Performance measurement in circular supply chain management
Dennis Vegter is a PhD student in the Department Industrial Engineering & Business Information Systems. (Co)Promotors are prof.dr. J. van Hillegersberg and dr. P.B. Rogetzer from the Faculty Behavioural, Management and Social Sciences and dr. M. Olthaar from NHL Stenden.
The transition to a circular economy is required to avert a climate crisis and reduce our dependence on raw materials. To evaluate sustainable supply chain strategies in a circular economy, it is necessary to define what performance objectives are being pursued and to measure the actual performance towards these objectives for all processes of the supply chain.
The performance objectives can be classified into performance objectives for the circular economy, performance objectives which aim for sustainability and performance objectives that characterize circular supply chain management. The overall performance objective of a circular economy is to decouple economic growth from natural resource depletion. The performance objectives which aim for sustainability are costs and revenues (economic performance), resource depletion, carbon footprint, toxicity and pollution (environmental performance) and employment, occupational safety and health, excessive working hours, extreme poverty, child labor, life expectancy and education (social performance). Performance objectives that characterize circular supply chain management are to minimize the use of materials, water and energy, machines, equipment), to minimize waste, to maximize the availability of the product and to maximize the number of recovery flows.
A supply chain in a circular economy consists of eight processes: (1) Plan (2) Source (3) Make (4) Deliver (5) Use (6) Return (7) Recover (8) Enable.
The actual performance towards the objectives can be measured using a performance measurement system (PMS). None of the currently available PMSs for circular supply chain management include interdependencies between performance measures. Including interdependencies would better support the complex decision making that arises in circular supply chain management and enable one to challenge strategic assumptions about the improvement of circularity, economic, environmental, and social performance in parallel.
The PMS developed in this dissertation includes interdependencies between the various performance measures which are described in both a qualitative model and a quantitative model. The validity of this PMS is evaluated in two companies which are in transition to circular supply chain management. The companies confirm the relevance of performance objectives, their interdependencies and the validity of the outputs. The PMS is used to perform simulation studies for both companies, under different scenarios, to indicate how the performance objectives interact and how circularity, economic, environmental and social performance evolves over time. This enables to determine when the interest of different stakeholders are served and therefore promotes the involvement of stakeholders to support the transition to circular supply chains. The simulation studies performed with the PMS result in the following knowledge contributions: Service lifetime- the time period of use, recovery and reuse - is as relevant to circularity as the frequently discussed concept of product lifetime. The development of maturity of circularity follows four phases: virgin materials only, combination of virgin materials with recovered materials, recovered materials only, deterioration. The simulation studies further revealed that shortening the supply chain can lead to a rebound effect which increases the environmental impact.
The development of a PMS using system dynamics is subject to recurring criticism which can be addressed with a dialectical process. In this dissertation a dialectical process is developed by merging literature on dialectics and systems thinking. The dialectical process consists of three steps. The first step is to identify a contradiction and challenge its underlying assumptions. By formulating problem statements possibly opposed relationships are explored that negate the assumed relationship between variables. The second step is to develop multiple resolutions for the contradiction. Finally, the third step is to select one resolution for the contradiction and introduce this resolution as a new element which leads to novel contradictions in the system. This dialectical process is tested in a number of workshops. The tests show that the dialectical process enables to identify contradictions in systems and allows to critically reflect on problem identification, uncover assumptions, review the relevance of variables and develop resolutions as pathways of learning and change.
This dissertation provides various suggestions for further research in sustainable development, circular supply chain management, dialectics and open hardware. In sustainable development, all performance dimensions are considered equally important. However, since the carrying capacity of the Earth is already exceeded, a logical consequence is to set the priority in sustainable development to 1) environmental benefits 2) social benefits 3) economic benefits. The implications of this change in priority is an interesting opportunity for further research. In sustainability, the focus is now on reducing the environmental impact of the supply chain. However, this does not provide guidance on how to organize sustainable development and, in particular, how to share the land and emissions available within the planetary boundaries in a way that benefits a fair society. Sharing principles and allocation of land and emissions that benefit sustainable development is therefore an interesting opportunity for further research.
In circular supply chain management, an interesting opportunity for further research is to develop maturity models which describe the relationship between the phases of development of internal organizational concepts, such as processes, products and business models, and circularity over time. These maturity models enable companies to be more effective in their transition to circular supply chains. Insights in rebound effects related to increased effectiveness of the supply chain is another promising opportunity for further research. In dialectics there are various interesting opportunities for further research. In particular, to introduce resolutions in the causal loop diagram and use the dialectical process as a continuous improvement process for system dynamics models. Other interesting opportunities for further research are to compare the dialectical process with any participatory model-building method, apply the dialectical process to more complex causal loop diagrams and study which factors determine the effectiveness of a dialectical process.
Finally, open hardware provides many opportunities to overcome barriers in the transition to circular supply chains. Open product design for circular supply chain management enables faster product development, more learning and less failure costs. The use of norms and standards to promote open product design for circular supply chain management is an interesting opportunity for research. Open hardware fits very well to the use of material passports which stimulates the exchange of information between parties and more conscious use and reuse of materials. Uniformity of material passports and its acceptance by various parties are interesting opportunities for further research. Open coordination mechanisms arrange a fair distribution of costs, risks and benefits among the various parties in the supply chain. Open coordination mechanisms to promote open hardware provide interesting opportunities for further research.
