using technology to power the circular economy

WHITE PAPER2019

USING TECHNOLOGY TO POWER THE CIRCULAR ECONOMY

© 2020 Optoro, Inc. All Rights Reserved.

USING TECHNOLOGY TO POWER THE CIRCULAR ECONOMY 2

Executive Summary

The Rise of Circular Thinking

Circular Economy Models in Retail

Technology to Power the Circular Economy

Unique Benefits of Returns Optimization Platforms

Conclusions and Take-Aways

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TABLE OF CONTENTS

© 2020 Optoro, Inc. All Rights Reserved. USING TECHNOLOGY TO POWER THE CIRCULAR ECONOMY 3

The concept of a circular economy has quickly gained traction in the retail and manufacturing spaces, with 58% of supply chain leaders planning to invest in circularity by 2020.1 While circular business models are often viewed as sustainability initiatives, it is retail supply chain leaders who are tasked with operationalizing circularity. Moving from the traditional linear flow of goods to a regenerative circular flow of goods not only requires new business models and partnerships, but also technologies that make circular processes cost effective.

Despite the dependence on data-driven solutions to drive circularity, only 23% of 120 top retailers are using a technology solution to manage products flowing through the reverse supply chain.2 This white paper provides an overview of the circular economy in retail and provides guidance to supply chain practitioners on key technologies and systems to manage circular business models.

EXECUTIVE SUMMARY

1 Pam Fitzpatrick, Gartner; James McCall, Procter & Gamble. “Case Study: Saving $2B by Seeing Waste as Worth.” Gartner Supply Chain Executive Conference Summit, May 2018.

2 Optoro. “State of Retail Returns.” 2018.


The concept of the circular economy entered into global corporate discourse in 2010 by Ellen MacArthur, a retired professional sailor, who likening her experience managing and preserving the finite resources on a solo sailing trip around the world to the potential risks of overconsumption of natural resources on our planet. She challenged the retail industry in particular to redesign supply chains to protect the finite resources we have on Earth by moving away from a “take-make-waste” model of consumption, towards a regenerative circular model. Over the past decade, circularity has been swift to gain traction as a way to curb unsustainable consumption, reduce waste and protect natural resources, and many retailers have made public commitments around sustainable business practices.

The circular economy has the potential to unlock $4.5 trillion of additional economic output by 2030, according to Accenture Strategy. For example, using renewable biomass resources in the chemical and energy industries rather than virgin materials could unlock $80 billion. Accenture also found that when companies recover and remanufacture used components, they can reduce material usage by 90% and increase gross profit by 50%.3 With that potential bottom line impact, circular initiatives have evolved beyond traditional sustainability teams. According to Gartner, 58% of supply chain leaders plan to invest in circular economy initiatives by 2020. 4

Circular initiatives also present supply chain leaders with a valuable opportunity to work toward the sustainability commitments their consumers increasingly demand. The retail industry infamously generates a significant amount of waste, leading many American consumers to “vote with their wallets” by purchasing from sustainable brands. Among U.S. consumers, 64%5 say a company’s environmental reputation impacts their purchase decisions, while 87% will purchase a product because a company advocated for an issue they cared about. 6

THE RISE OF CIRCULAR THINKING

3 Peter Lacy and Jakob Rutqvist. “Waste to Wealth.” Accenture Strategy, 2015.

4 Pam Fitzpatrick, Gartner; James McCall, Procter & Gamble. “Case Study: Saving $2B by Seeing Waste as Worth.” Gartner Supply Chain Executive Conference Summit, May 2018.

5 “Think. Feel. Do.” Shelton Group, 2017, https://sheltongrp.com/insights/sustainability-consumer-loyalty/.

6 “2017 Cone Communications CSR Study.” Cone Communications, 2017, http://www.conecomm.com/research-blog/2017-csr-study.

