This study aims to investigate how manufacturers can create circular supply chains based on existing circularity efforts arising from service-based arrangements.
Based on theoretical framing of supply chains as dynamic systems, the author presents an in-depth evidence from a single case study in the UK machine engineering sector. The data is based on rich insights from 11 interviews across multiple supply chain actors and secondary data.
The author identifies three key insights. Firstly, the service network in circular supply chains is characterised by long-term orientation with shared goals and visions, which differs from the transactional, ad hoc relationships evidenced in the case study. Secondly, the supply chain structure of a circular supply chain enables closed loops of materials and products as opposed to localised implementation of circular practices. Thirdly, circular supply chains require coordination of circular practices across the product value chain. This was missing in the presented case.
The author identifies two contributions. Firstly, this research contributes to the circular supply chain literature by identifying the key characteristics that differentiate circularity in supply chains from circular supply chains. Secondly, this research contributes to the emerging discourse on supply chains as dynamic systems by giving nuanced insights into the transformation from current supply chains to intended circular supply chains showcasing its determined and considered nature.
1. Introduction
The circular economy, defined as “the economy that provides multiple value-creation mechanisms which are decoupled from the consumption of finite resources” (Ellen MacArthur Foundation, 2015, p. 23), is becoming an increasingly important aim for transforming supply chains (Farooque et al., 2019; Sehnem et al., 2019). It aims to retain value of products and materials through the reduction of waste and using waste as a raw material through restorative and regenerative actions (Ciulli et al., 2020; Pal et al., 2019). In addition, institutional pressures aimed at establishing circularity, such as Extended Producer Responsibility [1] and the European Commission circular economy action plan [2], further create pressures towards creating circular supply chains (Kauppi and Hannibal, 2017; Kazancoglu et al., 2021).
Meanwhile, many authors report an increase in circular practices on organisational and inter-organisational levels, particularly within manufacturing contexts. One example here is servitisation, where manufacturing companies integrate services, such as product repair and maintenance, into their portfolio (Holmström and Partanen, 2014; Kreye, 2019; Zhang et al., 2022). Such service arrangements aim at repairing products (Kurata and Nam, 2013), implementing preventative maintenance schemes to improve functioning (Kreye et al., 2015) and extending a product’s use phase and hence helping to maximise its usefulness (Yang and Evans, 2019). This suggests that circularity exists in current supply chains within manufacturing, albeit on an organisational or dyadic level (Holmström and Partanen, 2014; Zhang et al., 2022).
This raises the question of how such existing efforts of circularity in supply chains facilitate the creation circular supply chains. Existing works on circular supply chains focus on the different barriers and enablers of circular-economy implementation especially in manufacturing (Kreye, 2023), including the need to build new supply connections and relationships (Ciulli et al., 2020; Flygansvær et al., 2018) to enable materials and parts with lower environmental impacts to be used in new products. Similarly, customer perceptions around value creation (van Boerdonk et al., 2021) can form an important barrier or enabler for circularity implementation. This can shape the acceptance of service-based business models, especially if customers prefer self-repair. Such works indicate a transformation to circular supply chains, where such barriers are overcome, and enablers are amplified through considered efforts by different supply-chain actors. Existing circularity efforts around service provision can support this transformation to circular supply chains. The purpose of this research is to build on this notion of transformation by identifying the start in terms of the supply chain of a servitised manufacturer and the end of this transition in terms of the circular supply chain. We investigate the following research question:
How can manufacturers create circular supply chains based on existing circularity efforts arising from service-based arrangements?
Using the view of supply chains as dynamic, changing systems, stipulated by lenses, such as panarchy theory (Holling, 2001) or actor-network theory (Hald and Spring, 2023), we answer this RQ using an empirical qualitative study. Based on evidence from a single case study set in UK manufacturing, we identify how existing supply chains are characterised by localised loops of circular practices, such as product reuse and repair. We use these insights to identify the extent of transformation towards circular supply chains. This research contributes to the circular supply chain literature (Atkins et al., 2024; Farooque et al., 2019; MahmoumGonbadi et al., 2021) by identifying the key characteristics that differentiate existing set ups of circularity in supply chains from intended situations of circular supply chains. Specifically, these key characteristics are service network, supply chain structure and coordination. These characteristics provide detailed insights into how current localised pockets of circularity can be transformed into circular supply chains. We also contribute to the emerging discourse on supply chains as dynamic changing systems (Hald and Spring, 2023; Holling, 2001) by giving nuanced insights into the transformation of current supply chains to circular supply chains showcasing the determined and considered nature of this transformation and contrasting it to the rapid, even violent narrative in the literature (Gatenholm and Halldórsson, 2023). This extends this emerging understanding on the dynamic development of supply chains beyond the typical steady-state assumption.
