Pge-M2-Str-0644 2223 Svcce 01

Course: Sustainable Value Chains & Circular Economy
2223_S01_PGE_M2_STR_0644_E_D_BOD_TSS
Module 01: From supply chains, use chains
and global value chains to circular economy
by Joerg S. Hofstetter
Associate Professor, KEDGE Business School
President, ISVC
Sustainable Value Chains & Circular Economy
Agenda
• Course objectives, structure and schedule

• Exam organization, content and grading
• Today’s linear economy model
• Supply, use and value chains
• Sustainability
• De-growth
• Circular economy
• Cradle to cradle
Sustainable Value Chains & Circular Economy : 01-Supply, use, value chains to circular economy, © Joerg S. Hofstetter, 2022 Slide 2
Learning objectives
• Students understand course objectives, structure and schedule, as well as exam

organization, content and grading
• Students are clear on vocabulary and definitions
• Students know about the linear economy
• Students know the major environmental and social targets
• Students are familiar with the connection of growth and consumption
• Students understand the ideas of de-growth and the circular economy
Course objectives
To ignite and further nourish your interest in:

• the perspective that both big and small day-to-day decisions on “how things are made
and used” substantially shape our world;
• the economic connections between environmental and social issues across the globe;
• the challenges caused by dependencies between value chain partners;
• the opportunities by reshaping value chains and ecosystems; and
• the various initiatives that aim at resolving these challenges.
• To enable you to understand global value chains as a phenomenon, to

methodologically explore opportunities and threats, and to create and implement own
courses of action - to ultimately equip you with practical tools for your future career.
• To enable you to develop business strategies that fit the European Green Deal and are
directed towards business success in a climate change reality.
• To train you in using the “theory” by applying it to real life case studies and examples.
Course schedule
Date Educator Module Topic

19/09/22 Hofstetter From supply, use & global value chains to circular economy
20/09/22 Hofstetter Value networks as innovation & strategic positioning
22/09/22 Hofstetter Co-creation of value as new business paradigm
26/09/22 Hofstetter Proposing management recommendations for a CE transition
04/10/22 Gutberlet Circular society - transforming beyond material flows
07/10/22 Gutberlet Circular economy: societal objectives & public policy
12/10/22 Gutberlet Circular economy business models & frugal innovation
13/10/22 Gutberlet Longevity as indication for the circular economy – a business simulation
Transforming toward a circular economy - an innovation culture
17/10/22 Wecht (online)
perspective
21/10/22 On campus Exam
Course structure
Duration Topic
15 min The module topic in reality
75 min Lecture with group work & discussions
15 / 60 min Break
50 min Group work on exam-like question
20 min Presentation of group work in class
20 min Discussion of group work in class
End of module
For the group work:

- define the moderator (who leads the conversation)
- define the presenter (who presents the results)
- define the slide producer (who documents the final result)
- upload the slide (with all names) on LEARN, Forum
- I invite selected groups to present
I encourage you to prepare for class at least by watching linked videos.
Exam organization
Exam:
• Tuesday, 21 October 2022 at 08:30 – 11:45
• Room: on campus (to be announced)
• Written exam, duration: 180 min., based on case studies
• Open book
• Questions / answers will / must be given in English
• Relevant for the exam: class and discussions, slides, reading material, videos
Don’t worry, our expectations are neither higher nor lower than in other courses.
Exam content and grading
Exam content:
• The exam asks students to develop and argue solutions for specific challenges
common in business practice. These challenges are presented as short case studies
similar to the ones discussed in class.
• Typically, 3 case studies, each 2 questions to be answered.
• Relevant for the exam are the lecture, the lecture slides, and all references to
publications given in the slides. Case studies and guest lectures are not directly
relevant for the exam but prepare students for the exam, helping them to practically
apply the course content.
Exam grading:
• Your arguments
• Accuracy and consistency of your argumentation
• Structure of your argumentation
• Remaining in the limit of words
• You have to take a position!
Introduction of professor
• Associate Professor of Supply Chain & Operations Management, KEDGE