USING TECHNOLOGY TO POWER THE CIRCULAR ECONOMY 5

With mounting pressure from consumers to be more sustainable, and the potential positive financial impacts associated with resource efficiency, retailers have started to embrace the circular economy. Over the last year, several leading retailers landed headlines for new commitments to supply chain sustainability. VF Corporation7 and IKEA8 both announced shifts to a circular business model in 2018, while Adidas unveiled a new sneaker made entirely from plastic ocean waste.9

Despite these headlines, the retail industry still has a long way to go. An analysis of 128 prominent U.S. and global retailers found that only 23% of the retailers analyzed are implementing programs and adopting initiatives to advance the circular economy, with or without set goals. 10,11 And, only 30% of retailers have implemented product take-back or recycling programs for consumers, even without explicitly tying these programs to the circular economy.

CIRCULAR ECONOMY MODELS IN RETAIL

7 Danigelis, Alyssa. “VF Corporation Shifts to a Circular Business Model.” Environmental Leader, February 27, 2018, https://www.environmentalleader.com/2018/02/vf-corporation-recommerce/.

8 Bederoff, Jill. “IKEA makes an unprecedented commitment to only use renewable and recycled materials by 2030.” Business Insider Nordic, June 7, 2018, https://nordic.businessinsider.com/ikea-wants-to-become-circular-climate-neutral-by-2030--/

9 Aziz, Afdhel, “The Power of Purpose: How Adidas Will Make $1 Billion Helping Solve the Problem of Ocean Plastic.” Forbes, October 29, 2018, https://www.forbes.com/sites/afdhelaziz/2018/10/29/the-power-of-purpose-how-adidas-will-make-1-billion-helping-solve-the-problem-of-ocean-plastic/#55ef05bfd215.

10 Optoro Retailer Sustainability Research, 2019. Optoro assessed the sustainability goals, commitments, and initiatives of 128 U.S. and global retailers. Methodology involved analyses of the retailers’ sustainability reports, websites, and public comments, and tracking of relevant news coverage. Research was conducted in early 2019.

11 Optoro Retailer Sustainability Research, 2019.

23% 30%ARE ACTIVELY

IMPLEMENTING CIRCULAR BUSINESS PROGRAMS

HAVE ALREADY IMPLEMENTED PRODUCT TAKE-BACK OR RECYCLING PROGRAMS


01 EXTENDING PRODUCT LIFE CYCLES THROUGH REFURBISHMENT AND RECOMMERCERecommerce programs involve collecting products that can be refurbished and resold, as opposed to the recycling model in which products are broken down into component materials. According to the World Business Council for Sustainable Development, refurbishment refers to the collection, refinishing, and sanitization of discarded products or materials to make them fit to serve their original purpose again. 12

One example of this is Patagonia’s Worn Wear program, which works to extend the life of Patagonia’s products by taking back used products, repairing and refurbishing them, and then reselling them. Consumers who trade in their used apparel can receive store credit for use in Patagonia stores or the Patagonia or Worn Wear ecommerce sites. Through this program, Patagonia extends the life of its apparel while facilitating a loyal consumer base through its recommerce program. 13

02 REDESIGN OF NEW PRODUCTS TO USE RECYCLED/UPCYCLED MATERIALSRetailers and brands are increasingly incorporating recycled materials into their products, allowing them to avoid using virgin materials in production and to increase demand in the recycling industry, thereby contributing to a more circular system. Using recycled materials can also be a component of designing for the product’s recoverability at its end-of-life. 14

IKEA has a number of circular economy goals and principles, which include becoming a circular business based on renewable energy and regenerative resources and decoupling material use from their growth by 2030. They declared a goal to design all new products using circular principles by 2030, incorporating mostly renewable or recycled materials.15

When retailers commit to circular economy or sustainability goals, the programs often fall into one of these four categories:

12 Refurbishing.” Circular Economy Practitioner Guide, 2018, https://www.ceguide.org/Strategies-and-examples/Make/Refurbishing.

13 Phipps, Lauren. “4 companies pioneering the clothing recommerce market.” GreenBiz, October 10, 2018, https://www.greenbiz.com/article/4-companies-pioneering-clothing-recommerce-market..

14 “Design for recoverability/recyclability.” Circular Economy Practitioner Guide, 2018, https://www.ceguide.org/Strategies-and-examples/Design/Design-for-recoverability-recyclability.

15 Akesson, Therese. “Taking steps to create a circular IKEA.” IKEA, 2018, https://highlights.ikea.com/2017/circular-economy/.


