Stretched Supply Chains
Source : McKinsey & Company
Risks exist along each step of the supply chain
Supply chain risks can affect procurement, manufacturing, logistics, and construction. These risks have the potential to cause serious disruption for all key energy transition technologies.
Individual risk profiles and the actions needed to minimize them vary for each step of the value chain, with particular challenges expected in raw materials, components, and labor.
Stakeholders can act to minimize supply chain risks – and seize the opportunities
Businesses and other relevant stakeholders could take a range of mitigation actions to guard against supply chain risks. These actions are not just about mitigating risk, however: building supply chain resilience can also be an opportunity and a catalyst for collaboration and partnerships, as well as a driver of innovation—for example, to replace materials and increase productivity.
Potential actions for businesses
The right next steps will vary by the type and the specifics of individual businesses, but the following resilience-boosting actions can be beneficial to businesses along the supply chain:
- Diversify and localize supply chains for critical raw materials and components across multiple suppliers and geographies.
- Explore opportunities for cross-industry pooled procurement of raw materials.
- Invest in recycling, innovation, and research around substitutes for critical materials.
- Explore opportunities for vertical integration to secure critical raw materials and decrease price volatility, either through alliances and partnerships or through targeted acquisitions.
- Optimize procurement strategies by targeting long-term supply agreements or developing streaming agreements with advance lump-sum payments for future production.
- Send clear demand signals via long-term target and volume commitments, such as by announcing target developments in offshore wind to drive the upgrade of vessels.
- Attract and retain workers from the European Union and beyond by conducting early outreach in schools and offering targeted reskilling programs.
- Reduce labor demand through automation and digitalization.
Potential actions for other stakeholders
Other stakeholders could consider the following actions:
- Scale up regional supply chains to a critical minimum; for example, use incentives (including both taxes and subsidies) or insert sustainability and local content criteria into tenders and policies.
- Encourage innovation, including around substitutes for critical and scarce raw materials.
- Harmonize regulations and streamline permitting processes.
- Introduce intra-European Union alliances to source strategic raw materials, including rare-earth materials.
- Increase OEM recycling of raw materials such as aluminum, lithium, and cobalt by creating financial incentives and setting standards regarding higher levels of reuse.
- Communicate and commit on growth plans to build the confidence that will allow businesses to make proactive investments.
- Invest in labor programs for blue-collar energy transition jobs focused on metallurgy and RES manufacturing capabilities. Programs could include skilling and reskilling while also facilitating international and cross-sector utilization.
- Attract and retain workers from the European Union and beyond—for example, by facilitating migration, activating passive workforce segments, and ensuring a predictable and steady project pipeline.