2. Literature review
Our study of the transformation of current supply chains build on conceptualisations in the literature, detailing the evolutionary development of these systems from identifying opportunities in resources (exploitation), accumulating them and conserving them in periods of relative stability (Holling, 2001). These periods can be followed by significant changes to supply chains, where resources are released and subsequently reorganised (Davoudi et al., 2013). This transformation involved in changing supply chains is particularly relevant for the implementation of circular economy as it requires fundamentally different ways of organising supply chains (Ciulli et al., 2020; Kreye, 2023). For example, to close material loops requires substantial restructuring of forward and reverse supply set-ups, including reconsideration of product designs, their use and end-of-life handling (Gatenholm et al., 2021). This forms the underlying assumption for this research and we will use it to inform our initial conceptualisations.
2.1 Implementing circular supply chains
Circular supply chains define the supply arrangements that enable value retention of products and materials through reducing waste and virgin resource use by keeping resources in the economy through circular practices, including repair, reuse, remanufacturing and recycling (Atkins et al., 2024; Farooque et al., 2019; MahmoumGonbadi et al., 2021). Circular supply chains are typically aimed at environmental sustainability, taking their motivation from resource scarcity, environmental degradation and climate change (De Angelis et al., 2018; Ciulli et al., 2020; de Lima et al., 2023). Circular practices aim at:
[…] the recovery of added value by reusing the whole product or part of it […] and are ultimately concerned with the reduction (or the delay) of unintended negative impacts on the environment (Genovese et al., 2017, p. 345).
Circular practices hence have a restorative intention (Genovese et al., 2017).
Effective implementation of circular practices requires supply chains (MahmoumGonbadi et al., 2021), which can be characterised as complex arrangements (Kreye, 2023), including forward and reverse value streams (Münch et al., 2023; Pal et al., 2019). Circular supply chains can be closed loop (i.e. within the same industry sector and the same application) or open loop (across industry sector or for other applications) (Ciccullo et al., 2023). Either way, circular supply chains integrate a wide set of actors, including non-traditional supply-chain actors, such as distributors of waste streams (Atkins et al., 2024) and brokers to match complex supply and demand streams (Ciulli et al., 2020). The performance of circular product flow is driven by the level of coordination between these supply chain actors (Sepúlveda-Rojas and Ternero, 2020). This suggests that transformation from linear to circular supply chains hence requires two main elements: the contribution of non-traditional supply chain actors (Ciulli et al., 2020) and coordination and relationship management between the supply chain actors within the circular supply chain (Sepúlveda-Rojas and Ternero, 2020).
2.2 Services in manufacturing
One of the most prominent strategies for value retention is servitisation, which is defined when manufacturing firms “offer fuller market packages or bundles of customer-focused combinations of goods, services, support, self-service, and knowledge” (Vandermerwe and Rada, 1988, p. 314). It enables manufacturers to create higher profit margins with stable and long-term predictable cash flows (Wise and Baumgartner, 1999) and increasing competitiveness through buyer lock-in (Schmenner, 2009). Conversely, servitisation enables buyers to reduce the operational costs through outsourcing equipment maintenance (Akkermans et al., 2019; Wise and Baumgartner, 1999).
Servitisation is also often referred to as a transformation (e.g. Kamalaldin et al., 2020) – like CE as indicated above. This is because servitisation requires manufacturers to develop service capabilities (Story et al., 2017) and combine these with those of suppliers and partners in the supply chain (Ramirez Hernandez and Kreye, 2022). Servitisation involves a combination of product supply chains, e.g. for components and parts, to enable availability within the provider network (Heinen and Hoberg, 2019), and service supply chains, characterised by, for example, the skills and responsiveness of individual service engineers (Finne and Holmström, 2013; Zhang et al., 2016). The usual focus is on the service dyad (Raddats et al., 2017) – between provider and customer or triad – between provider, customer and outsourced service delivery (Finne and Holmström, 2013). Interactions in the service dyad or triad are seen to shape the perception of service quality and hence determine performance (Cronin and Taylor, 1994; Parasuraman et al., 1988).
Interactions between these supply-chain actors in the network are affected by the level of service complexity which refers to “the agreed service output and level of interdependence between provider and customer” (Kreye, 2019, p. 77). Service complexity relates to the diversity and multiplicity of components in the service activities (Zou et al., 2018). Within the manufacturing context, services of lowest complexity are typically product-oriented services, including spare part provision, preventative and corrective maintenance (Kreye et al., 2015; Kurata and Nam, 2013). Services of highest complexity are outcome-oriented services, including performance-based arrangements (Selviaridis and Norrman, 2014), which enable optimised product functioning and buyer operations through providers’ technical expertise (Kastalli and Van Looy, 2013). Services of higher complexity require closer interaction in the service network (Giannakis, 2011) and more frequent and collaborative coordination between provider and customer (Kreye et al., 2015). The level of service complexity hence drives the further changes needed in the manufacturer’s supply chain. In line with this, complex, outcome-oriented services have been connected to enabling the implementation of circularity (Kreye, 2023; Szász and Seer, 2018) through a variation of circular practices, including recycling, remanufacturing and reuse (Yang and Evans, 2019). This suggests differentiation in the changes needed from servitisation depending on the level of service complexity currently implemented by the manufacturer.
