Sustainability is no longer a buzzword, it’s a necessity.
Experts are tackling environmental concerns from every angle, and supply chain management has become the most effective way of tracking a company’s carbon footprint. As concern rises around the supply of natural resources, a new buzzword is born: introducing, the circular economy.
Every organization should strive towards a circular economy through sustainable design and healthy supply chain practices—which is why we sat down with experts to tell you how, why, and what that means for your business. Leaders in the supply chain space told us how you can promote a more sustainable business, from a company’s infancy to retroactive design for more established enterprises.
Designing a Circular Economy
Traditional enterprises were built on a linear model that designed one lifecycle for its products. Now businesses need to design for the circular economy. It begins with sustainable sourcing models and gets applied all the way through a product's lifecycle: How can we design a modular product that is easy to disassemble for parts? Can we make it easier to recycle a product when it reaches the end-of-life stage? Can we implement take-back programs to keep scarce materials in the supply chain? This is the type of mindset inspired by circular design.
In this evolving landscape, startups may have the advantage of agility. They can pivot more easily than large corporations, or better yet, they can apply a circular design from day one. Businesses that were established in the linear model will need to re-think the ways their processes are set up. Change management within these organizations will be a major part of adopting new ideas in the circular economy. We know that metrics and incentives can help drive behavior change. Adding KPIs around circularity and sustainability, not just cost and lead-time, can help move a business forward in this space.
The Bottom Line
A similar mindset shift is required on the financial side as well: the circular economy forces us to re-examine traditional cost models. Products that were once deemed ‘cheap' look a lot more expensive if you apply a carbon tax or factor in the cost of its landfill impact. Businesses need to re-think the bottom line in the new circular economy. While we may be looking at incremental costs now, these choices have ripple effects that reach across the entire supply chain.
Noelle Tassey 0:00
My name, for those of you don't know me, is Noelle Tassey, and I'm the CEO here at Alley. As I mentioned, I'm very excited to welcome you all to our events series and to today's event. For those of you who don't know us, Alley works with some of the biggest companies in the world to support their innovation and impact initiatives through our expertise in startups, storytelling, and change management. Our event series focuses on topics to educate and entertain both our community of startups and emerging technologists, as well as our community of enterprise leaders and strategists. If you're a startup tuning in, please make sure to sign up for our newsletter at Alley.com to stay on top of opportunities to partner with some of the biggest companies in the world. And if you're joining us from the enterprise side of things, likewise, please sign up for the newsletter or drop us a line on our contact page. So without any further ado, I'm going to turn it over to our incredible panelists to introduce themselves. And let's start with you, Hans.
Hans Leijen 1:03
Yes, very happy to join. I'm actually joining from the Netherlands so you see in the background it's already dark here. So for me, the evening has started. I'm a Senior Supply Chain Consultant in Philips Engineering Solutions, a part of the Philips, Royal Philips company. And in those engineering solutions, we are offering innovative and innovation solutions to Philips businesses and other companies whereby I am specializing in supply chain, and in recent years getting more and more involved in this circular supply chain domain, which is yeah, very exciting because it's so much different to what we are used to. So very happy to share with you.
Noelle Tassey 1:49
Awesome, we're so happy to have you joining us, especially from so far away. So thank you so much. Kelsey, over to you next for your intro.
Kelsey Kamm 1:59
Thanks, Noelle. I am on a different coast, I'm in California and on my first cup of coffee. So different times zone from Hans for sure. I'm a design strategist by training and have had the opportunity to work with a variety of different companies over my career who are going through different evolutions of their supply chain. I've worked with large luxury automakers and pharmaceutical companies all the way through retail. And I currently run a team of product designers who are working with a major US retailer on our tech for our supply chain. So happy to be here, excited that everybody...
Noelle Tassey 2:42
We are super excited to dig into that more. And last but not least, Eve. Eve I think we can't hear you. You might want to check your audio input. All right, Mel is going to help you out with that on the back end. Alright. So while we figure out our audio issue today, I do just want to make sure everybody joining us is aware, we're going to be doing a 15 minute Q&A session at the end of the panel today. So this is new, if you've attended our events in the past. Actually, it's not that new, we always use the Q&A feature pretty heavily. But I do want to encourage you to ask questions live for our panelists during that time, and I'll cue you guys in you can use the raise your hand feature on Zoom, and we'll actually be taking you off mute so you can join the conversation. We're going to have a slightly more intimate group today, due to the holidays, and this time of year being exceptionally busy. So we're just excited to be ability to engage with you guys a little more directly. And you can also use the Q&A box that we always have live during these events as well. Feel free to do either and use the chat throughout the event to connect with other attendees or panelists as well. And just a quick note, if you are using the chat, just make sure that you're addressing it to the right group of people. So we've had people kind of address their questions to all of the attendees, but only some of them to the panelists before so just double check you're sending it to. Awesome. So I know that we're waiting for Eve to rejoin us, hopefully with audio. This looks promising. Hi, Eve.
Eve Richer 4:34
Hi, can you hear me now?
Noelle Tassey 4:36
Lovely, we can. And you know, you didn't miss a thing. I was just talking about the Q&A. So do you want to do your introduction?
