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What Procurement Needs for the Circular Economy

calendar-checklist-listI’ve been giving quite a bit of thought recently to the impact of the circular economy on procurement. See my collected posts on the topic here, here, here, here and here. I also recently traded ideas with Tradeshift’s Christian Lanng on a Spend Matters webinar. Christian shared his take on the topic recently on Procurement Leaders blog, as well, which included a number of steps organizations must make from a procurement and A/P perspective as they march down the circular economy path. I’ll share a few of these below as well as my own commentary on them (I encourage you to read his full post as well).

Let’s examine Christian’s first step:

Outputs become inputs because your goods don’t end their life with their customers, but become an input in your supply chain. This means your accounts payable and accounts receivable processes will form a loop instead of a straight line.

What Christian is suggesting here is that both physical and financial flows will become, well, circular in the circular economy as maintenance, refurbishment, re-use and post-sales support become as important as the selling of a particular widget itself. And yes, there will most certainly be new types of cash inlays and outlays as a result.

But perhaps even more important than this is new commercial models will evolve and create revenue, receivables and payment streams through a product lifecycle that are potentially shared by different supply chain participants. The ramifications of this for procurement and A/P are actually quite substantial. Most organizations today, I reckon, aren’t even close to being up to the task required to transform to operate in this environment.

Another argument and suggestion that Christian makes is “manage the soft components like all the evidence, materials, production information and components for the entire lifecycle” across the supply chain. In other words, think of conflict minerals reporting to be the standard for reporting on just about all types of materials across the extended supply chain. The 2 key words here both end with “ility” – visibility and traceability. If you don’t have it, you’re not ready for the circular economy.