Sustainable Manufacturing: How a Closed-Loop Supply Chain Can Reduce Costs and Environmental Impact

June 16, 2026 • 7 minute read
Author: Phyllis Jackson, Senior Manager, US Marketing, UPS

• Approximately 79% of manufacturing executives think circularity creates value, however, 80% still need to build circular supply chains.¹
• Manufacturers that implement closed-loop systems can cut material and e-waste management costs by up to 30%.²
• Reliance on recycled materials instead of raw materials helps circular manufacturers remain resilient amid supply chain shortages.

A circular economy, also known as circularity, is an operational foundation where manufacturers prioritize reducing waste, increasing product durability and moving the supply chain away from dependence on raw materials. A closed-loop system is a production process where materials are recycled, reused or repurposed to help extend their life and reduce waste.

Curbing production expenses and identifying efficiencies can be an uphill battle for manufacturers. Raw materials costs are rising. Supply chain disruptions can thwart production schedules. Customer expectations push delivery speeds.

A closed-loop supply chain might be the solution manufacturers have been searching for. Instead of materials and resources moving in only one direction (as in a linear system), a closed-loop system brings materials back into the manufacturing loop, cutting down waste and finding new life for used products through refurbishment or recycling.

Based on the circular economy principles outlined in the UPS research report, “Sustainable Manufacturing: The Case for Closed-Loop Supply Chains,” moving away from a linear system can provide many short- and long-term benefits. Closed-loop supply chains can help manufacturers reduce waste and reliance on raw materials, ease the impact of supply chain disruptions and cut down on emissions.

Survey results from the “UPS Sustainability in Manufacturing Study” reveal the circular economy initiatives that manufacturers are prioritizing, highlighting the quantifiable benefits. Nearly half of respondents cited improved revenue (47.9%), while other reported reduced unit cost (39.1%) and a sufficient return on the investment (33.4%) as business areas that were impacted for the better by implementing a closed-loop supply chain.*

“The circular economy can help manufacturers innovate their production processes and materials sourcing, and that leads to cost savings and greater efficiency,” says Lorie Schlatterer, Manufacturing Strategic Lead, UPS. “But the benefits of adopting a closed-loop manufacturing system stretch far beyond production and materials.”

Manufacturers with closed-loop systems have experienced quantifiable benefits, such as lower materials costs, reduced byproduct waste, overall operational efficiency and improved resource allocation.

Recycling and remanufacturing are critical practices of the circular economy. Rather than letting products lose their utility when they break or stop working, circularity finds ways to bring those products back into the production cycle. The result of recycling and remanufacturing products and parts can significantly lower reliance on raw materials, resulting in savings on materials costs and less exposure to price volatility. Rather than letting products lose their utility when they break or stop working, circularity finds ways to bring those products back into the production cycle. The result of recycling and remanufacturing products and parts can significantly lower reliance on raw materials, resulting in savings on materials costs and less exposure to price volatility.

In fact, manufacturers that implement closed-loop systems can cut material and e-waste management costs by up to 30%.²

The average cost for manufacturers to dispose of waste is $20 to $100 per ton for general commercial waste, and $50 to $500 per ton for hazardous waste.³ Implementing strategies to reduce waste during production, reuse remaining waste or send waste to a recycler can have significant impacts on waste management costs.

Additionally, U.S.-based manufacturers that recycle can further reduce costs with tax credits offered in certain states.⁴

Closed-loop manufacturing typically utilizes innovative tracking technology to ensure production quality remains high, machinery operates at peak levels and waste production stays low. Because of this heightened tracking, efficiency often improves.

Due to a tighter control on materials usage and real-time responsiveness to operational challenges, manufacturers with closed-loop supply chains tend to have fewer product defects, leading to fewer hours spent fixing issues. These realities keep production lines up and running more often, leading to decreased downtime and warehouse optimization.

Closed-loop systems can help reduce a manufacturer’s carbon emissions by minimizing resource extraction, transportation and disposal activity. And for 29.1% of UPS survey respondents, emissions reduction is one of the ways they measure the success of their closed-loop initiatives.**

For example, a linear steel supply chain generates carbon emissions when iron ore is extracted and converted into a usable state for manufacturers. Additional emissions are produced when those materials are transported through the supply chain to the manufacturer’s production floor.

