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Supply Chain

Modernizing the Electronics Supply Chain : Moving from Traditional Linear Production to a Circular Economy

Monday, September 6, 2021

After a year of unprecedented disruption, the electronics industry has an opportunity to accelerate post-pandemic recovery by embracing a circular economy. Indeed, manufacturers have an opportunity to transform their present linear production models, built on the principles of “take, make and waste”, into a model that is regenerative by design; one that delivers better resource productivity and utilization.

Electronics waste, in particular, represents one of the most glaring threats to the industry’s long-term sustainability. The United Nations estimates that the current 53 million tonnes of e-waste generated every year will double by 2050, making it the world’s fastest-growing waste stream.

To correctly combat the e-waste problem, manufacturers, component resellers and even consumers must all work together to create a truly circular economy.

Problems with Traditional Linear Production Models

It is not a secret that many electronic manufacturers still rely on linear models when it comes to product production – meaning electronic components are manufactured, used, and then immediately disposed of in a landfill as a best-case scenario. After their use, electronic equipment becomes especially problematic in terms of producing hazardous substances, which present human health and environmental risks.

The global semiconductor shortage crisis, which began in the first quarter of this year, is the most recent demonstration of the linear model’s inherent instability. As the chip crisis persists, companies have found themselves not only overwhelmed with chip orders but urgently in need of electronic components to stay afloat. The inflexibility of linear leaves manufacturers ill-equipped to deal with disruptions, whether global supply issues or global black swan events such as the pandemic.

There’s also mounting pressure on companies to produce more, and more quickly, to meet an ever-growing demand.

Another problem created by the linear production models relate to waste inside production lines. These wastes have a direct impact on costs and profit. For example, waste due to overproduction of electronic components often results in poor flow of goods and increased inventory. This also leads to more product defects, long and unpredictable lead times, higher costs, and too much cash tide up as working capital. 

Transition to a Circular Economy 

The circular economy is best understood as a way to mitigate the flaws in the linear production model that has been dominant in the industry. It mitigates the negative consequences of this model including such as competition for scarce resources, supply chain disruptions, environmental pollution, etc.

The circular economy refers to an ideal, zero-waste economy where the electronics supply chain follows a closed-loop, circular journey that starts with manufacturing and utilization and then moves into reuse, repair, redistribute, refurbish, remanufacture and sometimes compost.

With a circular economy, everything comes back and is used again in one form or another, minimizing or eliminating landfills and incineration.

Embracing a circular economy doesn’t benefit only the natural environment and people; it also benefits companies and the industry as a whole. It certainly slows down the natural resource consumption rate. By recycling raw materials from end-of-use components and keeping the same materials in circulation longer through use in new products, manufacturers can significantly reduce the consumption of natural resources. 

Car manufacturers such as Volvo and Daimler Benz, for example, have already started to incorporate elements of the circular economy into their manufacturing processes. They are seeking to secure their businesses against supply-chain shocks by adopting circular business models. To that end, these companies are starting to envisage their supply chains as a loop in which the value of each component of the vehicle is retrieved at the end of its useful life.

The concept of circular economy also applies to components that are not used which manufacturers can buy back and give them a second life. Electronic components that typically become waste eventually can actually become catalysts for a cleaner world and greater circularity. 

Circular wolrd map with recycling arrows

Modernizing the Supply Chain through Collaboration 

Supply chains are a key enabler for implementing a circular economy. They are the foundation. But today’s supply chains support a global economy, which is still linear. So they have to be redesigned.

To achieve success, manufacturers must collaborate with trusted suppliers and design products with a circular lifecycle in mind. Companies must also redefine their relationship with customers to track and retrieve used electronics as well as unused products from consumers. Retrieved components can then be refurbished or recycled, giving them a second life and thereby closing the loop. An example of this is batteries used to power electric vehicles. Tesla customers own their cars, but they share their batteries which are constantly being refurbished and recycled in a circular supply chain.

Moving to a more sustainable, less wasteful business model doesn’t have to mean a net loss for OEMs and EMS. If anything, the circular economy transition will open up opportunities for new revenue streams and technological innovation. 

AIRENC: Enabling Circular Economy in the Electronics Industry

Indeed, reducing waste in electronics manufacturing means greater resource efficiency and more profits for components manufacturers. And of course, many companies may not yet have the tools and processes in place to transition fully to a circular economy approach. Others may feel wary of, or overwhelmed by, the nature and scale of the changes required.

This is where AIRENC becomes so crucial.  AIRENC is a new collaborative solution for supply chain that aims to tackle the problem of waste in the electronics supply chain. We have built a peer-to-peer transaction platform that allows OEM and EMS to buy and sell electronic components in a secure and controlled environment at competitive prices

With our platform, you can drive sustainability in your supply chain by reducing potential waste due to overproduction. At the same time, you can obtain access to critical electronic components to help minimize disruptions in your production line. 

The platform brings together OEMs and EMSs to collaborate and work towards a circular economy by identifying surplus components within their supply chain and creating a market for that stock. This not only generates revenue and margins for our members but also open new opportunities for manufacturers to support a circular economy by eliminating waste in their supply chains.

Furthermore, AIRENC enables OEMs and EMS to sell their excess inventory directly to their peers, thus ensuring less inventory is tied up as working capital.  

With AIRENC, OEMs and EMS can:

  • Stabilize your supply chain by limiting emergency situations, improving product quality and better anticipating market changes.
  • Reduce your costs by purchasing components on the grey market at a better price and by valuing your overstock
  • Improve your brand image by reducing component waste and being recognized by peers as a trusted partner

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