How Creating a Closed-Loop Supply Chain Can Make Businesses Greener

Business Administration

Although the earth has large reserves of natural resources such as oil and fresh water, such resources are finite and will be exhausted at some point in the future. Fortunately, many governments around the world have developed and implemented strategies to reduce the waste of natural resources. On the same note, businesses can help conserve natural resources by adopting a closed-loop supply chain (CLSC). The beauty of a CLSC or zero-waste supply chain is it revolves around recycling, composting, and completely reusing all materials. As such, a closed-loop supply chain forces manufacturers to find innovative ways of utilizing End-of-Life (EOL) products instead of dumping such products in landfills.

Learn more about close-loop supply chain in our latest infographic:

closed loop supply chain infographic image

Text: Benefits of Closed-Loop Supply Chain Management

Waste Production and Recycling Figures

US-based businesses generate and dispose of 7.6 billion tons of nonhazardous industrial waste every year. In addition, 220 million tons, or 55% of the waste generated annually, end up in any of the 3,500 landfills spread throughout the United States. Out of these, solid waste landfills managed by municipal authorities are the second largest sources of methane gas emissions related to human activity. In fact, municipal landfills accounted for 22% of methane gas emissions generated in the United States in 2008. Americans generated approximately 243 million tons of trash in 2009, which translates to about 4.34 pounds of waste per person, per day.

An Overview of a Closed-Loop Supply Chain

A CLSC business model is based on the implementation of waste reduction strategies and efficient management of available resources to minimize waste generation as much as possible. With this in mind, a closed loop supply chain is hinged on two key concepts:

  • Gathering and returning all output materials into the production system.
  • Combining forward and reverse material flow processes to enhance recycling and reuse of production materials while transforming waste into energy at the same time.

How a CLSC Works

Forward logistics flow

The first step in forward logistics flow is the development of new products and services. After this, the finished products are delivered to distributors and retailers. Finally, consumers purchase finished products from retailers and distributors.

Reverse logistics flow

Unlike the forward logistics flow, the reverse logistics flow consists of four steps. The first step involves collecting defective products from consumers. In most cases, returns processors collect defective products, undertake repairs, and return them to the buyers. If the returns processor is unable to repair a defective product, the standard practice is to send it back to the retailer or distributor for direct reuse. At this point, it is worth noting that returns processors may remanufacture defective products and ship them back to retailers and distributors who in turn sell them to end users. Alternatively, returns processors may recycle defective products to extract materials and parts that can be reused in the production process. This means that recycled parts are used to make new goods that move through the supply chain until they reach end users. The final step involves any material or product that is not utilized throughout the steps discussed above. Such materials or products are usually discarded as waste that ends up in landfills. However, these waste products generate a lot of useful data/information that enables manufacturers and distributors/retailers to determine how and why products develop defects. The aim of data tracking and analysis is to reduce product development costs and waste production.

Waste Reduction Strategies

TOne way of reducing waste is by making packaging items from recycled materials. A good example is using corn-based peanuts as a cushioning material when packaging products instead of expanded polystyrene. Another effective waste reduction strategy is minimizing the production of industrial sludge and wastewater by reducing the amount of water used in the manufacturing processes. Acquiring raw materials in bulk is also a great way of reducing production waste. Businesses that manufacture products can reduce wastage by implementing measures to lower the likelihood of hazardous and nonhazardous waste mixing, which in turn reduces the amount of hazardous waste that must be disposed. Manufacturers can reduce wastage by maintaining accurate raw material inventory records. Yet another way of cutting wastage is to initiate comprehensive recycling programs to optimize raw material diversion. This approach eliminates unnecessary raw material purchases, minimizes waste, and eliminates disposal expenses. Finally, initiating and practicing quality control strategies, such as Six Sigma and ISO 14001, reduce product defects significantly.

The Benefits of Closed-Loop Supply Chain

Firstly, a closed-loop supply chain cuts production costs and improves a company’s bottom line. More specifically, the sale of recovered outputs would boost revenues while the recovered outputs can be used as production inputs, thereby lowering raw material costs. Secondly, adopting a CLSC reduces environmental pollution by lowering raw material usage, conserving energy and enabling companies to comply with electronic waste regulations. A CLSC also streamlines product returns leading to improvements in customer loyalty, customer satisfaction and service efficiency. Furthermore, companies can use the data gathered to improve product design and development. This is because a CLSC enables companies to collect data on failure rates, consumer complaints and product lifecycles.


A closed-loop supply chain can help a business become eco-friendly by lowering production costs, reducing wastage, improving service delivery, enhancing customer loyalty and reducing environmental pollution. Some of the strategies that businesses can use to reduce waste include procuring raw materials in bulk, minimizing water usage during production and keeping accurate inventory records.

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