How Recommerce Fits into SAP’s Circular Economy Strategy
This was joint work with Anna-Maria Steidle
When looking at the issues currently influencing us, it is evident that a world without climate protection and sustainability is no longer feasible. The new German government has committed to the Paris climate agreement, and young people regularly march in the streets as part of the Fridays for Future movement to protest for a better future. It can easily be perceived as an appeal to each and every individual citizen to contribute towards a common goal – saving our planet. However, boundaries shouldn’t be drawn at what each of us can personally do to contribute. The solutions are far broader and must entail a critical analysis of today’s economic models and how we can rethink them to become more sustainable.
Current business models follow a linear approach in which the sequence is take, make, use, and finally dispose. In other words, at the beginning, the necessary resources must be obtained to produce the desired product. Then the product is manufactured, used, and finally discarded. This linear approach makes it easy for suppliers as well as buyers to work hand-in-hand along the product lifecycle. However, this economic model needs to be challenged due to two main concerns: the amount of waste produced every year, and the realization that the world’s resources aren’t unlimited.
Based on these concerns, another business model has been established in recent years, namely the circular economy. As the name implies, the circular economy promotes the circulation of products by breaking down the phases into take, make, and recover. The core concept focuses on recuperating the resources used to manufacture products, thus maximizing their usefulness throughout their lifecycle. This is in harmony with the natural ecosystem, less harmful to the environment than recycling, and thus forms the basis for long-term and continuous availability of resources.
To be successful with the circular economy model in the long run, it is necessary to invest in the area of design. Redesigning production and business processes is key to the success of the circular economy. However, this does not preclude entire business model changes, as can be seen today. For example, many companies are evolving their business model away from traditional sales and toward a service approach. These revolutionized operating models often not only help companies become more environmentally friendly and control the materials they use, but also allow them to strengthen their long-term customer relationships through subscription models.
At SAP we are committed to helping organizations attain their sustainability goals. Our purpose is to help the world run better and improve people’s lives. With sustainability at the core, Technology can help address some of the most profound environmental, economic, and social challenges of our time at scale.”
Leveraging SAP® technology, we are actively helping enterprises become pioneers in the circular economy. Solutions such as SAP Responsible Design and Production and SAP Rural Sourcing Management are already on the market and being used by our customers.
To tackle the biggest problems of our time, however, this is still not enough. SAP also promotes new ideas and entrepreneurship to develop sustainability initiatives such as the SAP One Billion Lives program. This is SAP’s flagship social innovation initiative that gives employees the time, technology, and mentorship to turn their passion for making a difference into sustainable, income-generating ventures. In 2021, the circular economy was one of the three focus themes, along with climate change and equality for all. One of the winning teams, Resell Engine from SAP, was selected to continue their journey in SAP’s own incubator, the SAP.iO program.
Resell Engine wants to enable fashion brands to pursue recommerce by addressing one of the most critical parts for every retailer – pricing. But what exactly is recommerce? And why is it so important?
As highlighted before, waste is becoming an ever-increasing problem that is already affecting nearly all sectors worldwide. The fashion industry and the way fashion is consumed play a major role in this.
Consumers are buying more fashion items than ever before, while the lifecycle of the items is becoming shorter, and a large share of the goods ends up in landfills sooner or later. This is accompanied by an enormous consumption of resources such as water and carbon emissions.
Recommerce is a business model that shifts the linear approach (take, make, use, dispose) towards a circular value chain by reselling preowned items and bringing them back into the loop.
Consumers are increasingly buying preowned fashion, which on the one hand has less impact on the environment and on the other hand provides access to items that were previously outside the budget. The market backs up this trend. More and more recommerce platforms arise while brands shift their strategy to implement their own recommerce channels to provide consumers with a direct and verified way to buy their preowned items.
To make the sustainable impact underlying the recommerce movement, the founders of the Resell Engine from SAP – Benedikt Scheuermann, Max Schmid, and Robert Lindenmeir, who all started their careers as consultants in SAP’s Business Transformation Services group in 2021 – first looked at the recommerce value chain as a whole. Talking to some of the major players in the fashion retail market, the trio soon identified that pricing was the key factor in discouraging enterprises from embracing a recommerce business model. Finding a suitable price both for customers trading in items and those buying preowned items, while at the same time being profitable, is crucial. In addition, warehouse and store workers need a data-fueled solution to replace manual price assessment. By closing this gap with a cloud-based intelligent price engine, the Resell Engine from SAP helps retailers and shoppers to actively participate in the resale market – and ultimately improve the environment and the way we consume fashion.
Currently the team of Resell Engine is looking for brands that want to be forerunners in their industry and to create something meaningful together. If you want to become part of this venture, get in touch here.
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