• President, International Forum on Sustainable Value Chains (ISVC)
• External Educator at University of St. Gallen, Waseda University, BSL Lausanne
• Ph.D. (University of St.Gallen), M.Sc. & B.Sc. (University of Stuttgart)
• Further engagements:
– Academic Advisor, Green Growth Knowledge Platform & UNIDO
– Member, FutureEarth working groups Global Value Chains & Circular Economy
– Fellow, Arizona State University, Center for Organization Research & Design
• Research:
– Circular Economy & Corporate Strategy
– Sustainable Corporate Global Value Chains & Sub-Supplier Management
– Sustainable Procurement & Value Chain Compliance
– Use Chains & Experience Economy
• Non-university engagements:
– Consultant, World Bank Group
– Co-founder of two business consulting companies (Naveco, Inneco)
– Management positions at Lufthansa Cargo Southeast Asia & India, ITT Automotive USA
Supply, use, value chains to circular economy
Today’s challenges
• Climate change
• Pollution
• Exceeding planetary boundaries
• Inequality
• Instability in financial systems and public debt
• Increasing political power of private economic organizations
• Oppression of minorities
• Changes in value systems
• Political radicalization
• Misinformation
• Increase in world population
• Migration
• and many many more highly important ones
Today’s business paradigm
We currently have a linear economy: starting with resources exploitation over mass-
production, mass-distribution and mass consumption to waste dumped on landfills.
Core elements of today’s paradigm are:

• Consumption
• Provision of value-loaded physical goods
• Societies’ responsibility for handling waste from consumption
• Division of labor
• Focus on core competencies
• Property rights
• Protection of core competencies
• Reduction of fixed costs and use of scale effects
• Focus on financial evaluation
• Nature and humans are considered input factors to serve the economy
• and many many more highly important ones
Processes versus chains
The production process usually refers to all physical steps (production or process
technologies) that transform raw materials into the final intended product or service.
The supply chain is a network of organizations that are involved, through upstream and
downstream linkages, in the different processes and activities that produce value in the
form of products and services in the hands of the ultimate consumer (Christopher, 1992).
The supply chain coordinates material, information and financial flows, is a network, is a
complex adaptive system, is relative, consists of a main and a support supply chain, and
is bounded by a fuzzy horizon ("visible horizon") (Carter, Rogers & Choi, 2015).
http://onlinelibrary.wiley.com/doi/10.1111/jscm.12073/abstract
The consumption process usually refers to all physical steps that transform the final
product or service into other products or services, or other material.
The use chain is a network of organizations involved, through upstream and downstream
linkages, in the different processes and activities using the product or service to their
needs, and, worst case, disposing it, or, best case, re-entering it in supply chains.
Value chain
Traditional definitions of value chain:

Porter’s (1985) view focused on the corporation only, starting with goods receipt and
ending at after sales. Primary activities directly add to the final product’s / service’s value.
Support activities do not directly add value but increase the productivity of the primary
activities. http://www.simonandschuster.com/books/Competitive-Advantage/Michael-E-Porter/9780684841465
Sturgeon (2001) refers to the sequence of productive (value added) activities that capital
and labor perform to bring a good or service from its conception to end use and beyond.
http://onlinelibrary.wiley.com/doi/10.1111/j.1759-5436.2001.mp32003002.x/abstract
http://onlinelibrary.wiley.com/doi/10.1111/j.1759-5436.2001.mp32003001.x/abstract
Value chain:
The value chain comprises of both the supply chain and the use chain, spanning new or
recycled resources over products and services to recycled or disposed resources. With
that it includes corporate production networks. Further, the value chain includes all
parties involved in the creation or realization of a product / service idea as well as all
parties that support either that creation, production, distribution or the use of the product
or service. Value chains comprise of material flows, service exchanges, information flows,
financial flows, and property exchanges.
Value chain - an example
https://www.youtube.com/watch?v=cpYhgqPRivw
Global value chains
Global value chains:

