Using ERP as the heart of a circular economy model

A traditional linear economy is where you make, consume and throw away. Moving to a circular economy is all about creating a ‘circle’ where you design out waste and pollution by keeping products and materials in use for as long as possible and finding ways to create new resources from what we discard.

The traditional linear economy creates waste through a model that flows as: ‘Take, make, dispose of’.

The circular economy eliminates waste through a cyclical model:
‘Make, use, recycle’.

Circular economy business models are likely to be more common in the future. By 2029,
Gartner predicts the circular economy to be the only economy, replacing wasteful linear economies. The analyst claimed that this was due to consumer and shareholder preferences shifting towards sustainability.

Using ERP as the heart of a circular economy model

An Enterprise Resource Management (ERP) system has several tools within the manufacturing and distribution areas of the software that supports circularity and can help manufacturers improve their circularity implementation.

Below are some examples of the capabilities in an ERP that support a circular system:

1. Bill of Materials (BOM), and engineering change control

By ensuring the accuracy of the BOM, waste is reduced, and replenishment is aimed at Just-In-Time (JIT), which reduces unnecessary loads on the system.

Manufacturers looking to incorporate recycled material in their production process without compromising the final product should be continually checking their BOM. An ERP ensures you have full control of the quantity, quality and cost of the materials, and control of the hierarchy of the resources, items and parts that comprise your product. Information from the BOM can help companies trace and report on the percentage of recycled materials that make up the final product sold to customers.

At the design level, engineering change control allows you to plan and check the items that constitute a product during the development phase and how best to incorporate pre-used parts, or what recycled material can be used in a recipe.

If an ingredient or component is found to be defective i.e., the recycled material impacts product quality, a capability like a ‘where-used’ search can be used to identify all the parts or products that might be affected and quickly mitigate any risk or further waste.

2. Material Requirements Planning (MRP) or kitting

No manufacturers want to hold stock that is not going to be used soon and that can be avoided by using MRP and the kitting functionality. MRP and kitting, ensure what is needed for the production process by placing orders for the right items and quantities, to be delivered and available in stock just in time before production starts. MRP also provides you with accurate Just-in-time base material replenishment.

3. Inventory management

Excess stock is one waste companies can avoid, but if the stock has an expiry date, or is temperature sensitive, you want to make sure the items are used in time or don’t get ruined. An inventory management system that logs and tracks these criteria, through accurate stock control and integration with IoT and sensors, provides the assurance that items are stored in the required conditions and consumed before expiring.

4. Co-products and by-products

Managing co-products and by-products results in less waste, better machine utilisation and allows greater opportunity to reuse materials in the production process. Businesses can also generate extra revenue by creating demand for by-products that are not used, into products that can be sold to other organisations that can use them.

5. Supply Chain Management (SCM)

If you have a web platform that enables online transactions with suppliers, you can improve your collaboration with them in many different areas. For example, if design or production teams change a BOM to include recycled material, the change of requirements is easily passed on to suppliers, and the new orders are delivered to include updated requirements. With an automated Request for Quote capability, you can easily invite existing and new suppliers to include reused or recycled items in their tenders.

6. Sales and purchase returns

Most companies think of sales returns as something to avoid as they indicate customer dissatisfaction, but in the circular economy efficient and easy-to-process sales returns will allow customers to return products that have been finished with and that can be recycled. Likewise, it should be straightforward to return products to suppliers for recycling and processing.

7. Disassembly

Having a straightforward ERP function to disassemble a product that has been returned into its component parts ready for re-manufacture can greatly reduce the overhead of the manufacturing process.


For manufacturers, a move to the circular economy should include revisiting your ERP system and checking out whether it will support your transition to the circular economy.

The need for investment in a circular economy requires prioritising long-term goals. Overcoming knowledge and process barriers can open the doors for manufacturing, to achieve a more innovative and sustainable future.

Check our guide ‘How the circular economy can transform manufacturing’ to discover how manufacturers, distributors and wholesalers can unlock the opportunities available from the circular economy.

2023-10-13T12:06:48+00:00November 14, 2022|Blog|
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