2.3 Initial conceptualisation
To develop an initial conceptualisation for investigating our RQ, we build on the reviewed literature. Transformation to circular supply chains requires changes in the supply chain structure (Farooque et al., 2019; Kreye, 2023; Pal et al., 2019), and coordination and relationship management between supply chain actors for value retention within the circular network (Sepúlveda-Rojas and Ternero, 2020). We use this initial conceptualisation and combine it with the insights from our empirical study (Sections 3 and 4) to develop a revised conceptualisation (Section 5) regarding the creation of circular manufacturing supply chains based on existing circularity efforts arising from service-based arrangements.
The service network can create a meaningful basis for circular supply chains through the development of the necessary relational capabilities with customers (Kreye, 2017). In circular supply chains, such coordination is likely to span beyond this dyadic level (Ciulli et al., 2020; Sepúlveda-Rojas and Ternero, 2020). Integrating supply chain actors across multiple tiers through close coordination, such as information exchange and communication become a key characteristic of such circular arrangements (Mirkovski et al., 2016; Tachizawa and Wong, 2014; Wu, 2013). This difference in supply chain coordination and relationship management suggests the re-organisation of resources within circular supply chains. Thus, the service network can potentially shape the circular supply chain particularly in terms of the close coordination and relationship management between supply chain actors (Sepúlveda-Rojas and Ternero, 2020).
A circular supply chain structure is characterised by loops, ensuring that waste streams from production and end-of life products are used and transformed into resources through circular practices (Atkins et al., 2024; MahmoumGonbadi et al., 2021). These loops can be open or closed determining whether a supply chain connects across industry sectors (Ciccullo et al., 2023). Supply structures of servitisation can support this process as service operations can give access for feeding a product back into the supply chain for applying circular practices (reuse, remanufacture, recycle, etc.) (Kreye, 2023; Priyono, 2017). This may require the inclusion of, for example, non-traditional supply chain actors (Ciulli et al., 2020). For example, Triguero et al. (2022, p. 2340) highlight that “[t]he business-government ties help firms to access external sources, technology, and information to diminish the uncertainty and risk associated with circular eco-innovations”. A transformation to circular supply chains may also require changing supply arrangements as virgin materials are replaced by secondary materials (Sun et al., 2020). These circular supply chains are hence characterised by new resource arrangement and supply flows.
3. Method
To answer the RQ, we aim at theory elaboration using a single case approach. Theory elaboration enables researchers to challenge and extend a theory by applying it to an unexplored context (Fisher and Aguinis, 2017; Ketokivi and Choi, 2014). Specifically, we apply construct specification which specifies the type of theory-elaboration where “a theoretical construct is specified or refined to more accurately reflect the realities and insights that emerge empirically” (Fisher and Aguinis, 2017, p. 446). We apply construct specification with regards to the transformation to circular supply chains. The single case study approach is considered the most suitable method to develop novel insights around the focal but imprecise conceptualisations elaborated in Section 2.3. The focus of this research required in-depth data that both reflected the contextual embeddedness of the topic (Siggelkow, 2007) and improved the understanding and elaboration of theory. Operational considerations in servitisation are context-specific because they depend on factors such as the industry, nature and size of service portfolio (Kastalli and Van Looy, 2013). Case-study research is suitable in this context because contextual factors can be included in the analysis and their effect on the findings separated (Barratt and Barratt, 2011). Furthermore, a case enabled the researchers to identify empirical evidence for theory elaboration (Ketokivi and Choi, 2014). This is particularly relevant for this research as empirical and theoretical insight on the transformation to circular supply chains are lacking. Finally, transformation to circular supply chains faces significant barriers and drivers (van Boerdonk et al., 2021; Ciulli et al., 2020; Flygansvær et al., 2018) and requires further research and theory building (Kreye, 2023). Thus, the single-case approach was deemed suitable for the theory-elaborating nature of this research (Ketokivi and Choi, 2014).
3.1 Case selection
As our analysis focuses on the supply-chain level, we used a purposive sampling process that started from a focal manufacturing firm to develop insights about circularity in their supply chain by following the value chain of their product, mirroring an inside out sampling process for a nested case study (Yin, 2018). The Focal Company was sampled based on the following three theoretical criteria. Firstly, we focused on an industry sector with an extensive product legacy aligned with descriptions in the servitisation literature (Ayala et al., 2019). Specifically, the Focal Company operates in the UK manufacturing industry of production machinery. Secondly, we sampled a manufacturing firm operating in the business-to-business (B2B) context, aligned with typical considerations in the servitisation literature (Bustinza et al., 2013). Here, we focused on a small-to medium-size firm representative for many UK manufacturing firms and servitisation efforts (Valtakoski and Witell, 2018). The Focal Company had about 40 employees at the time of data collection and is a direct supplier to original equipment manufacturers of various end products, including furniture, hydraulic valves, milling and precision engineering. The Focal Company’s product has long use phases and high value, which also mirrors the typical applications of servitisation reported in the literature (Holmström and Partanen, 2014; Spring and Araujo, 2017). Thirdly, we focused on a servitisation strategy of relatively low levels of service complexity (Kreye, 2019). This enabled the researchers to identify a current supply arrangement with low levels of prior transformation associated with implementing services of higher complexity levels (Baines et al., 2009). The Focal Company provides product-centric services, including installation advice, self-service support, spare parts and repair. Our sampling approach effectively enabled us to identify an extreme case of service complexity (Kreye, 2019) and a representative case within the servitisation context (Kamalaldin et al., 2020; Vandermerwe and Rada, 1988). We use this case to identify a meaningful starting point for transforming to a circular supply chain, representing low levels of prior transformation.