Global value chains identify a production structure in which tasks and business functions
are distributed among several companies, globally, or regionally. The key features are the
international dimension of the production process and the “contractualization” of buyer
and seller relationships, often across international borders (Taglioni and Winkler, 2016).
https://openknowledge.worldbank.org/handle/10986/24426
Global value chains are the sum of all corporate and individual value chains.
Companies’ sourcing and sales policies and decisions define which organizations are
part in global value chains, establishing “quasi-economies” versus national economies.
Fueled by the objective to further increase the benefits from scale economies and
improved IP protection, collusion is a dominant trend. It homogenizes corporate value
chains across competitors and regions, allowing more oligopolies to establish.
Regulators foster or hinder specific economic transactions with public policy. To maximize
positive or neutralize negative effects of national policy on their business, multinational
companies adapt their organizations by shifting activities among local entities.
Global value chains
• GVCs are a major component of the global economy; their importance is increasing.
• GVC participation hinges on low trade barriers and trade costs, + domestic conditions.
• GVCs have been regional rather than global, with Factory Asia as the prime example.
• GVC integration increases incomes and employment, and drives structural change.
• GVC integration may have adverse environmental effects if participation entails laxer
environmental protection laws.
(Source: UNIDO & UIBE 2018)
Group work: Swiss chocolate
Please suggest: How Swiss is Swiss chocolate?
• Raw ingredients: cocoa beans, sugar beets, vanilla, soy, milk, nuts, spices, fruits
• Processed material: cocoa liquor, cocoa butter, sugar, lecithin
• Origins of material: cocoa (Ivory Coast, Ghana, Nigeria, Indonesia, Brazil, Ecuador),
cocoa liquor & butter (NL, Ivory Coast, Germany, Indonesia…), sugar (Switzerland),
vanilla (Madagascar), soy (USA, Brazil...), milk (Switzerland), hazelnuts (Turkey)...
• Legal requirement for “Swiss Made”: 80% of raw materials (weight) from Switzerland
(except raw materials that do not grow in Switzerland) and 80% of the processing
• External threats: economic (quality of cocoa and other raw materials), environmental
(biodiversity), social (poverty), reputational (fraud), political (trade barriers)
• Sources: https://www.icco.org/statistics/production-and-grindings/production.html http://www.worldcocoafoundation.org/wp-content/uploads/Cocoa-Market-Update-as-of-4-1-
2014.pdf
Sustainability - Definitions
The triple bottom line: Economical, environmental, and social performance
Brundland report (1987): Sustainable development is development that meets the needs
of the present without compromising the ability of future generations to meet their own
needs. It contains within it two key concepts:
• the concept of 'needs', in particular the essential needs of the world's poor, to which
overriding priority should be given; and
• the idea of limitations imposed by the state of technology and social organization on the
environment's ability to meet present and future needs.
http://www.un-documents.net/our-common-future.pdf
Dyllick / Muff (2015): Truly sustainable business shifts its perspective from seeking to
minimize its negative impacts to understanding how it can create a significant positive
impact in critical and relevant areas for society and the planet. A firm looks first at the
external environment within which it operates and then asks itself what it can do to help
overcome critical challenges that demand the resources and competencies it has at its
disposal.
https://www.bsl-lausanne.ch/wp-content/uploads/2015/04/Dyllick-Muff-Clarifying-Publ-Online.full_.pdf
Territorial versus footprint perspective
• France’s, Germany’s or Switzerland’s environmental footprint corresponded to approx.

3 earths in 2020.
Political sustainability objectives
As value chains connect the world’s economies and societies, procurement

and sales practices are among the strongest forces to realize the SDGs.
Sustainable value chain
• Sustainable value chains are those in which collaborative relationships facilitate the
effective flow of information, to enable rational decision-making and effective resource
allocation, for the benefit of the chain as a whole. Value chains can only be sustainable
if chain members are in tune with and responsive to the needs of their customers, the
wants of final consumers and the complex interaction between what they do, how they
do it and the natural environment within which they operate. (Fearne 2009)
https://dynamic.architecture.com.au/i-cms_file?page=13538/Fearne_Final_ReportCopyforWeb.pdf
• Sustainable value chain management is the management of material, information and

