Technology Circular Economy

How can technology support warehouses for circular economy businesses?

Manufacturers and retailers should consider how they can incorporate circular economy principles into their warehousing strategy - whether they opt for rental, re-commerce or subscription services. Efficient logistics is essential for maximising profits but we also need to protect the planet for all our sakes.

We’re all keen to ensure a green recovery from the Covid pandemic and all manufacturers and retailers need to be working hard on reducing their carbon footprints in 2021. When brands like Amazon start TV advertising campaigns to announce their Net Zero by 2040 targets, it is time to take note. Consumers are more ethical, more conscious about their impact on the environment and actively trying to reduce their carbon footprints. It is being reflected in the way they shop for goods and services and especially evident among millennials and Generation Z.


Many businesses are working hard towards Net Zero. According to a recent Accenture study, 99% of chief executives from the world’s leading organisations say sustainability is critical to their future success. Of particular interest now for many brands is the circular economy. It could transform sectors like fashion and homewares – both sectors are regarded as contributing to the global waste problem. Research estimates that over 300,000 tonnes of clothing is incinerated or sent to landfill every year. Add into the mix 269,000 tonnes of macro- and microplastics floating in the ocean – it’s not a good situation.


Fashion and homewares aside, retailers and manufacturers in almost every industry can consider adopting circular business models to reduce their impacts on the environment. These deliver huge benefits, helping to create a positive value proposition and improve competitiveness. For example, Husqvarna is a power tools manufacturer and has launched vending machines for urban communities.  Customers can rent what they need for a particular job rather than buy products for intermittent use only. City bikes manufacturer Brompton runs a similar bike rental service from key commuter stations, allowing travellers to pay a day rate to hire their collapsible bikes. In both cases, ex rental products can then be sold off at a reduced rate.


Many retailers are taking their circular economy ideas one stage further, giving customers the chance to sell pre-loved items back to them in exchange for store vouchers, which means they can then benefit from the resale process too. Ikea launched a Buy back scheme recently as an ingenious way to reduce waste going into landfill and it ticks a lot of commercial boxes. It allows Ikea to get involved with the revenues associated with re-commerce (second hand marketplace sales) and also brings existing customers back into the store for repeat purchases.


Dress agencies have been selling second hand clothing for many years, but now luxury clothing manufacturers are also starting to get involved with circular commerce rental offerings. Why buy an expensive handbag when you can rent a selection for the season instead? Cos, part of H&M group, has launched a re-commerce pre-loved clothing portal and Selfridges is focusing its strategy on rental models and subscription services. Urban Outfitters recently announced a clothing rental service. According to the subscription-rental model, consumers pay a monthly fee to access a set number of products which can be exchanged continuously or purchased at a reduced price.


In the luxury rental market, margins are estimated at over 60% per garment representing huge potential revenue generation. For mid-market and premium segments, where Cos and Urban Outfitters sit, margins are lower and need to be offset with efficient logistics operations. The same applies for re-commerce, where pre-loved items are recovered and re-sold. This is where software like a warehouse management system (WMS) becomes indispensable. Circular economy logistics models are rather like processing customer returns on a vast scale and the same principles apply. Goods need to be booked in and accounted for, they need to be quality checked, listed for sale as quickly as possible and dispatched efficiently to the customer.


In addition to processing warehouse returns, here are some other ways a WMS can support retailers working to improve their circular economy offerings:


Store more stock in the same space


Using a WMS enables up to 30% more inventory to be stored in any given warehouse space, without any adverse effect on efficiency levels. This is achieved because a WMS makes it possible to store inventory in a more flexible way, using dynamic location setting. Rather than keeping to pre-designated stock locations – some of which could be half empty – a WMS directs operatives to place stocks wherever there is a slot available. Then, when it’s time to pick orders, the software guides pickers to where the stock is held for processing.


Pick route optimisation and planning


Travelling can take up a large part of the time spent on warehouse picking processes, appropriate sequencing of picking tasks within an order is crucial to achieving high efficiency, especially in a large warehouse with high stock levels. A WMS automatically evaluates the possible routes available and will direct operatives to fulfil their order pick instructions using the most efficient travel path based on immediate location.


Shelf life management and stock rotation


Using a WMS to optimise stock rotation will ensure that items with a limited shelf life are carefully managed to minimise wastage. This extends beyond the obvious perishable raw materials to also include colour ranges and packaging items. These can in turn also impair finished product quality if they are past their recommended use by date. A WMS makes this easy by automatically reminding operatives of which lots to pick first, based on first in first out principles.


Perpetual inventory (PI) stock counting


By introducing a daily PI or cyclical counting process supported by a WMS, warehouse managers can eliminate routine stock counts to keep track of inventory.  It is the most effective way to maintain high inventory accuracy, minimise shrinkage and ensures business as usual whilst counting is in progress. Materials movements can be accurately recorded with an electronic audit trail and discrepancies are immediately apparent. It’s a fact that for most businesses, just behind employees’ costs, the value of inventory is the biggest concern on the balance sheet.


It is imperative that all manufacturers and retailers carefully consider how they can incorporate circular economy principles into their future business strategy. Whether they opt for rental, re-commerce or subscription services, efficient logistics, run by a warehouse management software system, will be essential for maximising profits. And in the end, it’s not just about profit, we need to protect the planet for all our sakes.

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