Eve Richer 4:44
Sure. Hi, everyone, I'm Eve Richer. I work at Cisco, which I imagine many of you are familiar with Cisco, but if you're not, we're a large tech company known for networking. We make routers and switches and phones and WebEx and all sorts of different technologies, hardware, software services. And I work on the Circular Economy team at Cisco as a program manager. So what our team does is drive the overall Circular Economy strategy for all of Cisco, which goes across a number of different focus areas, including looking at how we design our products with circular principles in mind, how we make those products, the lifecycle management of equipment, so things like takeback, repair, remanufacturing, etc, and all the way through to how our technology solutions can be applied to actually enable circular economy and sustainability for customers.
Noelle Tassey 5:33
Amazing. I feel like one of the hallmarks of working in supply chain as a space is just being able to really roll with anything that might come up. And that was a seamless, disruption-free introduction after our audio issue, so thank you. Fabulous. So just to kick off, because we've got a number of people from different backgrounds in the audience, we're just going to kick off by actually defining some of the critical terms that everybody needs to be on the same page about when it comes to discussing sustainable supply chain. And then we're going to dig a little bit more into how enterprise can really enable more of a circular economy through these practices. So as we kind of kick off, Hans, do you want to get started with just a definition around reverse logistics, circular economy, and digital supply chain to lead?
Hans Leijen 6:30
Yeah, okay, that's a good one to get started there. Because there's quite some definitions, different perceptions overall, especially also when you get started with it. Because circular economy, first of all, you think about avoiding waste. But once you start working it and diving deeper into it, you really see that circular economy is so much more. And because actually, it's not just avoiding waste, or bringing back materials. But it's really to say, setting up a total system, whereby you try to bring maximum value also to your materials, of course, avoiding waste. But the trick is to have business models in such a way applied that you can bring back materials, any materials in your product, or the product itself to its maximum use. I really like the butterfly diagram that has been created by Ellen MacArthur Foundation, whereby you see these circular loops of refurbishment, parts recovery, recycle, etc. And to make that work, you need on one hand side business models to support that, that but also your circular designed products because that's the biggest enabler. Having said that, we move then to the reverse logistics or reverse supply chain, I'd rather call it. Because in order to make all those flows happen, that we are not used to because we all linear set up from supplier, manufacturing, we go to our customers, and then it's up to the customer what to do with it. We need to set up all these reverse flows. And that's not just about the reverse logistics, like executing or working on the materials that we get back, but also at the total supply chain management of let's say, end-to-end planning in that domain as well. And having said that, we can come to the third point that you raised, the digital supply chain. Because, and I think that's, that's one of the exciting things that is yet to come, because now first of all, we're setting up that reverse supply chain. But the thing to come is like, okay, when you think about scaling this to do a full circular economy flow, think about the massive flows that we get of products and then also trying to find out the best value that you can get from it. So you need your intelligence, where you flow comes from and how to steer it, not only that, but also like okay, when you want to reuse a product, for instance, you would need data to evaluate how it was used, and what remaining lifetime of that product is and how you want to, let's say, reuse that in your circular economy opportunities and that you have.
Noelle Tassey 9:42
Awesome. And Eve, as our last key term, could you define circular design for us?
Eve Richer 9:48
Sure. So as Hans was kind of explaining the overall concept of circular economy, I think design is a really key element to that and the idea is you want to design your products and your services up front with circular economy in mind as opposed to the traditional linear economy that it's often contrasted to, where products are typically designed for one lifecycle. They're intended to eventually be disposed. Circular design is really about thinking upfront: Okay, how can we design this product so that it's easier to disassemble, make it modular so it's easier to upgrade? Can we make it easier to recycle when it reaches that stage of end of life? So at Cisco, we have a range of focus areas for circular design that goes across the materials we're using, modularity, design for disassembly, we also actually look at energy efficiency within that just because we know that there's big environmental impacts from the energies of our products. So it's really holistic. But that's what design means. I think you can also design your business models to be circular. So thinking about things like as-a-service models, where you would maintain ownership of the equipment and have those incentives to repair. Or business models focused on sharing or take back or remanufacturing. So I think that's another way that folks can look at it as well.
Yeah, and I love that point, if you want to just elaborate a little bit more, because I do think something that we come across a lot at Alley actually is we work in this space with corporates and startups, it's like there's a conflation of those two concepts around pursuing really sustainable business practices and integrating that into your business model and making it your business model versus just focusing on sustainable supply chain. So what's, for you, I guess, how do you differentiate between, at what point does it become the business model?
Yeah, I think that's where circular economy has driven a lot of conversation in recent years, because it's really meant to be holistic. And look not just at sort of, okay, how are you managing your supply chain? Or how are you trying to minimize some of the environmental or social impacts? But really, how do you design your entire business to be truly sustainable in the sense that your business models are not based on purely consumption and disposal. So at Cisco, we have a long history of having take back programs, recycling, we have a brand within Cisco called Cisco Refresh, where gear that's taken back can be re manufactured and certified. So those things have been around a long time. But we're also going through a big business transformation, kind of across the entire company, as we look at things like as-a-service models. And so that's a place where our team and many other teams that we engage with are really trying to influence and get engaged as that as-a-service model is developed to make sure that circular principles are really built into that. And then as that happens, we need to look at our supply chain and say, How does our supply chain need to evolve and transform to support that new business model? Where you can get into all sorts of systems and structures around how product IDs are created, and how we manage our logistics and all of that, but the supply chain definitely needs to transform to support that as-a-service business model.