3.2 Data collection
Data was collected from multiple sources, including semi-structured interviews, observations and secondary data (Yin, 2018). Aligned with the sampling strategy, data collection started in the Focal Company, where semi-structured interviews were conducted with key stakeholders, providing detailed insights into servitisation and supply chain considerations. Semi-structured interview questions (see Appendix) focused on the service strategy, existing circularity considerations within the Focal Company and its supply chain, and potential future circularity implementation following our initial conceptualisation (Section 2.3). This interview structure was informed by our study framing into transformation, focusing on the current supply chains related to servitisation before exploring potential future supply-chain options related to circularity. By using an interview guide, we ensure comparability of collected insights across interviewees. Further observations were collected during a company visit and complemented with secondary information. Following pointers from data sources in the Focal Company (interviewees and secondary sources), other relevant supply chain actors were identified, including dealers and customers of the focal company’s products. A rich set of secondary data was collected for these further supply chain actors and was complemented by primary data where possible resulting in a data set comprising of 11 interviews across the multiple tiers of the supply chain complemented by other primary and secondary data (Table 1). Interview questions mirrored the topics from the Focal-company interviews and were adapted to the perspective of the specific supply chain actor.
Overview of collected data
| Supply chain actor | Primary data | Secondary data |
|---|---|---|
| Focal company | Semi-structured interviews • Managing Director • After Sales Director • Service Engineer Electrical • Service Engineer Mechanical 1 • Service Engineer Mechanical 2 • Technical support services • Spare Parts Department Manager • Spare Parts Administrator Observations from a one-day site visit Email exchange with interviewees | Webpage “Preventative maintenance services” Webpage “Services” Webpage “Spares” Internal poster “Company values” Social media post “Parts Exchange Programme” |
| Dealer | Semi-structured interviews • Director (Second-hand machine Dealer 1) • Director (Second-hand machine Dealer 2) | Website “about us” Sales advertisements of second-hand products (online) |
| Customers | Semi-structured interview • Sales Engineer (Customer 1) Unstructured email exchange with three customers | Webpage information (“About us”, “Who we are”, etc.) from 13 customers of Focal company; Case description for 12 of these customers focusing on product-based collaboration with Focal company, webpage |
| Reuse brokers | – | Website “About us” Announcements of available used products |
Source(s): Author’s own work
3.3 Data analysis
Data analysis involved abductive coding, using both inductive descriptive coding of the data. The coding process was supported using NVivo, a software designed for qualitative data analysis. In a first step, the researchers inductively coded the collected data aiming at data reduction (Gibbert et al., 2008; Gibbert and Ruigrok, 2010; Miles et al., 2018). Existing circular practices were identified and characterised using case-specific insights, capturing a descriptive understanding of the existing supply chain structure and relationships focused on existing circularity efforts. Visual mapping was used to create an overview of the supply actors and their connections. In a second step, the descriptive codes were further refined by merging and dividing the descriptive codes and comparing them to the literature in the field. Through active categorisation (Grodal et al., 2021) codes were merged, related to contrasting categories and sequenced. Traveling between the empirical insights and the literature (Gibbert and Ruigrok, 2010) ensured the internal consistency of the results. In a third step, the initial conceptualisation was connected to the emerging coding structure based on a deductive logic. Deductive codes originated from our initial conceptualisation (Ketokivi and Choi, 2014). This enabled us to explicitly connect the concepts of the service network and circular supply chain structure to the developed insights and create a final coding structure (Figure 1). This analysis process resulted in increasing abstraction of the codes, which were classed into aggregate themes based on deductive analysis of theoretical insights from the initial conceptualisation. Here, circularity coordination emerged as a third aggregate theme. Analysis of this theme was guided by a working definition of “centralised coordination of circularity efforts and loops in the supply chain”. Later, a more rigorous definition rooted in the literature complemented this, which is detailed in Section 5.
This study followed a structured case study approach (Yin, 2018) to achieve research rigor. Specifically, construct validity was achieved by basing emerging insights on triangulation among multiple sources of data (Miles et al., 2018). This ensured rigour of the derived conclusions. To ensure internal validity, data analysis was matched to the empirically identified patterns with the insights from the literature (Gibbert et al., 2008) and used initial conceptual framing to detail the relevant considerations from the literature (Section 2). Reliability was ensured throughout the data collection and analysis process through following a case-study protocol, which includes a case-study database, and detailed recording and description of the analysis process (Yin, 2018). Confirmability was ensured throughout the research process by discussing insights and confirming them with the case company, other researchers and the literature (Miles et al., 2018).