03 PRODUCT-AS-A-SERVICE AND LEASING SYSTEMSProduct-as-a-Service (PaaS) and leasing models represent opportunities to build relationships with consumers that involve fees for using products, instead of consumers outright buying the products. PaaS models allow companies to reuse the same products in consumer transactions multiple times, while also giving consumers an avenue to access high quality, durable goods. 16

After its launch in 2009, Rent the Runway popularized the model of short-term rentals for high couture fashion. The company started as a luxury apparel rental service and has now broadened to subscription services. They ask consumers to consider the resource consumption that went into every piece of apparel worn and they highlight the environmental benefits of clothing rental and reuse.17

04 PRODUCT TRADE-IN AND RECYCLING PROGRAMSTake-back and recycling programs collect used products from consumers. Products are then routed to reuse or recycling depending on condition. The products are then broken down into material components for reuse in new manufacturing or industrial processes.18

Best Buy is one example of a leading retailer operating trade-in and recycling programs to close the loop on product disposal, and operates the largest retail recycling program of used electronics and appliances in the US. 19 Consumers receive a Best Buy gift card by trading in eligible electronics, and they can recycle items that do not qualify for trade-in. Through these programs, Best Buy has collected and recycled more than 1 billion pounds of electronics and appliances, with an impressive goal of collecting 2 billion pounds by 2020.20

16 “Buy and Own? That’s So Yesterday’s Model.” Accenture, https://www.accenture.com/us-en/insight-outlook-buy-own-thats-yesterdays-model.

17 Segran, Elizabeth. “Rent more than the runway: Why soon, you won’t own any clothes at all.” Fast Company, November 18, 2018, https://www.fastcompany.com/90245986/rent-more-than-the-runway-why-soon-you-wont-own-any-clothes-at-all.

18 “Take-back program.” Circular Economy Practitioner Guide, 2018, https://www.ceguide.org/Strategies-and-examples/Dispose/Take-back-program

19 “Trade in and Trade Up.” Best Buy, 2019, https://www.bestbuy.com/site/services/best-buy-trade-in/pcmcat133600050011.c?id=pcmcat133600050011.

20 “Electronics and Appliances Recycling at Best Buy.” Best Buy, 2019, https://www.bestbuy.com/site/services/recycling/pcmcat149900050025.c?id=pcmcat149900050025.


As exemplified in each of the four models, circularity requires retailers to take responsibility for products after their first use by a consumer and ensure that the products loop back to new users or are remanufactured to create new goods. Reverse logistics—managing the lifecycle of products that are returned or do not sell—is a critical component of the circular economy. Retailers have to manage both traditional returned products—items brought back for refunds due to buyer’s remorse or a defect—while also managing proactive returns that they receive from trade-in, take-back, and leasing programs.

21 “2018 Organized Retail Crime Survey.” NRF, 2018.

RETURNS ON THE RISE: Consumer returns are a large and growing source of inventory flowing through the supply chain. According to the National Retail Federation, the total volume of returns is growing every year and expected to reach $500B by 2020. Ecommerce delivers the highest return rates, and can reach 50% depending on the category.21 Adding trade-in and take-back programs increases the volume and diversity of returned inventory.


Once a product is returned, supply chain teams need to use a decision framework to assess a path, or disposition, for that item that supports circularity while also being cost effective. Whether a product return can be routed to a certain channel (e.g., secondary marketplace, donation, recycling, etc.) depends on a number of diverse factors including the item’s price, physical condition (used, open box, new), material composition, marketplace restrictions, regulations, and more. For example, many apparel recycling companies will only accept materials made of 100% pure blend cotton or polyester.

RETURN TO STOCK

REMARKETING/RECOMMERCE RECYCLING DONATION DISPOSE

RETURNS


The complexity of factors associated with managing returns can be mitigated and simplified by the use of reverse logistics technology. Yet surprisingly, most retailers still rely on manual processes with static standard operating procedures to govern returns dispositioning. The Optoro State of Retail Returns 2018 report found that only 23% of 120 top retailers utilized a technology solution to manage returns. 22

A key type of technology that retailers and brands can leverage to manage reverse logistics is returns optimization platforms. These platforms combine real-time market data with a retailer’s own business data to route each item to the most optimal path by determining the value that each path will deliver.

