Automotive supply chain sustainability stalls amid uncertainty

08 September 2023 Consultancy.uk 3 min. read

The sustainability of supply chains in the automotive sector has stalled over the last three years, according to a new study. Suppliers are demanding more capital for inventory monitoring mechanisms and material management, leading environmental matters to take a back seat.

Since the pandemic, global supply chains have encountered a historic period of disruption. In response, a growing number of firms are switching suppliers for key services and materials from offshore locations, to help ensure easy access in the future.

A new study from Capgemini Research Institute says that procurement from offshoring locations dropped by 22% in the last two years and is expected to drop a further 19% over the next two years. Thanks to this, automotive organisations now feel more confident to tackle future supply chain disruptions – but the extensive shift has come at a cost. To achieve this near-shoring, automakers have been forced to rethink, restructure, and refinance their supply chain management, something which has taken up large amounts of time and money.

Automotive supply chain sustainability stalls amid uncertainty

This has seen the adoption of sustainable strategies in supply chains placed on hold in many firms. Even as scrutiny on Scope 3 emissions – relating to supply chain pollution – grows, only 66% of automotive firms told Capgemini they had a comprehensive sustainability strategy for their procurement function.

In 2020, that figure was 62%, while in 2022 it was 65% - demonstrating an alarming plateau in ESG efforts in the sector. At the same time, some aspects of the drive to net zero seem to be rolling backwards in the automotive supply chain. The number of firms supplying product information on origins and composition has fallen from 69% to 58% in the last year. Meanwhile, another 11-point decline saw just 59% of firms now mapping the carbon footprint of raw materials, energy, logistics and delivery in their supply chain.

Looking ahead, it is also unclear how quickly the sector’s sustainability drive will get back on track. Capgemini found that just 37% of respondents believed issues such as carbon footprint management and environmental risk influenced their supply chain decision-making – and investment across the industry reflects this trend. Original equipment manufacturers (OEMs) saw their total investment in supply chain sustainability hit the same levels as last year, while suppliers’ annual investment significantly reduced by 17%.

Automotive supply chain sustainability stalls amid uncertainty

In contrast, both OEMs and suppliers seem to have firmly set their priorities elsewhere. As the sector continues to target gains in short-term crisis-management and resilience, 60% of suppliers said their top goal was to build more monitoring solutions to understand risks and constraints, meanwhile 48% of OEMs said they were adopting purchasing strategies involving open markets and new suppliers.

They also seem to be favouring three new modes of crisis-management which will require significant injections of working capital to see through. These are mandating and monitoring inventory among suppliers; dedicating working capital to ensure better supply management; and building more inventories for critical components. That OEMs and suppliers are already looking for investment on these new fronts suggests they are unlikely to return sustainability to their top priorities any time soon.

Global Head of Automotive Industry at Capgemini, Alexandre Audoin, commented, “Over the past few years, organisations have been forced to restructure and refinance supply chain management on the fly in order to navigate multiple disruptions from all fronts. While in a more positive place today, automakers need to look at delivering a long-term, intelligent, and data-driven strategy that will build resilience and competitive advantage. More so, this needs to incorporate circularity as an essential component, not only to help organisations navigate regulatory changes, but to embed new players in the supply chain ecosystem and also achieve ambitious climate-targets.”