Kelsey Kamm 13:08
I'll jump in there, too, I think that it's a lot easier when you started with a new company, and you're starting with a start up to have the systems in place when you kick off. It's a totally different ballgame when you're working with a company that's been around for a long time and you really have to transform the processes and systems that exist today. And it's a mental shift. It's a process shift. It's a technology shift. And so every company is coming at it from a different place. And every company is really inspired to make that change in a different way as well. I mean, I've worked with companies 10 years ago, who were looking at labor shortages that might occur in the future, and that, in turn inspired them to look at better sourcing models and more efficient sourcing models. So it all stems from different places and different industries.
Eve Richer 13:52
Yeah, totally agree. I think it's one thing if you're a startup, and you can bake all this stuff in, I mean, there's still a lot to do, but you can think about it up front. Versus a much larger company where it may have been developed in a more linear world. And a lot of the work is around change management and transformation and rethinking how we do things.
Noelle Tassey 14:13
That's super, super interesting. I know we're kind of already touching on our next question. And it's just to dig a little bit more deeply for all three of you into how you employ circular design thinking within your organization to create these sustainable supply chain solutions. I think for all of you, change management it sounds like is probably a major part of that to the point that Eve and Kelsey just made for us. But I guess I'd love to explore that more. Kelsey, maybe you could kick us off just with a little bit of an overview. I know that you're running a team of product designers across a huge corporate ecosystem and kind of touching every piece of the supply chain. I would say end-to-end but I guess it doesn't have an end if it's circular. So you know, just getting into some of the sourcing.
Kelsey Kamm 15:04
It's been really interesting. It's been a fascinating time to join supply chain, especially after the last couple of weeks for sure. And I think that a lot of what you guys have said really rings true. And it's a lot of stuff that we're facing, as well. It's: how do we take that linear mindset and make it into something that's more holistic? How do we look at what's happening within the economy and what consumers are doing and build that in as like a sense-and-respond mechanism? For us, it's definitely like, making that change is very different than, as I said before, than growing with that change and with that change being part of the core in the beginning. Some of the other experiences that I've had are like, what are we looking at in the future to make these decisions? What trends do we anticipate coming down the pike that will impact supply chain, that will impact materials that we have. And so right now, we're really looking at sourcing as a major part of our circular economy, whereas past clients that I've had a very much looking at that end of life and the glue or the adhesives that they're using within their products. And so we're kicking off that, how do we integrate and learn from all different parts of the chain? And it's a fun time to be involved in it.
Noelle Tassey 16:23
Hans, do you want to jump in on this at all and just chat a little bit about how you're doing this?
Hans Leijen 16:30
I can indeed add to that. And then combining what Kelsey just said, but also the point that we have been trained so much in linear supply chain thinking. And from that perspective, what you see mostly is that, and that I find very intriguing, but also, maybe the most underestimated part of getting circular is the change management that we have to do. Now I myself, I'm supply chain specialist all time, but really trained in linear supply chain. And when you then step into the point, like okay: circularity. And then you start applying your linear thinking on circularity. And that really doesn't work, especially not in big organizations. So from that perspective, one of the key topics, besides all the content of getting circular, circularity, and circular design, and etc, which is content related, it is also change management within the organization to adopt the idea of circular thinking, and also the domestic changes that may be needed in the way your processes are set up.
Eve Richer 17:35
Yeah, maybe I'll just piggyback on that to give a specific example. When we talk about change management, I think metrics and incentives become very important in in changing behavior. And so the way that we're thinking about circular design is, you know, first it was awareness and education. We created a training, we put it out there, we've now had thousands of our engineers and supply chain professionals take that training. But then this next piece is, okay, how do we build in the metrics and and evaluate how we're doing? Because traditionally, in launching new products, the key metrics have been cost, quality and time to delivery. Those are the things that people are really focused on. And that's how they're measured. And we know that those are going to continue to be important. And they're are different trade-offs that you make as a designer and engineer. But we want to make circularity be one of those metrics that's considered. So we have a new evaluation tool that we recently piloted, where as products are going through the early stages of design teams can go and they take this evaluation, sort of like a series of questions that are asked. You can get a score, you can see how you're doing and then as you go through the process, changes can be made to be able to improve that circularity score and help us meet our goals. And that's a way to really build metrics and more incentives that are tracked around circularity alongside costs and quality and other other metrics.
Kelsey Kamm 18:56
Yeah, and I love that, because I think that's really what's fundamental in changing. When we think about sustainability and we think about how much can the individual do versus how much can a corporation do. And the reality is corporations have to change too. But corporations also use things to build their systems. And a lot of those practices around how we build are changing as well. And so Cisco is doing an amazing job, and the other companies who are really creating those products that we use to inform our supply chain, are helping a ton in that area of: How do we evaluate our sustainability? How do we measure it? How do we adopt that mindset in a more metric driven way?
Noelle Tassey 19:38
That's super interesting. And I think something that comes up a lot in this area is where there are a lot of gray areas around sustainability supply chain, you're still producing things. What do you think are major pitfalls in terms of how companies tend to look at this and the KPIs that they craft to drive their results? It feels like a lot of things have come out recently that I've read around, you know, we're maybe incentivizing the wrong things, measuring the wrong things. So I'm just curious if that is stuff that you guys come across, something that you have to actively work against, or that you just hear about a lot and what some of those examples are, if anything.