TECHNOLOGY TO POWER THE CIRCULAR ECONOMY

22 “State of Retail Returns 2018: Insights on the Returns Industry.” Optoro, 2018.

Reverse logistics is critical to circularity. In a circular system, retailers are managing both traditional customer returns (buyers remorse, defective units) and proactive returns such as take back and trade in product and leased product.

ENABLING A CIRCULAR

ECONOMY WITH RETURNS

OPTIMIZATION

Machine Learning, Dynamic Pricing,Predictive Analytics

OPTORO’S RETURNS OPTIMIZATION PLATFORM

CHANNELS

Individuals, Business, Charity

RETAILER RETURNS

Returns, Trade-In, Excess


When it comes to powering circular business models, returns optimization platforms add several unique benefits:

UNIQUE BENEFITS OF RETURNS OPTIMIZATION PLATFORMS

01 REMARKETINGThe circular economy depends on extending the life of inventory, thereby reducing the reliance on raw materials to manufacture new products. Unfortunately, retailers do not always have consistent and efficient systems to route returned products eligible for reuse to resale channels. Returns optimization platforms can integrate directly into resale chan-nels, such as secondary marketplaces like eBay or Amazon, or to a retailer’s own recom-merce channels. These platforms provide retailers with a systematic way to list inventory for remarketing, including listing descriptions, condition, and even shipping capabilities.

By using a returns optimization platform to process returned inventory, one $58B big box retailer decreased the volume of unsellable inventory by 84% over a 12 month period.

02 LANDFILL DIVERSIONIn addition to remarketing channels, returns optimization platforms can route products that are not eligible for resale to alternate channels such as charities, parts harvesters and recyclers. Returns optimization platforms utilize data on product condition, material content and downstream processing costs to route inventory to the best end-of-life channel. Returns optimization platforms also give warehouse operators and retail store associates the tools to manage this inventory, such as sorting and shipping function-alities. By tapping into a network of donation partners and recyclers, as well as imple-menting remarketing solutions, one mega retailer was able to reduce the amount of product sent to landfill by 44.9%.


03 END-TO-END TRANSPARENCYReturns optimization platforms generate unit-level data and summary dashboards that show retailers the volume and value of product that has been routed to each eligible channel. This summary data is critical to giving retailers visibility into which products are being disposed of, rather than reused. The ability to identify which products were eligible and ineligible for remarketing, recommerce and refurbishment provides criti-cal information on product lifecycle and can inform product design teams working to achieve circularity.

REMARKETING LANDFILL D IVERSION

END-TO-END TRANSPARENCY

By tapping into a network of donation partners and recyclers, as well as implementing remarketing solutions, one mega retailer was able to reduce the amount of product sent to landfill by 44.9%. Remarketing and landfill diversion can both offer retailers an improved profit margin on returned inventory.


The circular economy will disrupt our current model of production and consumption. Our success in transitioning away from traditional models will require a massive shift in how we use data and technology to manage supply chains. In addition to the traditional models in retail around circularity, retailers must also invest in reverse logistics. To date, retailers who use advanced technology to process returned and reverse inventory have seen a measurable reduction in waste and a significant increase in the amount of product that has gone back into the supply chain towards circularity.

A key first step in developing, deploying and operating circular business processes is to secure access to facilitating technologies that support and scale circular flows. The technology must evaluate the condition, value and eligible channel for each return product and effectively route it to the best next home. From the initial intake of returned goods in stores and distribution centers, to data-driven dispositioning and end-of-life management, returns optimization platforms increase the recoverable value of returned inventory, divert inventory from landfill and enable better visibility and control.

Optoro is a technology company that connects a seamless online returns ex-perience with efficient supply chain processing and resale. From providing an online portal to improve customer returns to technology that streamlines processing by routing inventory to its next best home, we offer solutions for retailers and brands looking to improve outcomes across all points in the re-turns process. Learn more at www.optoro.com.

Readers are encouraged to contact Optoro to learn more:

[email protected]

For more information, please visit:

www.optoro.com

Follow us on Twitter @optoroinc

CONCLUSIONS AND TAKE-AWAYS

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using technology to power the circular economy

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