Supply Chain roundup - Week 41-43 2023
Updated: Jan 17, 2025
Enhancing Electric Vehicle Supply Chain Resilience
Localized Production for a Sustainable Future
Reducing CO2 emissions, avoiding logistical disruptions, and mitigating geopolitical unrest are key targets of the BMW Group's production and supply chain strategy. The 'local for local' approach focuses on following the market with production and selecting suppliers close to production sites. A new partnership aims to strengthen the battery cell supply chain in North America.
The Belgian company Umicore will supply cathode active battery materials to BMW’s battery cell supplier AESC in South Carolina from their new plant in Ontario, Canada. This agreement ensures that after an initial phase, AESC will exclusively obtain their cathode active materials from Umicore, reinforcing the regional supply chains for BMW and supporting the growth of electromobility. By 2030, at least half of all newly sold BMW vehicles are expected to be fully electric.
In October 2022, BMW AG's Chairman of the Board, Oliver Zipse, announced a $1.7 billion investment to expand the Spartanburg plant, including $700 million for the construction of a high-voltage battery assembly center for the fully electric BMW X-series in Woodruff, South Carolina.
In context: the Inflation Reduction Act
The Inflation Reduction Act (IRA) has spurred over $65 billion in investments in the US electric vehicle (EV) supply chain since its passage in August 2022, including $49 billion for new battery and component manufacturing. This significant commitment aims to transition from combustion engine vehicles to domestic EV manufacturing.
To qualify for consumer vehicle credits, vehicles must meet specific supply-chain criteria: by 2027, 80% of critical minerals used must be sourced from the US or Free Trade Agreement (FTA) countries, and by 2029, 100% of battery components must be produced or assembled in North America. These criteria do not apply to commercial vehicles, potentially creating supply-chain divisions.
Similarly, the European Union’s (EU) Critical Raw Materials Act aims to increase mineral extraction, processing, and battery manufacturing within the EU by 2030. If Europe enacts similar legislation, it could increase competition for resources and create regional trade flows.
Supply-chain risks can be assessed through three lenses: legislative requirements (like the IRA), global supply-chain resilience, and environmental, social, and governance (ESG) concerns. Four key challenges include:
Potential global shortage of critical minerals by 2030.
Insufficient supply of materials and battery components meeting regional content requirements for US consumer vehicles.
High geographic and supplier concentration across the EV value chain.
Mitigating the environmental and social impacts of battery production while expanding capacity.
Companies should adopt a portfolio approach to investment, embrace adaptive planning, and focus on transparent, robust, and circular supply chains. Strategic partnerships and community and government engagement are crucial for navigating uncertainties and positioning for success in the evolving EV market.
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Global Strategies for Supply Chain Resilience
Saudi Aramco’s Resilient Supply Chain
Saudi Aramco, the world’s largest integrated energy and chemical company, emphasizes resiliency through local manufacturing, multi-region sourcing, and strategic inventory management. These pillars enable Aramco to navigate disruptions and remain a reliable energy supplier.
Aramco’s redundancy strategy focuses on:
Local manufacturing to shorten lead times and create a flexible supply chain.
Multi-geography sourcing for supplier diversity and flexible production capacity.
Strategic inventory management to maintain optimal safety stock levels.
In September 2019, Aramco's Abqaiq and Khurais plants were hit by drone attacks, cutting production by 5.7 million barrels. Aramco restored production within 11 days, showcasing its reliability. A study by Boston Consulting Group during the pandemic confirmed Aramco’s superior supply chain resilience compared to peers.
A study by Boston Consulting Group (BCG) during the pandemic confirmed Aramco’s superior supply chain resilience compared to peers. The assessment focused on four key areas and 11 subgroups. The outcome showed Aramco is best in class for seven of the 11 subgroups, with minor gaps in the remaining four areas. The benefits of a resilient supply chain are significant, allowing Aramco to quickly and effectively respond to disruptions, minimize losses, and maintain a reliable energy supply.
DHL Supply Chain’s Strategic Investments
DHL Supply Chain, the global market leader for contract logistics solutions, plans to invest EUR 350 million in Southeast Asia over the next five years to expand its warehousing capacity, workforce, and sustainability initiatives. This is part of a series of strategic investments by DHL over the past year, amounting to EUR 1.35 billion globally.