Eve Richer 20:22
I think sometimes it comes down to internal accounting, which at a big company can be complex, right? So sometimes, there can be certain decisions that make sense for the company and make sense for the planet at the overall level. Say, for example, designing something to be circular so that it can be then repaired, eventually remanufactured and resold, right? That makes business sense, because you can design a product once, and you can get more use out of it and drive revenue for the company, better for customers, etc. But sometimes the challenge is, if businesses have evolved in a linear way, there's a company that controls the act of designing it or engineering it, and they may not have any incentive or see the benefit of what happens later if it gets repaired, remanufactured, resold. So you have to kind of think about how to structure the accounting so that the benefits flow across and that there's a way, if a certain team isn't necessarily going to see that benefit, how do you kind of make them whole, from a measurement and financial incentive perspective?
Hans Leijen 21:22
Yeah, and I would like to elaborate on that, because that's exactly also what we see so much. Because you see that the financial flows are mostly set up in a linear way. Also the pricing, when you have that reverse flow going and then your pricing are set up according to the linear way of working or your inventory is valuated against the linear way of thinking. And then you see, all over you see actually wrong incentives. Like in the reverse supply chain that your inventory is also bad and needs to be evaluated the same way as your linear inventory. And so you see that the financials approach needs to be rethought. But also in cost modeling. Because we see that when selling new products on the market, you see a great cost modeling in linear thinking. But you also see that, let's say when starting up with circularity that, let's say you very often come to the conclusion, especially as products getting cheaper or low value products, that actually you very often then come to the conclusion that buying new is still much cheaper than refurbishing operations or parts recovery operations. And only when you take a new approach of the cost modeling, including the total lifecycle, including the revenues and the benefits of your circular activities, then you get the bottom line equation. But it means in a company that also there on the financial perspective, you need to rethink.
Kelsey Kamm 23:02
Yeah, and I think that that financial perspective is often very disconnected also from the day to day and from the investment that you're making on the ground level. I think that there's the easier way of approaching it that I've seen is from the product itself, and looking at the product's sustainability. But then there's also the ripple effects throughout the entire supply chain of what is the efficiency of our distribution? What's the efficiency of our allocation? Are we putting things in the right place? Are we making sure that we're utilizing the transportation in the way that is the most efficient? And I think it's really interesting right now, especially with the backup that we have in supply chain, to see cities and different municipalities really getting involved and looking at like, how can we cut down on the emissions that are coming into this port? How can we cut down the emissions coming into that port? And so there's also this larger conversation of all the different pieces within supply chain and who they impact, how they impact them, and what the civic institutions are going to be involved with in the future of how we model our supply chain.
Noelle Tassey 24:09
So this is a little bit off topic, but I'm curious. It's actually very on topic because it's off topic towhere we want to go conversation-wise, but I am curious how you guys have been balancing supply chain resilience, which can involve a lot of...Oh, I see some excitement at this question. You guys know what I'm going to say. But it seems like we really care about resilience by chance now more than ever. These vulnerabilities have been exposed to us at the same time, like building in duplicative systems and all the other things that might be required to build in more resilience obviously could be quite wasteful. So I'm curious how you guys are balancing those needs. It's a very tough climate for this one. I wonder how much you guys are hearing, "Who cares about sustainability when we can't even get products to people?" And how you're balancing that? So open question to all of you.
Hans Leijen 25:13
Yeah, maybe I can because this is a very nice topic. Because this supply chain resilience has been coming up over the years, and especially now we are, let's say, in COVID, what happened there in supply chains, but also now, global parts shortages, etc, come up. And actually, this is a project where I'm now engaged in. Actually we've been asked to speed up our parts recovery process to actually mitigate shortages in new components. So you see that actually, I see now this mitigation opportunity as a opportunity to really speed up circular thinking. And it also has a reason because we have been used to using our scarce resources, which we source from all over the world. We have so many dependencies of product flows, when you got that tanker stuck in the Suez Canal. All things can happen in that regular supply chain, we've got rid of all inventories, etc. So there's a built system in the linear thinking. But when thinking circularity and bringing back value, keeping materials in the loop, then that dependency gets a whole lot less. And when you scale that, then I think circular thinking and circular economy is one of the mitigation factors to reduce the risk that you have in the supply chain. Or at least you can use it as one of the options.
Eve Richer 26:51
Yeah. I'll just echo that because it's definitely something we've seen. I mentioned earlier that Cisco, we have a part of our business where gear that's remanufactured certified to like new, it's sold to the Refresh program. And I think there can be some perceptions in the market that maybe because it's remanufactured, maybe it's not as good as new, when in fact, it is, it's certified to be just like new. But I think with COVID happening and the supply chain disruptions and the urgent need for hospitals, for example, to need networking equipment and things like that, there's been a lot of demand for remanufactured gear because it does make our supply chain more resilient. We have that available, we have the inventory. Whereas if it needs to be new, then it could be dealing with component shortages, issues with lead times, etc. So that's been an interesting thing to see where we've been actually able to quickly get gear to where it's needed most during the pandemic, because we have this remanufactured side of our business with inventory.
