Circular procurement: The potential of the circular economy for buyers

Purchasing departments are still few in number taking advantage of the circular economy, according to the latest ObsAr barometer. However, for certain purchasing categories, the circular procurement can reduce costs, resource consumption, and greenhouse gas emissions.

This article was originally published in Decision-achats.fr .

Purchasing strategies enable organizations to reduce costs and secure supplies. These strategies have contributed significantly to improving labor productivity, for example by sourcing from countries with low labor costs. However, they have often failed to improve material productivity. For example, over the past 20 years, the share of labor costs in the cost of a German industrial company has decreased by 9%, while the cost of materials has increased by 7%. Today, materials represent the largest share of an industrial company’s cost (43% in Germany). For a long time, buyers had few levers to improve material productivity. But this is no longer the case thanks to circular economy purchasing strategies.

CIRCULAR ECONOMY PURCHASING STRATEGIES

Purchasing recycled or renewable materials  (rather than new ones) can reduce purchasing costs and secure supplies. For example, the pharmaceutical group GSK’s Montrose, UK, plant reduced its annual costs by €280,000 by substituting recycled methyl alcohol for virgin methyl alcohol.

Purchasing refurbished equipment  (rather than new) also helps reduce costs. Many pieces of equipment, such as compressors, forklifts, and office furniture, can be refurbished. Refurbished equipment typically costs 20 to 40% less than new equipment, with the same performance and warranty.

Purchasing the use of a product  (rather than purchasing the product itself) reduces the total cost of ownership. BASF’s plant in Münster, Germany, reduced its annual costs by €30,000 by purchasing a compressed air service instead of a compressor. Renault reduced the total cost of ownership of cutting oil by nearly 20% by replacing the purchase of oil with the cost of using it.

Finally,  sharing the use of existing equipment  (rather than purchasing new equipment) can reduce purchasing costs or generate additional income. For example, the company Floow2 helps hospitals share equipment with low utilization rates (only 42% for mobile equipment). The Yard Club sharing platform has enabled 2,500 construction professionals to share construction machinery.

A THREE-STEP APPROACH to circular procurement

To implement circular purchasing strategies, buyers will first need to identify the most appropriate purchasing categories. For example, purchasing refurbished products is appropriate for industrial equipment, but not for office supplies. 

Secondly, buyers will be able to assess the benefits and obstacles to implementing these purchasing strategies. In particular, they will need to assess the potentially available supply. While many suppliers sell refurbished equipment, they do not offer it in all their markets. 

Finally, buyers will be able to select and experiment with the opportunities that present the highest benefits in order to demonstrate to their organization not only the environmental but also the economic benefits of the circular economy.