"There is an incredible opportunity for businesses in Southeast Asia to strengthen supply chain resiliency," said Oscar de Bok, CEO of DHL Supply Chain. "Companies are looking at diversifying their supply chains. Southeast Asia, with its efficient work environment and effective trade agreements such as the China-ASEAN FTA, stands to benefit the most."
DHL’s initiatives include:
Increasing warehouse space by 25%, adding 400,000 square meters to the current 1.6 million square meters in Southeast Asia.
Developing Warehouse Management Systems (WMS) and introducing advanced warehouse technologies such as auto-stores, automated storage and retrieval systems (ASRS) for pallets and large goods, and automated guided vehicles (AGVs).
Doubling its electric vehicle fleet in Southeast Asia over the next five years to support DHL Group's goal of climate-neutral logistics by 2030 and help customers reduce Scope 3 emissions. Sources:
IBM’s Cognitive Supply Chain
IBM has maintained a 100% order fulfillment rate and saved $160 million in supply chain costs through its cognitive supply chain, leveraging AI, machine learning, and data analytics for enhanced decision-making.
A cognitive supply chain goes beyond traditional management by incorporating advanced technologies to create a self-learning and self-improving system. Key strategies include:
IBM’s cognitive supply chain strategies include:
Consolidating legacy systems into a single source of information.
Fostering data-driven decision-making.
Implementing predictive analytics for accurate demand forecasting.
Mitigating risks through proactive identification of supply disruptions.
Collaborating closely with suppliers for efficient production scheduling.
Optimizing transportation and inventory management.
Embracing a cultural shift towards new working methods through education and engagement.
IBM’s success demonstrates the potential for businesses to enhance competitiveness and profitability by optimizing supply chain operations.
Navigating Sustainability in Supply Chain Management
Despite indicators like the Federal Reserve Bank of New York’s Global Supply Chain Pressure Index showing transportation and manufacturing KPIs closer to historical levels, critical vulnerabilities and disruptions remain.
Climate-Related Supply Chain Disruptions
Climate-related disruptions pose a growing risk for many organizations as the frequency and severity of extreme weather events accelerate. The World Economic Forum’s Global Risks Report names natural disasters and extreme weather events as the second-most severe risk over the next two years and the third most severe over the next ten years. As these events become more frequent and widespread, the potential downtime and cost to businesses from supply chain interruptions increase.
For example, severe lack of rain between July and October 2023 pushed the Brazilian state of Amazonas into drought, with river levels at the port of Manaus reaching their lowest point since 1902. The Rio Negro, one of the Amazon's largest tributaries, saw water levels fall as low as 13.5 meters in October 2023, significantly below the typical level of around 20 meters. Manaus, a crucial transportation hub for goods including beef and animal hides, faced increased costs for northern shipping routes in the Amazon and disruption risks to the region's corn harvest due to the low river levels.
Similarly, the Rhine River, a vital transport link for Europe, experienced severe delays during the summer of 2022 due to low water levels, forcing some vessels to sail with cargoes at just 25% capacity. The Rhine, running from Switzerland to the Netherlands, is crucial for moving over 300 million tonnes of goods annually. This disruption was part of Europe’s worst drought in 500 years.
As climate change increases global temperatures, droughts are becoming more frequent and lasting longer, making water availability more unpredictable. According to the UN's 2022 Drought in Numbers report, droughts have increased by nearly 30% in number and duration since 2000 compared with the previous 20-year period.
Addressing Waterway Bottlenecks
The short-term solutions for bottlenecks on waterways transporting commodities are limited. For instance, the German Government is considering deepening a shallower section of the Rhine, similar to the dredging done by the US Army Corps of Engineers on the Mississippi. However, reducing the severity of droughts will only be achieved by restoring ecosystems and limiting temperature increases.
Long-term strategies to mitigate these risks include:
Investing in Infrastructure
Enhancing Forecasting and Planning
Diversifying Supply Routes
Sustainable Practices, such as water-efficient manufacturing processes and restoring natural ecosystems
The UN’s Drought in Numbers report emphasizes the precarious future the world faces if proactive measures are not taken. The report calls for urgent action to address climate change and its impacts on global supply chains
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