Kelsey Kamm 27:50
Yeah, I worked on an interesting project a while ago that was really looking at future trends for automakers. And it was looking at a ten year report of, if we're going to plan for the next 10 years, what are the different situations that we could be running into. And so we looked at it from a whole bunch of different lenses. And the reality is, global warming was the number one thing that was going to impact their business model. And this is a major company that wasn't open to that thinking before. But then we really painted that picture of, if we had in one direction that we're looking at disruption of the global supply chain, disruption of the labor force, disruption of sourcing and by being able to put that in their mind, they started a buyback program. And now they're ahead of the game with buying back their old vehicles to use the microchips within them. And I think that we're really seeing that trend tick off all over the place now, because we just don't have the same amount of resources that we did. And we really need to leverage what we have out there. I mean, this 'building for now and then throwing away' economy isn't sustainable. And so one of the other things that we really noticed driving it is the values that the millennials and Gen Z have. And so they really have that purchasing power. And they have controlled money, and they are the ones who were buying with their values. And so it's going to change the market. And it's going to change the way that we build things. Buyback opportunities are huge and I'm really excited to see them come to fruition.
Noelle Tassey 29:19
Very cool. And I will say just illustrate that point, the Alley team is very millennial and Gen Z heavy. And right before this, we had a team all hands and I think we spent about 10 minutes talking about Poshmark. Millennials love it. I love it. Fantastic. So I think we've touched on this a few times, but just to really dig in: There are obviously advantages and disadvantages to moving in this direction depending on the scale of your company, right. Like startups have agility but scale challenges and you all touched on change management being such an important part of doing this at larger corporations. So would love to just hear more from all of you on the challenges and advantages depending on the stage the company is at, and what you guys see when you think about that problem.
Kelsey Kamm 30:17
I can jump in here. So it's a really interesting place to be because a lot of big companies and a lot of big retail companies in particular have grown at such a speed that their technology has really scrambled keep up. And it's been really interesting to come in and see really where we are in that process. And a lot of it is like, how do we create that sustainable picture of where we are today. Or not sustainable picture, but just how do we create that clear picture of where we are today. And once you have that in place, then you're able to modernize. Sustainability is one of my fundamental beliefs. And it's definitely one of the reasons that I wanted to join retail, which sounds crazy, I'm sure to most people. But I wanted to see, can we make a change in this area? And what I found is that it's humbling. I went in and was ready to hit the ground running and you really have to take a look at where are we now and adopt that strategic change mindset of: how do we adapt the system that we're working with today? What are the practices that you put in place? What is our literacy of our data for inventory? What levers can we pull? How can we change the mindset? And really also learning from the people who have been working in this space for a long time. I think it's easy as a millennial to think that you know the right way. And that's been a huge learning curve for me. I don't know, and I don't know the way that things have been built and stuff. So I'm learning all the time. And there's such a wealth of knowledge. What I can say is that supply chain individuals are the best problem solvers I've ever met in my life, because they're actually dealing with inventory. And they're actually dealing with these massive amounts of physical inventory. And so watching them problem solve is a totally different mindset than watching a tech problem being solved. And, yeah, it's been quite the education.
Hans Leijen 32:09
This is an interesting point that you've raised, because I've been in supply chain all the time. And indeed, it is great problem solving. But especially, and coming back to the big companies maybe and to the stage of the company, because when looking into the big companies, you see that also the supply chain roles and functions have evolved because it is really to say, having those massive product flows, even in the linear supply chain, you see that that takes so much control. And what the bigger companies typically have done, which I totally agree with, is go into that efficiency and go into functional silos, because that's the way how you can mature and get better and better at what you do. And now, when starting up now, in such a company, like for instance, we mainly work for Philips itself. That's a massive company with many, many product flows and many functional silos. And then you start to bring in reverse supply chain, what you notice then is that you come to the huge challenge, because you need actually massive teams because you need people from every individual silo almost to be in your team,. And then try to get them the understanding of reverse supply chain is something different. And the only answer that you get is, "My system does not do that." Or, "We do not plan these materials." And that is also the bit of the, let's say the challenge, I think for the bigger companies. Like okay, the ideas are there, but how to move this massive organization with functional expertise? Whereas I think smaller companies or startups can be more, can take a very lean, agile approach to move fast in this domain, and start from, let's say circular at the beginning.
Kelsey Kamm 34:02
Just quickly, I've enjoyed watching it because as an outsider, I know less about the space. And so you're able to see these different patterns across the silos or the different verticals that you work across. And really design is one of those mindsets that you look at it holistically, and you can look at it from that end-to-end perspective. And so I'm excited that design is moving into the space and really excited about the work that the strategist and designers are doing because it really does take that full perspective of an integrated supply chain to be able to change it.
Eve Richer 34:34
Yeah, and I was just gonna add on about the idea of startups being very agile. And I think they have advantages in terms of, as Hans was saying, setting up to be more circular upfront, being more lean. But I also think there's so much going on in this space with companies of all sizes, corporates, cities, countries, really looking at how to be more sustainable, how to embed circular economy, net zero, all these sorts of things. I think there's a lot of opportunity for innovative entrepreneurs and startups to develop new solutions and create new ways of doing things that can support all of these goals and efforts that are going on with companies and cities that have more of that scale. So I think that's also an interesting area, for those that are on the call that are very entrepreneurial, could spark some new ideas around new companies to start.
