InsightaaS: Procurement Leaders is a membership network “serving senior procurement and supply chain executives from major worldwide corporations, providing independent procurement intelligence, professional development and peer-to-peer networking.” Its members include global leaders in the CPG, telecom, pharmaceutical, oil and gas and financial services industries.
This post features a “guest blog” by Carlos Alvarenga of Ernst & Young. In it, he connects three intriguing ‘dots’ – corporate procurement practices, changes in market preferences resulting from both environmental degradation and the rise of an environmentally-conscious generation of consumers, and the drive for sustainability as “the rule rather than the exception” in corporate behaviour. Alvarenga believes that these complementary trends will result in a “circular economy” in which producers will lease access to goods rather than sell them as discrete items, and will take transparent responsibility for both the production and the disposal of their products, leading to a market in which “economic value creation [is] aligned with environmental improvement, not degradation.”
By 2025 procurement functions will be asked to move beyond cost management and to create economic and social value. This change will be a consequence of the generational shift in the understanding of sustainability that will take place as the last of the ’Baby Boomers’ retire. As the post-2000 generations come into economic power, the idea of a social model where economic growth is decoupled from resource exploitation will take hold.
This psychological shift will result in a movement from a linear economy of consumption and disposition to a circular economy of continuous use and reuse.
As the CEO of a major consumer electronics company recently noted: “… building a circular economy would require a fundamental restructuring of global value chains. Instead of selling products, businesses would retain ownership, selling the use of the goods they make as a service. Selling a product’s benefits instead of the product itself would create a powerful incentive for producers to design for longevity, repeated reuse, and eventual recycling, which would enable them to optimize their use of resources.”
Key characteristics of the circular economy will be customer access to a good versus actual ownership; business model evolution from individual transactions to managed relationships; reverse distribution cycles; innovations in material, component and product reuse; and products designed for disassembly and serviceability…
