Closed-Loop Supply Chains 101

Cargo containers, trucks, and planes overlaid with graphics representing supply chain concepts

While a traditional supply chain can be thought of a straight line leading to the consumer, a closed-loop model incorporates the consumer as a component of a circular system.

The closed-loop supply chain (CLSC) is comprised of two distinct cycles: forward logistics and reverse logistics. The forward logistics process creates and delivers a new product, while reverse logistics comes into play after the item has served its purpose. Reverse logistics can entail repairing, reselling, or breaking down products for reuse and recycling, all with an eye to a chain that maintains and recovers value for low impact and minimal waste.

Because it returns the output, or product, back to the manufacturing loop, a CLSC can bring about zero-waste generation and optimal efficiency.

The Steps of a CLSC

The fundamentals of a CLSC can be broken down into seven basic steps.

Step 1: Production

A new service, or product, comes to life via the design and manufacturing process. While the specifics vary dramatically from industry to industry, this process incorporates the usual steps of a traditional supply chain.

Step 2: Distribution

The product makes its way to retail shelves, distributors, and the broader market.

Step 3: Sales

The product finds its way to the end customer. While this is the final step in a traditional supply chain, it’s merely the end of the first phase of a CLSC.

Step 4: Repair

The first aspect of the reverse logistics flow considers defective products. Instead of being written off as waste, defects are processed by a returns division. This team collects, repairs, and returns products to the user once they’ve been brought to working order.

Step 5: Reuse

Perhaps a defective product cannot be readily repaired and returned. In this case, a processor sends the item directly back to the distributer for reuse or recycling. The product is remanufactured, and retailers replace the item and ship it to the user without missing a beat — or generating waste.

Step 6: Recycle

Recycling is a key part of the closed-loop model. Defective products, returned products, or even products that have reached the end of their life cycle go through the returns processor for recycling. The parts and materials then go right back through the production process to create new items.

Step 7: Dispose

As a company adapts to a closed-loop model, more and more material is absorbed throughout the process, and less finds its way to landfills. Product performance is tracked, analyzed, and improved, and the company saves on costs in addition to minimizing impact.

Business Benefits

The closed-loop supply chain offers serious benefits for both the environment and the consumer, but it can also give a serious boost to any business that incorporates these efficiency-enhancing processes. Here’s how:

  • Sourcing value increases with savings from the reduction of direct costs and the sale of recovered outputs. This value increase not only incorporates the secondary sale of recovered products, but also the minimized need for new materials and inputs.
  • Environmental compliance helps ensure good standing with customers and partners while easily meeting all relevant regulations. It also saves money through maximized energy efficiency and material usage.
  • The added level of customer service with effective return handling, repair, and easy recycling improves satisfaction and loyalty. It also adds significant brand values.
  • Invaluable data can be acquired by charting the entirety of a product’s life cycle, leading to major design improvements and innovations.


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