Noelle Tassey 35:25
Speaking of those on the ball, this is the time that we're gonna transition a little bit into a Q&A session. So if you're listening in, feel free to raise your hands using that feature if you want to ask your question live, and our team will take you off mute. And you can ask your question. In the meantime, though, we've got a lot of great questions that have come in through our Q&A box and through our chat feature. So we're going to start working through those and I just want to thank everybody for sending in their thoughtful questions. So we have one question here. This is a pretty straightforward one, I think. Well, nothing is straightforward in this space. But would a CO2 tax increase the transition towards a circular economy? That's it. I know that there's a lot of ambiguity there, I assume it has a lot to do with how that could scale.
Hans Leijen 36:29
Yeah, and I think it's a good point because a CO2 tax is one point coming into the equation of the finance sector, financial model that I mentioned. Because also that, let's say, very often, that's at least how I feel, we have still to compete against new price, the pricing or the cost of new products from new raw materials. CO2 tax, when really that's allocated to those new products, then that can help in that equation. Because sometimes it still feels unfair for me. For instance, the huge amount of transport or CO2 produced with the production of the raw materials — think of aluminium, think of plastics, etc. — is not really taken into account. Think of all the massive transport that we do all across the world. It's not taken really into account into the bottom line pricing of our new products. So I think it's fair and it gives the circularity and the circular options, parts recovery, etc, a better chance.
Eve Richer 37:39
Yeah, and I think the question gets at a really important point. And I think something we'll see more and more of is this merging between carbon and climate efforts and circular economy, it's something that we are looking a lot at Cisco. We just had a net zero goal in September. So we set a goal that by 2040, will will achieve net zero across all scopes of emissions. And so I think, historically, a lot of the conversation around climate and CO2 has looked at energy, renewable energy, energy efficiency, etc, which is very, very important in reducing CO2. But circular economy is also a really important lever as well, right? Thinking about how to, you know, if we make less stuff, then we will have less carbon emissions from the energy to manufacture it all the materials, etc. So it's something that we're really looking at, is how do we bring those together as part of our strategy, so they're not operating in silos is kind of two distinct efforts.
Kelsey Kamm 38:36
Yeah, I think that we're really talking about a multinational, global context here. Because a lot of our products are made overseas, a lot of the sourcing and the major polluting factors are not housed here. Companies just aren't in charge of those operations as closely as they might be to other aspects of their business model. And so it really is about that incentive structure. And I know that least here in California, a couple of our ports have put limitations on the boats that are coming in, and how many boats can be at the port at one point and are setting regulations of their own for capping the amount of emissions and for all electric fleets. And so I think it'll be interesting to see like, what will drive the most change? Will it be from inside of a company? Or will it be from the externalities that are placed on that company? Or on that economy?
Noelle Tassey 39:36
Yeah, I think that's super interesting. I've got some questions in to kind of dig a little deeper into those overseas parts of the supply chains. I do want to call live on Kyle in the audience who I believe raised his hand with a question, Kyle, thank you for being brave enough to be the first to hop on with a live question. Over to you.
Yeah, yeah. Hey, I'm here. I wanted to ask a question more from the entrepreneurial side, which is sort of my background. I've been thinking about different business models that can be applied to various parts of the value chain or supply chain, especially in the green economy. What I've been thinking about is that there are some parts to the supply chain that are uniquely applicable to business models that come from a third party, as opposed to something that's like, as opposed to an operational innovation that's done if I'm inside the organization. Because a lot of the problems with operations, when you're trying to green are similar across organizations. Each organization is going to have its own specific problem but in terms of the fundamental business model, there's a lot of applicability across different companies, which to me, it makes me believe that there's a really important place for third party vendors to come in and provide those services. So I was wondering if just anybody on the panel had any thoughts about that, and if they've been doing any thinking as to what sort of specific services would be especially attractive to a company that's set up as a third party vendor that can contract with the companies that are trying to green their operations?
Hans Leijen 41:28
I think it's an interesting question. And actually, what you see is that like we built also in the linear supply chain, you have this whole set of make/ buy decisions that you have to do as a company. So from that perspective, there are so many elements, whereby you think, Okay, what should you keep within your own company? Which can be very often maybe the very specific technology stuff that you master as a company.But think about all those added services that come in place when you start being circular. In Phillips, the main product is health care. So collecting devices or collecting consumables from hospitals is a service in itself, which we are not geared up for, where we do that ourselves, or can be leveraged on parties that build that. Or even combine that over companies. Decontamination, or whatever service that comes in to reapply or reuse materials and products come in. And then you see make/ buy decisions coming all over. And in the end it's like, Okay, who has the capabilities that are needed? And that's one thing to be added. So what we are also doing in our projects is also identify the capabilities that the additional capabilities that we need in the reverse value chain. And because you find out once you start doing that, that there are so many new capabilities coming up, which you have to ask yourself as a company: Do I do that myself? Or do I outsource that? Or what part is already out there? Or initiatives that's already taken who can relieve you of that activity?
