Topic 1 Circular value networks: definition and benefits

As explained earlier in module 1, the concept of circular economy aims to keep material and resources in use for a long as possible and design out  waste and pollution. Materials keep moving from one value chain to the next, and therefore, moving towards a circular economy not only requires changes in society, but also it involves large implications for every value chain of products and services.

Understanding how value chains are composed and how the different links and areas are interconnected is a key aspect for both design processes of products and services and other managerial and technical processes.  Implementing and scaling-up circular economy practices often requires system thinking, as it may involve changes in one or more areas of a system, and therefore, collaboration is essential. 

Indeed, circular economy can be understood as “an economy in which stakeholders collaborate in order to maximise the value of products and materials, and as such, contribute to minimising the depletion of natural resources and create positive societal and environmental impacts” (Kraaijenhagen et al., 2016).

This system thinking demands that businesses and organisations focus on optimising and creating value along the entire system in a holistic way, through cooperation with different stakeholders (within an organisation, between organisations and/or with consumers). A change of mindset is needed, shifting from a traditional supply chain thinking to a value chain approach.

A circular value network is understood as a dynamic co-creation network that is based on the engagement and interaction of stakeholders from the business world and other societal stakeholders, to guarantee the circular flows of both tangible and intangible values. A circular value network goes beyond the concept of circular value chain, as both internal and external stakeholders involved in the value-creation process are considered. Therefore, collaboration, communication and cooperation of these interdependent but independent stakeholders is necessary. Indeed, the success for implementing circular economy practices will come from the involvement of all the relevant stakeholders and their ability to link and to exchange patterns.

The benefits of establishing a value network are:

• There is an exchange of information that facilitates knowledge integration between the parties, enabling the development of additional organisational capabilities and skills.
• Collaboration enhances the obtaining of key complementary resources as different kind of internal resources are combined with resources of involved partners.
• A more extended influence area with customers and providers is attained (i.e. new customers, new markets, etc.).
• It does not only improve the environmental performance, but also the operational one (i.e. better transport, logistics and infrastructure solutions), increasing the productivity through a lower cost and a better quality, and therefore, it generates a superior competitive advantage.
• The financial performance of the business is highly improved too. On the one hand, wider opportunities for co-fund research appear; on the other hand, agreements between stakeholders of the value network can facilitate the financing of circular processes, as for instance, through supply chain finance or reversed factoring
• This way, stakeholders that share goals, resources, knowledge, capabilities and perspectives see how their transitions costs are reduced, the risks sharing under environmental uncertainties is improved and the economic performance and advantage increased too.