What is circular procurement and what are its respective challenges for companies?

Circular procurement definition
Updated on September 14th, 2023
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Circular procurement refers to any purchase necessary for a company to operate that is made in a manner supporting the transition to the circular economy. This can take the form of a product, a service or even a circular contract, to strive towards a more sustainable, more responsible economy.

The definition of circular procurement

Circular procurement is purchasing that applies the principles of the circular economy, i.e. that reduces the waste of resources (raw materials and energy) and environmental impact, to support sustainable development through a company’s supply chain.

Circular procurement therefore tends to break with the classic linear pattern of "produce, consume, throw away". On the contrary, it means going beyond short-term needs to see purchasing and its externalities in their entirety, and over the long term.

The United Nations shared its vision of this paradigm shift: "The circular economy is a system of production, exchange and sharing that enables social progress, preservation of natural capital and economic development as defined by the Brundtland Commission. Its ultimate goal is to disconnect economic growth from the depletion of natural resources by creating innovative products, services, business models and public policies, taking into consideration all flows throughout the life of the product or service. This model is based on optimum use of resources and on creating positive value loops."

The development of circular procurement

Through their purchases, economic players have a direct impact on the supplier market’s supply and practices.

Public procurement in the front line

Public procurement is estimated to account for more than 16% of GDP (Gross Domestic Product) in the European Union. This is why public actors must question their needs and their procurement practices in order to meet the challenges of sustainable development. When it comes to sustainable procurement, they should be setting an example and supporting others in the transition towards a circular economy.

This is mostly fostered by increasing regulations in this area. As well as each member country having its own regulations, the European Union is determined to "make sustainable products the norm". The EU Council Conclusions on Sustainable Public Procurement call for taking action to reduce greenhouse gas emissions (scopes 1, 2 and 3) and thus work towards the Paris Agreement’s objectives.

The private sector is moving fast

Private firms are not dragging their feet either. They are increasingly committed to sustainable procurement, mostly for ethical reasons so that they are in line with their corporate mission, but also to fulfil customer expectations.

According to the study "Circular economy: Time for the consumer-entrepreneur" by Harris Interactive, 80% of Europeans see the circular economy positively. This is linked to the positive impact that this economic model has on the environment as well as its capacity for innovation and job creation.

Companies can also reduce their costs using the circular economy. There are a growing number of examples of this, resulting in "smart" savings. For instance, GSK, a global biopharmaceutical company, reduced its annual costs by around €280,000[1] by sourcing recycled alcohol rather than virgin methyl alcohol.

The three models of circular procurement

Buyers who want to support the circular economy have three levers at their disposal.

Acquire circular goods

A good practice is for buyers to choose goods and services that are:

  • Modular;
  • Recycled or recyclable;
  • Eco-innovative;
  • Eco-designed;
  • Bio-sourced;
  • Repairable;
  • Refurbished;
  • With available spare parts;
  • With a certain warranty period…

There are many options for promoting circular procurement.

Choose a circular supplier

Buyers can choose suppliers whose systems or processes are, by definition, circular. For example, a manufacturer may offer a take-back system for used products or the repair of key components. They may also design their products so that they can be easily dismantled and repaired. 

Opt for a circular contract

Buyers can also sign a contract for using a product rather than owning it, inspired by the functionality economy. This means they pay for use or performance. It is then up to the supplier to guarantee the longest period of use possible through maintenance, replacement of parts, when necessary, etc. This can also take other forms, such as a contract stipulating the buy-back of the product at the end of its life cycle by its supplier, for example.

The challenges of circular procurement

Buyers need to address a number of issues in order to successfully adopt circular procurement in their business. It’s all about information, cost and overall strategy.

Building on existing content

Buyers need to have the necessary information and the evidence to go with it to guide their choices. This can take the form of environmental labels, standard labels, regulatory labelling, laboratory tests, etc.

Rethinking the concept of cost

The notion of full cost must also be revalued. In addition to the value of use, it is necessary to integrate the environmental, social and societal value. While a circular purchase may look more expensive at first glance, this is actually linked to its lower CSR impact.

Joining a circular strategy

Circular procurement can be the first step and a quick win for the transition to more environmentally friendly practices. Companies must adopt a holistic approach to implement a circular economy strategy. This includes mapping their value chain, defining an action plan that is fully integrated with the business strategy and implementing new key performance indicators.

It is now essential to factor in the circular economy in order to overcome the century’s global challenges on the sustainable development front. Companies have realised this and so have the procurement functions.

[1] £247,000

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