4. Findings
Contextualising the findings of our study, the historic developments of the Focal Company provide important insights for the observations described in this section. Due to optimisation efforts over recent decades, the Focal Company has outsourced much of its manufacturing capabilities to lower-cost countries and has retained little manufacturing capabilities in-house. This was summarised by the Managing Director: “the product is manufactured overseas in Taiwan”. This affected the Focal Company’s ability to implement circular practices directly as the After Sales Director explained: “the warranty parts get sent back [to the manufacturer] and if they don’t repair […] Well, I do not know what they do”. Similarly, the Focal Company has outsourced service capabilities as the Technical Support services engineer explained:
[…] all the service engineers were based there [at a nationally central facility in the UK] at one time, or worked from there. When they decided to close that, some of them came up here initially […], but none of them stayed.
This means that while some service requests are addressed through in-house engineers, many of them are delivered through external partners. Table 2 summarises the findings and forms the basis for the descriptions in the following subsections.
Summary of key case findings
| Aggregate theme | Description |
|---|---|
| Service network | Service offerings were predominantly product-focused services that focus mainly on corrective maintenance activities and spare-part provision. “If the customer has a breakdown, or a part has broken, they ring us up and say, ‘Can you supply me this part,’ or it might be, ‘This has worn out, can I have a replacement for it?' … they (the Customer) has got their own maintenance department, and they are going to mend it (the machine) themselves, so they just want to buy the part. They don't want us to fit it. They just want to buy the part and fit it themselves”. (Spare Parts Department Manager) Service delivery executed externally to Focal company by customer (self-service) or external service partners. There was no evidence of long-term investment and collaboration with these service partners, although the Technical Support Service Engineer (Focal company) admitted: “I trust the guys [service partners] that I use, that they won’t steal our customers. Because there have been a couple that did and we have had to let them go, we do not use them again”. This suggests a dispersed network of partners for service delivery with an arm’s length relationship with these service partners, lacking commitment from both sides to build strong and long-lasting partnerships |
| Circular supply-chain structure | Long product use phases: “we’ve got machines out there that are 60-years old” (After Sales Director). Linear supply chain structure with localised loops of circular practices executed by external supply-chain actors: • Maintain/repair loop: executed by the customer aided by spare part provision by the Focal company or second-hand dealer; • Repair/refurbish loop: executed by second-hand dealers and brokers; • Recycle loop: executed by recycler / waste management company. |
| Circularity coordination | Lack of coordination of circular practices within the supply chain, Focal company engages ad hoc with circularity efforts with other supply-chain actors to aid product sales. For example, they occasionally offer a temporary take-back scheme as the Managing Director (Focal company) explained: “It [the takeback scheme] is driven from a sales point of view. So really what we're trying to generate is sales of new machines. We take any machine of any age and any make. And we will guarantee a minimum part exchange price. And then they'll buy a new machine to replace it”. Once the machine is returned to the Focal company, they use the network of second-hand dealers to sell the machine on as the Managing Director continued his description: “We'll give them [second-hand dealer] a description of the machine, the age of the machine. They'll give us a fixed price. And so we just move the machine on” |
Source(s): Author’s own work
4.1 Service network
The predominantly product-oriented services allowed the Focal companies to have predominantly ad hoc service engagements with their customers around the need to repair the machine or provide spare parts so the customer can repair their own machine. That means much of the (front-line) service delivery was executed by external actors to the Focal Company – either the customer themselves or service partners. These service partners are self-employed service engineers and are contacted by the Focal Company if a repair request emerges in their respective geographical area. There is trust with these service engineers, but the relationships are essentially transactions and lack long-term investment (e.g., in their skill development) and investment. We found no evidence of close collaboration and relationship management in the current service network.
4.2 Circular supply-chain structure
Overall, the case supply chain follows a linear supply chain structure with localised loops of circular practices led by individual organisations along the product value chain with relatively little involvement or guidance by the Focal Company. The Focal Company’s machines are very durable with long use phases and many customers maintain and repair their machines in-house (maintain, repair loop). Because of these long product use phases, a second-hand market emerged with second-hand dealers and brokers who buy or accept pre-used machines, inspect and potentially repair them and then resell them to secondary customers (repair, refurbish loop). The After Sales Director (Focal company) explained:
There's a company […] [that is] a second-hand parts dealer of our product, and so it wouldn't surprise me if, through whatever means they buy second-hand end-of-life machinery, and take parts off there that are potentially usable.
These second-hand dealers source these machines from organisations willing to sell them. The Director (Dealer 1) explained:
We know what to look for. If [the seller] is locally then I will go along and have a look. Otherwise, they [the seller] will send me a load of photos and they will explain what is wrong with it [the machine]. I can see by the photos the condition of things.
After repairing, Dealer 1 sells these machines to secondary customers. The Director (Dealer 1) continued:
[…] we've been doing it so long now that people know us just for one particular machine. That is why they come and see us if they want that particular machine because we specialise in it.
This shows the maturity of the second-hand market providing circular loops in the supply chain.
