Procurement Glossary
Circular economy: definition, methods and importance in Procurement
November 19, 2025
The circular economy is revolutionizing modern procurement strategies through sustainable resource management and closed material loops. This economic model reduces waste, extends product life cycles and creates new value chains. Find out below what the circular economy means, what methods are available and how you can use key figures for successful management.
Key Facts
- The circular economy is based on the principles of reduce, reuse, recycle and closes material loops
- Purchasing organizations can achieve up to 30% cost savings through circular procurement strategies
- Supplier evaluation according to sustainability criteria becomes a decisive competitive factor
- Digital technologies enable traceability and transparency in complex supply chains
- Regulatory requirements such as the Supply Chain Act strengthen the focus on sustainable procurement
Contents
Definition: Circular economy
The circular economy is a regenerative economic system that aims to use resources for as long as possible and minimize waste.
Basic principles of the circular economy
The concept is based on three fundamental pillars that cover the entire product life cycle:
- Design for circularity: products are designed from the outset for durability, reparability and recyclability
- Sharing economy: maximizing the intensity of use by sharing, renting or leasing products
- Resource recovery: systematic recovery and recycling of materials at the end of the product life cycle
Circular economy vs. linear economy
In contrast to the traditional linear economy ("take-make-dispose"), the circular economy closes material cycles and eliminates the concept of waste. While linear models rely on the continuous consumption of resources, the circular system is self-regenerating.
Importance of the circular economy in Procurement
For purchasing organizations, the circular economy opens up new strategic opportunities for cost optimization and risk minimization. Contract management must take new service models and take-back obligations into account.
Methods and procedures for the circular economy
The implementation of circular procurement strategies requires systematic approaches and proven methods for transforming existing purchasing processes.
Circular Procurement Framework
A structured approach involves evaluating the current procurement portfolio according to circularity potential. Categories are classified according to material intensity, service life and recyclability:
- Analysis of existing supplier relationships for sustainability criteria
- Development of circular tendering standards and evaluation criteria
- Integration of take-back programs in framework agreements
Life Cycle Assessment Integration
The systematic assessment of environmental impacts over the entire product life cycle is becoming a standard tool in Procurement. CO2 footprint, water consumption and waste generation are quantified and integrated into supplier decisions.
Digital enablers for circularity
Blockchain technology and IoT sensors enable seamless traceability of material flows. Digital contract management supports complex service level agreements for circular business models.
Tacto Intelligence
Combines deep procurement knowledge with the most powerful AI agents for strong Procurement.
Key figures for controlling
Measuring and managing circular procurement activities requires specific KPIs that reflect both economic and environmental performance.
Circularity indicators
Key performance indicators for assessing progress in the circular economy include quantitative metrics for material efficiency and resource conservation:
- Circular Material Use Rate: Proportion of recycled materials in total material use
- Product Life Extension Rate: Extension of useful life through repair and refurbishment
- Waste diversion rate: proportion of materials diverted from waste through recycling
Supplier performance metrics
The evaluation of suppliers according to sustainability criteria is operationalized through specific KPIs. Scorecards integrate environmental performance into existing supplier performance management systems and enable data-based decisions.
Cost efficiency and ROI measurement
Total cost of ownership models are extended to include life cycle costs and external effects. Benchmarking clauses enable continuous improvement of sustainability performance through comparison with best practice standards.
Risk factors and controls in the circular economy
The transformation to circular procurement models harbors specific risks that must be addressed through suitable control mechanisms and risk management strategies.
Supply chain risks and dependencies
Circular business models create new dependencies and complexities in supply chains. Reverse logistics and material returns require additional infrastructure and can lead to bottlenecks:
- Fluctuations in the quality of recycled materials
- Availability risks due to limited returns
- Technological dependencies on specialized recycling partners
Compliance and regulatory risks
Changing environmental laws and sustainability standards require continuous adaptation of procurement strategies. Limitations of liability must take into account environmental damage and compliance violations.
Financial and operational risks
Higher initial investments for circular solutions can impact profitability in the short term. Unclear ROI calculations and longer amortization periods make investment decisions more difficult. Guarantee agreements must cover extended performance parameters for sustainability.
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Practical example
A car manufacturer implements a circular procurement strategy for batteries in electromobility. Instead of buying batteries, the company concludes a service contract in which the supplier remains the owner and is responsible for maintenance, upgrades and recycling. At the end of their useful life, valuable raw materials such as lithium and cobalt are recovered and integrated into new batteries.
- Reduction of capital commitment by 40% through leasing model
- Guaranteed availability of raw materials thanks to closed material cycles
- Compliance with EU Battery Directive through integrated take-back obligation
Current developments and effects
The circular economy is developing rapidly, driven by regulatory requirements, technological innovations and changing customer expectations.
Regulatory drivers and compliance
The EU Circular Economy Package and national laws such as the Supply Chain Act are tightening requirements for sustainable procurement. Companies must make their supply chains transparent and document sustainability criteria:
- Extended producer responsibility for product take-back
- Minimum quotas for recycled materials in various sectors
- Reporting obligations for Scope 3 emissions in the supply chain
AI-supported optimization of circular processes
Artificial intelligence is revolutionizing the circular economy through predictive analytics and automated decision-making. Machine learning optimizes material flows, predicts maintenance requirements and identifies recycling potential in real time.
New financing models
Product-as-a-Service and Equipment-as-a-Service models are gaining in importance. Service level agreements are being expanded to include performance indicators for sustainability, while negotiation techniques require new skills for complex service models.
Conclusion
The circular economy transforms modern procurement strategies from linear to regenerative models and creates a sustainable competitive advantage. Successful implementation requires a systematic approach, digital enablers and new skills in contract management. Companies that adopt circular procurement at an early stage benefit from cost savings, risk minimization and regulatory compliance. The integration of sustainability criteria into purchasing decisions is becoming a strategic success factor.
FAQ
What is the difference between the circular economy and recycling?
The circular economy is a holistic system concept that starts with product design and closes material loops. Recycling is just one component of the circular economy that comes into play at the end of the product life cycle. Circular approaches prioritize avoidance, reuse and only then recycling.
How can Procurement implement the circular economy in practice?
Purchasing organizations can contribute to the circular economy by selecting suppliers according to sustainability criteria, integrating take-back clauses into contracts and giving preference to service models over product purchases. It is important to systematically evaluate the procurement portfolio according to circularity potential.
What cost savings are possible through the circular economy?
Studies show potential savings of 15-30% through reduced material costs, extended product lifecycles and optimized use of resources. In addition, costs are avoided through lower waste fees and compliance risks. Amortization typically takes place within 2-4 years.
How do I measure the success of circular procurement strategies?
Success is measured by KPIs such as circular material use rate, waste reduction and supplier sustainability scores. Total cost of ownership models integrate life cycle costs and environmental impact. Regular audits and benchmarking against industry standards ensure continuous performance improvement.
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