On the other hand, a circular approach relies on electric arc furnaces (EAFs). These furnaces reduce emissions by using scrap steel instead of iron, empowering emissions reductions from upstream material extraction and transport.

Industry research has found that manufacturers that apply circular economy principles to steel production, and other industries like aluminum, plastics, cement and food, can dramatically reduce greenhouse emissions up to 40% by 2050.⁵

In some sectors, that figure can go even higher. For example, laptop manufacturers have found that remanufacturing existing laptops cuts production emissions by more than 93%.⁶

Circular economy principles prioritize the efficient use and reuse of resources, reducing demand for new raw materials.For example, the steel industry’s shift from raw iron ore and blast furnaces to scrap steel and EAFs has had a considerable impact on raw material use.

Making one ton of steel from scrap instead of raw materials conserves 2,500 pounds of iron ore, 1,400 pounds of coal used to process raw iron ore and 120 pounds of limestone, which is used to remove impurities to produce higher-quality steel.⁷

Manufacturers are well acquainted with the risks of supply chain disruptions. Closed-loop systems can help reduce threats in three key ways.

• Less reliance on finite resources: More than one in 10 manufacturers say raw materials shortages are affecting their ability to operate at full capacity.⁸ Closed-loop supply chains can reduce dependence on resources, making businesses less vulnerable to supply chain disruptions and price fluctuations tied to resource scarcity.
• Adaptability to regulations: As environmental regulations become stricter, circular practices that focus on reusing materials help businesses stay ahead of rule changes and avoid potential penalties.
• Reduced vulnerability to localized disruptions: Diversifying resource inputs through closed-loop systems allows circular supply chains to become more resilient to disruptions due to geopolitical instability, natural disasters and other events.

The right logistics partner can help manufacturers meet their sustainability goals across the organization. Manufacturers that participated in the UPS survey said sustainability analysis (38.7%) and shipping route optimization (38.5%) were the top two ways their logistics partner helped implement closed-loop initiatives.***

UPS can work with your team to identify ways to optimize your operations to help save time and reduce waste. By embracing circular economy principles, manufacturers can unlock meaningful cost savings, strengthen operational resilience and accelerate progress toward sustainability goals. With the right partners in place, manufacturers are positioned to thrive in a more resource-constrained, efficiency-driven future.

“UPS B2B Merchant Survey” Questions: *Q: What part of your business has been most impacted for the better by the implementation of a closed-loop system? **Q: How are you measuring the success of your closed-loop initiatives? ***Q: Areas where logistics carriers help manufacturers in closed-loop initiatives

This survey was distributed by a panel in an online format to 558 respondents in the U.S., with each respondent being compensated at an agreed rate for their time. Each survey took approximately 10 minutes to complete. Our survey ran December 1-14, 2025.

¹ “79% of manufacturing executives say circularity creates signification value, yet only a fifth have built circular supply chains at scale — WEF and Bain & Co report,” Bain & Company, November 11, 2025.

² “The Benefits of a Circular Economy for Electronics,” Altium, accessed December 15, 2025.

³ “How Much Does Commercial Waste Collection Cost?” Global Trash Solutions, accessed December 15, 2025.

⁴ “Recycling Rewards – Rebates, Grants, and Tax Incentives,” Business Waste, accessed December 15, 2025.

⁵ “What’s the Link Between Circular Economy and Carbon Reduction?” Tunley Environmental, November 13, 2025.

⁶ “Scientific study finds remanufactured laptops produce only 6.34% of CO2 emissions in comparison to new,” Circular Computing, accessed December 15, 2025.

⁷ “Steel Sustainability,” Steel Tank Institute/Steel Plate Fabricators Association, accessed October 21, 2025.

⁸ “Raw material shortages have abated, but some lingering issues remain,” Supply Chain Management Review, January 7, 2025.

^{Individual results and options will vary. UPS makes no promises of any specific outcome in this document but instead provides only example outcomes based on certain UPS customer experiences.}