This mature secondary market is the reason why many machines are still operated after 60 years on the market. At the end of that long use life, the machines can be recycled (recycle loop). Due to the lack of involvement in these downstream activities, the Focal Company lacks insight into the machine end-of-life as the Managing Director (Focal company) explained: “Genuinely, I have no idea as to whether anybody strips them down, whether anybody reuses any components on there”. This is also where other supply chain actors, such as the second-hand dealers provided more insight. The Director (Dealer 1) explained:
[…] if it is worn out, it will just get replaced, it's that simple. And then it goes in the scrap bin, to the tip, [where it] gets recycled, obviously, because it's metal.
Whether the loop here is closed – i.e. whether such scrap metal is used in new machines – could not be ascertained for this case. The Focal Company built a closer relationship with upstream supply chain actors, where the Focal Company invested in building a long-term relationship with their manufacturing supplier around product availability and supply continuity. The Managing Director explained this as follows:
We don't have direct relationships with them [second-tier suppliers]. The manufacturing company that we use, we visit them regularly, or we did before the pandemic. We have a very close, direct relationship with them. We visit the suppliers in their supply chain with them.
This lack of visibility beyond the direct supplier meant that any potential use of secondary resources, such as recycled materials in new parts of products was not known to the company, leaving the supply chain circle unclosed. Figure 2 depicts the circular supply chain structure for the case.
4.3 Circularity coordination
The lack of coordination of circular practices within the supply chain was visible in all loops. One reason for this can be seen in the lack of relational capabilities of the Focal Company. Consequently, the case company was not able to coordinate circular practices in the supply chain due to their lacking understanding of operations and circular practices as indicated through various quotes above. The Focal Company had tried to coordinate circularity in their supply chain in the past. The Managing Director explained:
[…] we did venture into the refurbishment market, so we did offer a service where we would bring machines back into the factory […] and we would refurbish them, so we would regrind the beds, we would improve the accuracies of the machines and extend their life. But we couldn't make any money out of it. […] it never worked out for us from a business point of view.
This indicates the delicate nature of circular practices in UK manufacturing from a financial viewpoint. The failure of this attempted circularity effort might be the outsourcing and offshoring of core capabilities, including manufacturing, which leads to costly re-creation of such capabilities for the purpose of circularity.
5. Discussion
In this section, the case findings are discussed in light of the RQ: How can manufacturers create circular supply chains based on existing circularity efforts arising from service-based arrangements? We initially discuss the difference between circular supply chains and circularity in supply chains before reflecting on the transformation. Finally, the study limitations are outlined.
5.1 Conceptualising circular supply chains versus circularity in supply chains
The case insights suggest three key factors that differentiate a circular supply chain (as the goal of implementing circular economy) and circularity in supply chains, which often characterises the status quo. These three factors are the service network, supply chain structure and circularity coordination as summarised in Table 3.
Summary showing the difference between circularity in the supply chain and circular supply chains based on the service network, supply chain structure and circularity coordination
| Circularity in the supply chain | Circular supply chain | |
|---|---|---|
| Service network | Product-focused services encourage ad hoc relationships between manufacturer, customers and potential third parties for service delivery (Kreye, 2017). Such ad hoc relationships are shaped around the short-term transaction of a repair service with little joint commitment for long-term collaboration | Services requiring long-term committed relationships with goal congruence and close collaboration (Mirkovski et al., 2016; Tachizawa and Wong, 2014; Wu, 2013) can develop around result-oriented and outcome-oriented services (Kleemann and Essig, 2013). Relationship management can extend beyond the dyad level to include higher tier suppliers and partners to jointly shape actions within the supply chain (Ramirez Hernandez and Kreye, 2021) |
| Supply chain structure | Localised circular loops around specific circular practices. This can include product repair to replace failed parts or components (Holmström and Partanen, 2014) and product reuse through secondary markets (Simpson et al., 2019). The effect of such localised circular loops is the extension of product use phases, in our case up to 60 years | Closed loop in the supply chain characterised by reduced / no use of virgin resources and limited waste (Ciulli et al., 2020; De Angelis et al., 2018; de Lima et al., 2023) |
| Circularity coordination | Organisations coordinate their own activities in the supply chain with limited to no insight into decisions and circularity actions across the product value chain. Coordination efforts focus on the dyadic level of transactions | Coordination requires visibility of the product value chain across the product life to identify, affect and coordinate value retention activities at key stages. This enables closing the material loop and optimising value retention across the product life cycle (Flygansvær et al., 2018) |
Source(s): Author’s own work
Our case research shows a service network for product-focused services built on transactional, ad hoc relationships between supply chain actors. This reflects the literature on product-focused services in B2B settings (Kreye, 2017), where the key focus is limited around service provision in the service dyad or triad (Finne and Holmström, 2013; Raddats et al., 2017). However, our case evidence suggests that this is the predominant type of relationship within the wider supply chain, where companies engage predominantly in dyadic exchanges. This contrasts descriptions of relationship management in circular supply chains, which is often characterised through their long-term orientation, goal congruence and close collaboration (Mirkovski et al., 2016; Tachizawa and Wong, 2014; Wu, 2013). Such close relationships can be found in service networks around complex services, including performance-based services (Kleemann and Essig, 2013). This suggests that service networks may enable creating circular supply chains from circularity in supply chains via the relationships created within the supply chain via long-term, close relationships.
