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What is circular procurement?

1 March 2022 • 4 minutes

Circular procurement can be seen as the green version of procurement. It benefits environments and businesses in reducing waste and costs.

The circular economy is at the forefront of the green movement in the business world. It is venerated for eliminating waste and focusing on society-wide benefits. Its three principles involve: designing out waste and pollution, keeping products and materials in use, and regenerating natural systems. So, where does tendering come to play within this paradigm?

Well, circular tendering (part of circular procurement) is the green, ‘reuse-reduce-recycle’ version of tendering. It’s the approach to procurement that acknowledges the supporting role private and public entities can play for the circular economy. It goes beyond purchasing a new product and considers what happens to products that reach the end-of-life stage.

Circular tendering can be understood as the process undertaken by private and public entities that cater to the circular economy. This entails procurement professionals procuring (and bidding for) goods that are provided as a service or constructed for longevity. Procurement professionals are encouraged to maximize the lifespan of products (by reusing, repairing, and recycling products) to minimize the consumption of finite resources. As such, circular procurement prioritizes product longevity and resilience, minimizing waste, the sustainability of materials and resources, renewable energy and materials, restorative and regenerative usage models, and optimizing value generation and life costs. Ultimately, circular procurement is about creating product life cycles that are in ‘closed loops’.

Levels of Circular Procurement

Circular procurement addresses and encourages paradigm shifts on three levels: systemic, supply chain, and product.

The ‘system level’ refers to the employment of contractual models that ensure circularity. There are several practices that can ensure that circular economy principles are applied to the system level. These include inter-organizational collaboration aimed at fostering innovation and pooling resources and ideas, converting purchases to leases for purposes of sustainability and value creation, transforming products into services, and developing supplier return systems.

Next, the ‘supply chain level’ refers to the power suppliers have to build circularity in their own systems. This helps in ensuring that the products and services offered meet circular procurement criteria. Circular solutions relevant to the supply chain include: collaborating to facilitate take-back systems, consideration of each stage of the product’s life cycle, and focusing on (internal) reparability and reusability.

Lastly, on the ‘product level’, there is a sole focus on products that suppliers may themselves procure down the supply chain. Here, circular procurement can be supported through: using readily identifiable and reusable components, designing products that are easily disassembled for repurposing and recycling, and focusing on maximum resource and energy efficiency.

Benefits of Circular Procurement

It may seem like the sole purpose of circular procurement is to take better care of the environment. While that is largely the case, you’ll be pleased to know that its benefits extend beyond that. Financially speaking, it reduces (short and long term) costs in terms of Total Cost of Use, lowers the frequency of procurement due to the active efforts put into extending the life of products, minimizes waste management and the costs that entail, and helps in countering price fluctuations.

Moreover, there are strategic reasons for circular procurement that can benefit a business. Circular procurement: endorses cohesive cooperation throughout the supply chain, propelling robustness; reduces risk; garners greater insight into future costs, and enhances one's reputation.

Circular Procurement Exemplified

To illustrate how circular procurement works, we’re looking at the case of Nantes in Western France. Nantes aimed to be at the forefront of social and environmental through the development of responsible models. This includes understanding that public procurement goes beyond being a technical decision, and extends to being a decision that should be aligned with political priorities. As such, Nantes Metropolis actively encourages responsible procurement.

In 2001, Nantes proposed two facets of procurement that require change. That is: procurers must be present in encouraging businesses and other stakeholders in a responsible way, and procurers must act as responsible buyers. This was part of their commitment to sustainable public procurement (SPP).

Responsible procurement was enacted through several policy initiatives, including:

  • Eco-friendly cleaning products
  • Organic food in school restaurants; where over 12% of schools served organic food by 2016.
  • Recycled or FSC certified paper

Thanks to their 19-year commitment to sustainability, Nantes Municipality has made significant improvements to its procurement in many essential sectors, including the purchase of eco-friendly products (e.g. cleaning products, paper, wood, furniture…etc), and high energy performance products (e.g. computers, cars).

As the world is slowly shifting to more sustainable practices, circular procurement is a surefire way to encourage the provision of more circular goods and services during public and private procurement. By pushing to retain materials at their highest value, innovation is stimulated and costs are reduced. By introducing reuse into the organization, procurement administration time is cut dramatically, thus allowing a greater focus on more value-creating tasks. Moreover, and most importantly, introducing circularity of assets has a massive positive impact on the environment––and getting a head start is crucial as within 5–20 years, every single aspect of one’s business will likely have to focus on resource efficiency.