Closed-Loop Supply Chain Design and Environmental Performance of Small and Medium-Sized Manufacturing Enterprises (SMEs) in Nairobi Metropolitan Area, Kenya: A Circular Economy Perspective

Abstract

The increasing environmental challenges facing small and medium enterprises (SMEs) have intensified the need for sustainable supply chain practices that promote efficient resource utilization and minimize environmental degradation. This study examined the effect of closed-loop supply chain design on the environmental performance of SMEs. Specifically, the study investigated the influence of product return systems, reverse logistics integration, product recovery and remanufacturing, and recycling and waste recovery on environmental performance, measured in terms of waste reduction, resource efficiency, recycling rate, reduction in greenhouse gas emissions, reduced landfill disposal, and compliance with environmental regulations. The study adopted a positivist research philosophy and a deductive approach, employing a descriptive and explanatory cross-sectional survey design. Primary data were collected using structured questionnaires administered to employees responsible for procurement, logistics, production, operations, and environmental management in the selected SMEs. A representative sample was selected using stratified and simple random sampling techniques, and the collected data were analyzed using the Statistical Package for the Social Sciences (SPSS). Descriptive statistics, including means, standard deviations, skewness, and kurtosis, were used to summarize the data, while Pearson's correlation and multiple linear regression analyses were employed to test the study hypothesis. The findings revealed that SMEs had implemented closed-loop supply chain design practices to a high extent, with recycling and waste recovery recording the highest level of adoption. Similarly, environmental performance was rated highly, particularly regarding compliance with environmental regulations and waste reduction. The multiple regression analysis established that closed-loop supply chain design had a positive and statistically significant effect on environmental performance (R = 0.824, R2 = 0.679, Adjusted R2 = 0.673, F = 102.741, p < 0.001), explaining 67.9% of the variation in environmental performance. Among the predictor variables, recycling and waste recovery exerted the strongest influence, followed by product return systems, reverse logistics integration, and product recovery and remanufacturing. The study concluded that the adoption of closed-loop supply chain design significantly enhances the environmental performance of SMEs by promoting waste reduction, improving resource efficiency, increasing recycling, reducing greenhouse gas emissions and landfill disposal, and strengthening compliance with environmental regulations. The study recommends that policymakers develop supportive policies and incentives that encourage SMEs to adopt circular economy practices, while SME managers should invest in product return systems, reverse logistics infrastructure, recycling technologies, and strategic partnerships that strengthen sustainable supply chain management and improve long-term environmental performance.