Kelsey Kamm 43:26
Yeah, and I think that, so we work with a lot of third party vendors. And a lot of them are leaders in the space of sustainability. And I think that they really helped drive a lot of the sustainability mindset that we have at the company, which is a really great place to be. But I think that there's what Hans was saying, like really looking at what is the core competency of the business? And if the core competency of where I am is enabling flexibility and dynamic movement, then that's an area that I would love to see some more innovative products moving into. And at the same time, there's the whole question of the manufacturing side, and what are some of the models that are going to be standard in the future for manufacturing? What are some of those ratings that will be included? The whole notion of 3D modeling for your clothes and virtual try-on rooms and being able to try different materials in a virtual setting is going to be very popular in the future. And it's already taking off in a lot of different industries. And so how can we integrate sustainability into those models and start looking at those from a more metrics driven perspective? Those are two areas that I would love to see some innovation in.
Noelle Tassey 44:40
Eve, do you have anything you want to jump in on here?
Eve Richer 44:44
Some of what Hans was saying was making me think. I do think there's a lot of opportunity in the reverse logistics space. Oftentimes in sort of traditional forward logistics, we talk about the last mile, right. That tends to be the most challenging because it gets to the point where you're going out and there's not as much scale. And I think in reverse logistics, it's kind of the opposite. It's that first mile. So for example, in the space of reusables, I know there's been trends popping up for getting your your ice cream or your shampoo, all of these things that common single use disposable packaging, how can we create a system of reusables? And that requires a really robust reverse logistics system that's convenient for consumers, that's easy, that you can scale, where there are standards. So I think that's an interesting space where we're already seeing quite a bit of innovation. But I think we'll continue to see more. And I think that's a space where partnership is so important, right? Where you need to be able to partner with logistics providers and potentially big brands and cities to come up with something that's going to really work at scale and be cost effective.
Hans Leijen 45:49
That really resonates with one of the topics that you really see. Because within for instance, a company like Philips, you see the big medical devices that we have. And that makes sense, because you pull them back, and you can organize all that. But now think about a toothbrush, which is a consumer product. How do you get that back in a very economic way? And do you want to ship it all over the world? And I think the obvious answer is no. So you really see there's room for more localization, and also smart solutions to get those more simple consumer products back in a sustainable and efficient way.
Noelle Tassey 46:32
Definitely. Okay, I'm going to move us on. I really would, I'd actually love to stay on this for a little bit longer but we have a bunch of other questions coming in. Kyle, thank you so much for a great and thought-provoking question. Sounds like a lot of opportunity in that space. And if you're on the call, you're thinking about starting a venture in this space, or what have you, definitely feel free to drop us a line and we'll see if we can connect you with. But all right, next question from Wayne. So I feel like this is one of those questions that gets gets asked a lot here, right. We've talked about a lot of edge cases where circular is actually just economically better. But we know that that's not always the case from a unit economics basis. So Wayne has asked us how do you deal with situations where the marginal cost of recycling is much higher than using new raw material? Example: Low cost EV batteries. Do you have examples of where this has worked, despite higher marginal cost? I'm going to guess that in some cases, at least, resilience is probably a factor. But I'm going to hand this to the to the three of you, to anyone who wants to jump in and answer it. You're all like, "Oh." For a tough question.
Hans Leijen 47:57
I think that's absolutely a challenge because you see that I just raised that example. So I think in many industries, you see where you have very high-end valuable goods. And that makes sense to restart that because you immediately have a positive business case, and make sense. And then you start learning. And especially when you go down more to, let's say, the cheaper products, consumer goods, etc. And then your business case becomes weaker, especially if you have to start from doing manually. And that's what you see very often. You start small scale, bit more manual processes or your system, the tools do not support that. And that's also where I've had quite some discussions. Let's say that we should not focus on only the small scale start of it at but imagine how it would be in 2025, 2030, when we have massive volumes, and we have the opportunity to also there do further automations or efficiency setups, so that we can do these operations at far lower cost.
Eve Richer 49:12
Yeah, I was going to say something similar along the lines of scale. I think something that we're looking at internally. Sometimes we'll face challenges where we're trying to make our packaging more sustainable and some of the materials that are less sustainable, they end up being cheaper. So how do we make sure that we can really drive scale not just within one business unit, but across multiple business units, and it helps you know, we have some public sustainable packaging goals around reducing foam, etc. So there's this corporate top-down effort that's driving some of those conversations. And then I think the other thing that comes to mind is also this is where business models fit in. So sometimes, depending on your business model, if you have a very linear model where you've got the idea, this is gonna have one lifecycle, it might not make as much sense to invest in a product that's easier to disassemble and repair or upgrade. But if your business model is based on selling services for repair, or getting products through take back and remanufacturing or as-a-service, then you have a very different set of incentives to design something and maybe invest more money upfront to make a product to be more circular, because you know that you'll get it back, maybe you're not even changing title. So you're going to own it throughout and you're going to deliver that outcome to multiple customers using the same piece of equipment. Then you can justify designing something to have a longer life, for example, or be easier to repair.
Kelsey Kamm 50:30
Yeah, I think that there's also that end of life conversation that really needs to come into the product mindset too: Yes, it might be cheaper, but how long will it be around? How hard is it to break down? What's the cost of that? And that really is a mindset shift. And so while we might be looking at that incremental cost now, it's a mindset shift that we're trying to inspire across the industry. And I think that the classic example is the plastic bag versus the paper bag. And which one is more environmentally sustainable? If you look at the manufacturing side, yes, paper might not look like the more sustainable option. However, when you look at the end of life, and the mindset shift that you're trying to inspire within the population, then it's a completely different conversation.