The case findings regarding the supply chain structure suggest that circularity in the supply chain exists at present through localised loops that enable circular practices, including product reuse, repair and recycling. This mirrors descriptions of circular efforts on organisational and inter-organisational level (Bocken et al., 2016; Holmström and Partanen, 2014; Zhang et al., 2022). Our case evidence extends such descriptions by showing the shortcomings of such localised efforts to implementing a circular supply chain. While such localised efforts enable prolonged product use lives – in our case up to 60 years of product use – the overall material loop was not closed. In other words, overall circularity of such production machinery was not created leading to shortcomings in achieving the target benefits of implementing circular economy, including reduced pressure on virgin resources and reduced to no waste (Ciulli et al., 2020; Pal et al., 2019). Our research hence suggests a difference between circularity in the supply chain and a circular supply chain in terms of their structure.
This research further indicates circularity coordination across the product value chain as a key characteristic of circular supply chains. This insight extends existing works, which have highlighted the need for close coordination on dyadic level (Ciulli et al., 2020; Sepúlveda-Rojas and Ternero, 2020). Instead, our case evidence suggests that coordination activities are required along the product value chain and specifically circularity practices at key stages within this chain. Without such coordination, circularity practices are applied by focusing on transaction-specific considerations as showcased in the presented case. Supply chain coordination, instead, allows for coordination of circular practices based on the product value chain including network considerations (Kim et al., 2011; Xu and Beamon, 2006). This research identifies such circularity coordination as a key differentiating factor between circularity in supply chains (with localised coordination efforts) and circular supply chains.
5.2 Transformation of existing supply chains
The difference between circularity in supply chains (representing a present situation) and circular supply chains (representing the intended state) with respect to the three identified characteristics of service network, supply chain structure and circularity coordination suggest a need for transformation of existing supply chains. Our findings suggest that relationships need to be reorganised around long-term orientation with joint values beyond the dyadic relationship to include the wider supply chain (Cox et al., 2001; Johnsen et al., 2008). Our findings further support suggestions that the resource reorganisation requires a supply structure that enables a closed loop on a network level to allow for a continuous flow of value within a circular arrangement (Ciulli et al., 2020; Priyono, 2017). Finally, our findings provide evidence for the need for coordination in the supply chain along the product value chain to enable value retention activities. Our insights hence provide a more nuanced contribution to the conceptualisation of supply chains as dynamic systems (Hald and Spring, 2023; Holling, 2001) showing the elements of transformation to circular supply chains.
The predominant understanding of transformations characterises them as suddenly occurring processes, based on unpredictable exogenous events, such as major disruptions (e.g. Gatenholm and Halldórsson, 2022). The case findings suggest a more nuanced and considered approach to the transformation to circular supply chains. For example, the Focal Company reported instances of experimenting with circularity, which failed at that time. Through such cycles of experimentation and learning, transformation is achieved through considered reorganisation of existing supply chains. This contrasts existing insights by suggesting that the transformation in socio-technical systems of supply chain management is a determined and iterative process characterised by experimentation and learning.
5.3 Limitations
The limitations of this study arise from the qualitative methodology. Case study research has been criticised regarding observer bias and subjectivity in data analysis (Yin, 2018). We mitigated these limitations by collecting rich data, enabling data triangulation to improve the reliability (Miles et al., 2018). Furthermore, while a single case can make a persuasive contribution to knowledge (see Siggelkow, 2007), it creates inevitable limits to statistical generalisability. We mitigated this limitation by connecting to a body of literature and theory, enabling abstract generalisability through our conceptual development. Finally, limitations arise from the sampling of an extreme case within the range of service complexity levels in servitisation (Kreye, 2019), as we purposefully sampled a low-complex service requiring less extensive relationships across the supply chain (Baines et al., 2009). Limitations here also arise from the extent of prior outsourcing affecting the case company’s ability for circularity coordination.
6. Conclusions
This research set out to answer the following RQ: How can manufacturers create circular supply chains based on existing circularity efforts arising from service-based arrangements? Based on theoretical framing of supply chains as dynamic systems and evidence from a single case study, we identified following three key insights that differentiate circularity in supply chains from circular supply chains. Firstly, the service network in circular supply chains is characterised by long-term orientation with shared goals and visions, which differs from the transactional, ad hoc relationships evidenced in the case study. Secondly, the supply chain structure of a circular supply chain enables closed loops of materials and products as opposed to localised implementation of circular practices. Thirdly, circular supply chains require coordination of circular practices across the product value chain. This was missing in present situation of circularity in supply chains. This enabled us to elaborate theory in terms of construct specification.
Based on these insights, we identify two key contributions. Firstly, this research contributes to the circular supply chain literature (Atkins et al., 2024; Farooque et al., 2019; MahmoumGonbadi et al., 2021) by detailing the start and end points of the transformation to circular supply chains from the supply-chain of a servitised manufacturer. We characterise and contrast these start and end points in terms of service network, supply chain structure and coordination. These characteristics specify changes to encourage transformation from circularity in supply chains to circular supply chains. Secondly, this research contributes to the emerging discourse on supply chains as dynamic systems by giving nuanced insights into the transformation of supply chains to implement circular economy showcasing the determined and considered nature of this transformation. This extends existing insights on applying this theory in supply chain management, showing the differences to other application areas, where the transformation is typically characterised as a fast process.
