Abstract
Circular economy practices are increasingly integrated into supply chains through reuse, repair, remanufacturing, recycling, resource recovery, and reverse logistics. Although these practices are generally expected to improve sustainability, greater circular activity does not necessarily produce proportional environmental, economic, or social benefits. Circular interventions can increase transportation, sorting, processing, inventory, coordination, and energy requirements, while efficiency improvements and lower effective resource costs may stimulate additional consumption. Recovered materials may also lose value when recovery volumes exceed processing capability or secondary market demand. This study examines this problem as the circularity paradox and develops a qualitative system dynamics framework to explain the conditions under which circular supply chain initiatives create or erode sustainable value. The study synthesizes peer-reviewed literature and secondary evidence, with selected evidence from the United States and Bangladesh used to illustrate system relationships under different institutional and operational conditions. The framework integrates circular intervention intensity, reverse flow complexity, recovery efficiency, organizational capability, stakeholder coordination, secondary market absorptive capacity, rebound demand, value leakage, and sustainability performance. Reinforcing and balancing feedback loops are developed to show how circular interventions can generate sustained benefits, diminishing returns, capacity pressure, market constraints, and rebound effects. The study distinguishes circular activity from sustainable circular performance and argues that effective circular supply chains require alignment between the scale of circular intervention and the capabilities of the supporting logistics, organizational, processing, and market systems. The framework provides a theoretical foundation for future empirical validation and quantitative system dynamics simulation and offers implications for managers and policymakers seeking to expand circularity without shifting environmental and economic burdens elsewhere in the supply chain.