capital flows as well as cooperation among companies along the value chain while
taking goals from all three dimensions of sustainable development, i.e., economic,
environmental and social, into account which are derived from customer and
stakeholder requirements. In sustainable value chains, environmental and social
criteria need to be fulfilled by the members to remain within the value chain, while it is
expected that competitiveness would be maintained through meeting customer needs
and related economic criteria. (adapted on Seuring & Müller 2008)
https://edisciplinas.usp.br/pluginfile.php/387352/mod_resource/content/1/Seuring%20M%C3%BCller%20(2008).pdf
Objectives with sustainable value chains
Societal level:
• Ensure long-term access to relevant resources and markets.
• Ensure legitimacy of core economic players.
• Limit environmentally or socially irresponsible business behavior.
• Increase in global value chains.
Corporate level:
• Lower cost of capital.
• Limit risk for corporate reputation.
• Avoid illegal / non-compliant business practices.
• Ensure to comply with customer specifications.
• Ensure to meet brand promises and customer expectations.
• Secure short-, mid-, and long-term supply.
• Increase quality of sourced material and services.
• Improve positioning in the value chain to increase degrees of freedom and output.
Additional economic action to production
• Re-use: to put back a good into use for the same purpose at end-of-life.
• Repurpose: to use a good for a different purpose than originally intended.
• Refurbish: to aesthetically maintain a product to bring it back to a condition
comparable to that of a new product, excluding repairing or rebuilding any components.
• Rework / Repair: to return a faulty or broken good back to a usable state.
• Rebuild: to repair by taking apart and reconstructing, often with new parts to a
standard as close as possible to its original condition regarding appearance,
performance and life expectancy.
• Reconstruct: to restore a product into its original or complete condition by re-building /
re-constructing / re-assembling it from remaining parts (real-estate: renovate).
• Restore: to preserve the material existence and the physical characteristics of an
object.
• Recondition: to return a used product to a satisfactory working condition by rebuilding
or repairing major components that are close to failure, even where there are no
reported or apparent faults in those components.
• Remanufacture: to return a used product to at least its original performance with a
warranty that is equivalent or better than that of the newly manufactured product.
• http://www.apra-europe.org/main.php?target=remanufacturing
De-growth
Approach:
• Today’s economic paradigm depends on economic growth to generate the rentability
required to generate premiums for investments.
• Since sales are connected to physical goods flows, growth requires increasing
consumption and causes higher use of natural resources and more logistical activities.
• De-growth argues that the required reduction in resource exploitation and pollution can
only be achieved by reducing consumption and regionalizing production.
• De-growth further criticizes GDP as economic indicator since economic activity is
simply added instead of being evaluated upon its positive or negative impact.
• De-growth requires to reconsider property rights on common goods and the right of
investors to require a premium for any investment.
Critique:
• Decoupling of value provision and material flows (e.g. by digitalization) could enable
consumption with low material use.
• De-growth undermines economic (capitalistic) interest in investing, and thus slows
down entrepreneurship and technological development.
Circular economy
• A regenerative system in which resource input and waste, emission, and energy
leakage are minimized by slowing, closing, and narrowing material and energy loops.
• In contrast to the linear model of “take, make, dispose”.
https://ec.europa.eu/easme/en/news/r2-supporting-transition-circular-economy
Circular economy
“Solid waste has been with us since human activity began. Archaeologists like nothing
better than to locate the garbage dump of a past civilization: it is the most comprehensive
record of that society’s activities.“ (R. I. Stessel)
“Solid waste is the most complicated material on earth. It must be: it contains everything
else.” (R. I. Stessel)
“Within the last several decades, it is the existence of vast numbers of disposable
products that has been the greatest impetus behind altering the manner in which solid
wastes are treated. Few affronts to aesthetics are as widely recognized as litter; most
litter is material too cheap to keep.” (R. I. Stessel: Waste as a Resource)
“Waste is not only an environmental problem, but also an economic loss.” (European
Environment Agency)
https://www.eea.europa.eu/signals/signals-2014/articles/waste-a-problem-or-a-resource
The amount of raw materials “stocked” on landfills allows to substantially reduce mining.
Recycling cost put mining activities under cost pressure. For rare earth, “urban mining”
has been the key measure to buffer against trade tactics.
Cradle to grave versus cradle to cradle
https://doi.org/10.18848/1832-2077/CGP/v07i03/54938
Cradle to cradle
http://www.epea.com/cradle-to-cradle/
Group work: Cradle to cradle
Please suggest: How to separate biological from technical cycle materials?
• Composite materials are key to our strategies to reduce weight (e.g., energy
consumption), improve quality (e.g., food packaging), and optimize cost (e.g., use only
the needed amount of costly material).
• Many goods consist of large numbers of different assemblies, which themselves