This research offers important practical implications for supply chain managers wishing to implement circular supply chains. Firstly, managers need to consider the development of circular supply chains as a long-term transformation. This means that they need to develop the relevant capabilities within their organisations as part of a long-term strategy instead of identifying immediate solutions. This in turn requires a more purposeful long-term strategic development of such capabilities needed for circularity, including potential engineering capabilities for inspection, reuse and remanufacturing, relational capabilities and network coordination capabilities. Secondly, managers need to build the organisational capabilities to implement circularity. This research suggests a meaningful starting point to be relational capability around existing business models. A meaningful starting point here could be to increase the level of service complexity, which would result in closer relationships to customers. Building on existing capabilities and extending them towards the needs of circular supply chains is a meaningful way to start the transformation.
This research offers important areas for future work. Firstly, service complexity may play an important role in shaping circularity in supply chains in terms of the service network, supply chain structure and coordination. This research indicates a lesser need for transformation of outcome-oriented services as these services require relationships and coordination closer aligned to those required in circular supply chains. Further work needs to extend understanding in this area to connect the level of service complexity to the ability to create circular supply chains. Secondly, investigations on the effect of past developments in structuring and organising the supply chain (path dependencies) would further enrich theoretical understanding. Our findings indicate that past trends such as outsourcing and offshoring might affect the ability to implement circularity because of their effect on capability loss. Further research on this path dependency would enrich the discussion on this topic and the understanding of supply chains as dynamic systems. Thirdly, further work is on the dynamic transformation towards circular supply chains. This could include the role of businesses experimenting with innovative business models and supply chain approaches. This research indicates that transformation is not a linear process but likely characterised by iteration, refinement and learning. Further work in this area would enhance our understanding of the transformation in supply chain management.
Notes
See UK regulation as an example: www.gov.uk/guidance/extended-producer-responsibility-for-packaging-who-is-affected-and-what-to-do
This study received funding from Economic and Social Research Council, Grant No. G0087401.
References
Appendix
Interview questions – Focal company
Personal experience
Role
Experience in company (in years)
Experience in role outside company (in years)
Service strategy
- 1
What type of services do you offer? (service complexity)
- 2
Are you planning to make any changes to these offering (i.e. developing new services)?
- 3
What role do digital elements play in your service strategy?
- 4
How do you currently approach customer relationships?
Existing circularity in the focal company and its supply chain
- 5
How do the types of services you offer affect the ability to take back broken parts, products, or components?
- 6
How do ownership rights of the product affect the ability to circulate broken products, components or parts back into the SC?
- 7
How does digitalisation affect your access to products, components or parts (for the purpose of circulating them back into the SC)?
- 8
What aspects of processing returned products could you do in-house? What have you already done in-house?
Potential future circularity implementation
- 9
How would current set-ups (service contracts, customer relationships, etc.) be changed (if at all) to enable circularity?
- 10
What need to be done internally to gain access to externally developed/used products/components/parts?
- 11
Who would be relevant supply chain actors to partner with for purpose of processing returned products?
- 12
How could this arrangement work?
- 13
What activities and practices have you undertaken to adapt the supply chain to the circular services provided?
- 14
Could you install circular products on existing customer sites? What would the effect be? What adjustments would need to be made?
- 15
Could you test circular products in current service set-ups?
Additional information
Is there anything else you would like to add or clarify?
Who else would be relevant for me to speak to?
Could you point out any additional information that would support my research project?
Additional questions – Customer
Existing circularity
- 1
How do choose the production machines you have in your production line? Do you buy new/used, etc.?
- 2
How do you service the machines? Do they get repaired through in-house team, proactive maintenance approach?
- 3
What happens to parts or components that are faulty (and replaced)?
- 4
What happens at machine end-of-life? When is that (how is it determined)?
- 5
How do you currently approach the relationship to machine manufacturers and providers?
Potential future circularity implementation
- 6
Would you install circular products on your production site? What would the effect be? What adjustments would need to be made?
- 7
What would the main benefits be in your view?
- 8
What would your main concerns be for this?
- 9
If the industry wanted to move towards circularity of production machines, what would need to happen in your view?
Additional questions – Dealer
Existing circularity
- 1
What is the range of production machinery you sell?
- 2
How do you choose the production machines you deal in? Do you buy new/used, etc.?
- 3
How do you currently approach relationships with the businesses, etc., that you receive used machines from?
- 4
What happens when a used machine comes to you? What happens with faulty or broken parts?
- 5
How do you currently approach the relationship to machine manufacturers and providers?
- 6
How do you sell used machines? Who are the customers (used v new machines)? How do you approach them?
- 7
What are the main benefits of buying used machines in your view?
- 8
What are the main concerns of buying used machines?
Potential future circularity implementation
- 9
If the industry wanted to move towards circularity of production machines, what would need to happen in your view?