Hans Leijen 51:18
And maybe also for those cheaper products, because in the end, the alternative is landfill. And actually the real cost of landfill are not charged at this moment. I think, also they're like, Okay, hey, we can of course consider because we do economically, we can buy cheaper a new battery, let's throw away the other one or recycle the other one. But bottom line, in the end, we get on the supply side, we get scarce materials driving up the prices. So your cheap battery will become more expensive. But also let's also hope for that that you get also to pay the real costs for doing your landfill.
Noelle Tassey 52:05
I had a feeling at some point, we are going to get to the government regulation forcing economic incentives angle, because it is always I feel like lurking in these conversations. So I think the next question from Steven in theQ&A box is: Who would you say are the leaders in circular economy practices and innovation? Aside from obviously everyone on this panel? And what are the typical challenges that midsize companies encounter? So you know, big enough to really have some problems here, but not big enough to have in-house expert teams such as the three of you? This is a great question. Thank you, Steven. All I'm coming up with is a list of companies that are definitely not leaders in circular economy.
Eve Richer 53:01
Yeah, well, I don't know, if folks are new to the concepts of circular economy, they may not have heard of the Ellen MacArthur Foundation. That's not a company. I mean, it's more of a nonprofit. But that's definitely, they're a huge leader and had done a lot to raise awareness of circular economy and drive this into public policy conversations, corporate conversations, etc. And they havee various different initiatives. But they have sort of like partner companies, and a group called the CE 100, which is a group that Cisco is a part of, I think Philips is as well, Hans can jump in. But that would be a place to look, if you're looking for leaders and who sort of put their name out there and a stake in the ground to being committed to circular that would be a place to look. And then the other question was about challenges for mid sized companies. Is that right? Let me think on that one, and I'll see if anyone wants to jump in on the the leaders question.
Kelsey Kamm 53:56
When you say that midsize companies, the first thing that comes to my mind, especially with the current supply chain, is that competition. And so really looking at, how can they partner with other midsize companies? And how can we create more of that sharing model, especially for transportation and for sourcing, because a lot of the the larger companies have the capacity to flex within their supply chain, but those smaller companies, there's a big movement to share data and share your supply chain stream so that we're not in competition with each other all the way through the chain, but also collaborating as we bring stuff to our customers.
Hans Leijen 54:38
And also triggering that that question: does company size matter? Apart from let's say, maybe complexity to start it? But I think, let's say when you look at successful, and you see many small successful or bigger successful companies. But I think what they have pretty much in common is also looking at the total and the good mix of product design, business model, for instance as-a-service because I think that's really one of the drivers, and then also an effective circular supply chain. And basically, it's a bit similar to what we see in digital, where you see also successful companies and digital, they have set up new concepts, new business concepts, and as such, being successful. So I think companies that have the potential to be successful, and if you take the example, the examples of the Ellen MacArthur Foundation, and you see that, I think most of them rethought their system or rethought their customer offering. And that's very interesting to be successful.
Noelle Tassey 55:49
Definitely. Does anyone want to jump in with any other companies that we feel like are doing a really great job in terms of circular economy practices? We are going to jump off soon. I typically end with a quick lightning round question. But I think this one from Steven is...
Kelsey Kamm 56:10
I personally am keeping an eye on some of the really big players like the Walmarts and the Targets, and looking at how they are integrating this type of thinking. Because they've spent a bunch of, they put a lot of resources towards it, and they are within similar industry that I work in. And so how are they looking to move the needle? And what strategies are they adopting? And so, yes, every size is important, but then also that these industry leaders are the ones who can really set that tone. And so how can we learn from from them as well?
Noelle Tassey 56:43
Love that. Any other companies are coming to mind?
Eve Richer 56:50
Well, you mentioned Poshmark earlier, and it made me think of The Real Real, which I think might qualify as midsize. There's a lot, I think, a lot of innovation in the fashion space. And this idea of you know, how do we extract more value from the clothes rather than have a throwaway model. So I don't know if anyone knows The Real Real. But anytime I have to go to a wedding, I usually will buy a dress from there rather than buy something new that I wear to one or two events.
Noelle Tassey 57:13
I'm like their like biggest evangelist. I don't have anything that's not from The Real Real or I talk about it all the time. I'm a huge fan. I think they're definitely midsize and agree they're doing some really great work. I like their packaging is very sustainable. Unfortunately, the emphasis is on using as little packaging as possible so that the box shows up and I'm like, What happened to you? We'll get through that....Alright Hans, one last word from you. And then I think we have to wrap.
Hans Leijen 57:13
Yeah, I mean, nothing pops directly into mind but I think yeah, especially that the new business concepts? And also I think what comes into mind is that you see very many companies focusing on one thing only, so being the best at CO2 reduction or being the best at packaging. But the whole package, so really the circular economy concept, I see very little examples yet.
Noelle Tassey 58:20
Interesting. Well we may have to have follow-up. I feel like we could dedicate an entire panel just to that. I want to thank all three of our panelists and all of our attendees for sharing an hour of their Wednesday's with us. This was a great conversation, incredibly topical, really, really interesting. And thank you guys. Thank you audience members for bringing thoughtful questions. We'll be sending out a recap and recording to everybody RSVP'd and this will also be available on our site where you can see other upcoming events: Alley.com Thank you all so much. I so appreciated this super interesting conversation. Take care and happy holidays.
Eve Richer 58:59
Thanks, everyone. Bye.