accurate but also able to be maintained and updated as the business changes. But, Mekler warns, there is a risk of focusing too much on technology rather than operations.
“If I could tackle one thing, it would be to encourage project managers to spend more time on the business process,” says Mekler. You can’t just rely on tools and expect everything to work flawlessly. “If you don’t solve your process, you will still get the wrong answer, but faster. So understand what your process is – and what it should be – because a lot of people do things by heart and you don’t want to carry on bad practices ”. He recommends mapping current processes and comparing them to how the new system works to help identify areas for improvement and potential weaknesses in the transition.
Prioritize change management
When it comes to implementing new technologies and ways of working, it can be creepy and even intimidating for employees, so communication is key to preventing the project from failing. “Companies just don’t spend enough time managing the transition,” says Mekler. “Change management has to start from day one, with clear communication, senior level support and cheerleading throughout the entire process to make sure people are on board. I’ve been in a lot of situations where we’re three quarters of the way through the process and implementation, but some users still don’t understand the purpose of the project and feel very frustrated as a result. “
For example, companies in the United States traditionally have supply chain production and energy management teams working separately, despite overlaps in business impact, he explains. But you can only gain full control of options by working on both, to balance production needs and energy reduction opportunities. “If you just wanted to minimize energy consumption, you could shut down the plants, right? But you cannot consider these problems in a vacuum. You have to consider all your goals ”.
Furthermore, there may be psychological aspects to the changes, such as how to manage sunk costs, which Mekler says can be “a difficult concept” to embrace. If, for example, a company has a prepayment agreement for a certain amount of product but it’s not all used, natural instinct tells you to use it elsewhere, but there may be additional costs to transfer it.
“I had a project where a digital modeling tool considered this product free and prompted staff to buy more. But even if it’s free, we don’t want to use it because of the additional costs that would offset the value. “This change in attitude can be compelling, he says,” but it creates a vicious circle for people who buy. When juggling multiple trades or sites, is a useful tool for the purchase to have a correct view of what is needed in different locations and to renegotiate the contract “.
The broader considerations
Implementing circular economies may require significant changes, in all aspects of the work, but the benefits go beyond the process itself and support broader sustainability and cost-saving initiatives, such as influencing material choices and management of materials. waste, useful as leverage in negotiations. And the higher the level of granularity, the better. But it also requires a certain degree of realism: even if the transition is rapid internally, suppliers will need time to adapt.
The global shift towards reshoring and nearshoring also has a role to play, from the standpoint of stability but also of sustainability and circularity. Mekler says: “It is now more common to see greater circularity not for ESG reasons but as a consequence of risk management. We can’t expect people to save the planet for the goodness of their hearts, sadly, because companies have to stay in business, so we need to find win-win solutions. If people are shortening their supply chains because it makes business sense, but also helps us environmentally, that’s great. “