consist of large numbers of different elements of different materials. The material is not
identified, neither on the product nor the individual elements.
• Micro-organisms have been created by biotechnology processes that are able to

consume some technical cycle material and turn it into biological material. However,
little is known about their behavior in the real world.
Global value chains and sustainability
Case study: Patagonia
Yvon Chouinard, owner of Patagonia, and his management staff have been concerned
about pollution and waste since half a century. Decades ago, the company started
communicating publicly its concerns about mass- or overconsumption. Since years, they
promote “not buying [their offered products] if you don’t really need them.” Instead of
buying a new jacket and disposing the old one, they try to motivate customers to stay
mentally attached to the products they have (been using happily) and simply repair the
damage. If people want a change in their clothes, they should return them to Patagonia,
allowing them to refurbish and resell, or to recycle. In consequence, Patagonia has
established North America’s largest repair facility, operates trucks to educate people in
repairing apparel, and offers guidance online on how to repair and maintain garments.
Currently, this strategy attracted many new customers who buy new goods from
Patagonia, increasing Patagonia’s market share and putting their competitors under
severe pressure. Yet, at some point, market saturation can be expected.
Please suggest a strategy to Yvon Chouinard how to keep fulfilling the objectives he has
with his company in the future that Patagonia promotes: few sales of new goods, some
refurbishing and trading of used goods, and much repairs and upgrading.
An interview with Yvon Chouinard, founder of Patagonia (1:03:35-1:05:55)
https://www.youtube.com/watch?v=ZQlu95rzUTM
Summary
• Course objectives, structure and schedule, as well as exam organization, content and
grading are specified.
• Definitions exist on supply, use and value chains and their elements.
• The linear model has created not only a good standard of living in the Global North, but
also many environmental, societal, political and economic challenges.
• Sustainability objectives have been defined, yet responsibilities are still discussed.
• The connection of sales growth with the need to increase consumption has caused a
political conversation about limiting or reducing growth.
• Circular economy and cradle to cradle a alternative approaches to address the key
challenges of our times.
© Joerg S. Hofstetter, 2022
Prof. Dr. Joerg S. Hofstetter

Associate Professor of Supply Chain & Operations Management
KEDGE Business School, Campus Bordeaux
680, cours de la Libération
FR-33405 Talence
President
International Forum on Sustainable Value Chains (ISVC)
Seegartenstrasse 61
CH-8810 Horgen
E: joerg.hofstetter@kedgebs.com

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Course: Sustainable Value Chains & Circular Economy

• Course objectives, structure and schedule

• Students understand course objectives, structure and schedule, as well as exam

• Students are clear on vocabulary and definitions

• Students know about the linear economy

• Students know the major environmental and social targets

• Students are familiar with the connection of growth and consumption

• Students understand the ideas of de-growth and the circular economy

To ignite and further nourish your interest in:

• To enable you to understand global value chains as a phenomenon, to

Date Educator Module Topic

For the group work:

• Associate Professor of Supply Chain & Operations Management, KEDGE

Core elements of today’s paradigm are:

Traditional definitions of value chain:

Global value chains:

Please suggest: How Swiss is Swiss chocolate?

• Processed material: cocoa liquor, cocoa butter, sugar, lecithin

The triple bottom line: Economical, environmental, and social performance

• France’s, Germany’s or Switzerland’s environmental footprint corresponded to approx.

As value chains connect the world’s economies and societies, procurement

• Sustainable value chain management is the management of material, information and

Please suggest: How to separate biological from technical cycle materials?

• Many goods consist of large numbers of different assemblies, which themselves

• Micro-organisms have been created by biotechnology processes that are able to

Prof. Dr. Joerg S. Hofstetter

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