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Raw Materials Shortfalls Create Strategic Challenges

Shortages of natural resources and raw materials can make prices fluctuate substantially and even bring electronics manufacturing to a screeching halt. Proper planning is critical to staying ahead of the potential shortages.

Bindiya Vikal, CEO and founder of Resilinc, a provider of supply chain risk mapping and monitoring solutions, said:

Resilinc has been told by senior supply chain executives in high tech and automotive that they are closely monitoring natural resources and raw materials because shortages can quickly lead to extreme price fluctuations, directly leading to unplanned costs. These types of extreme price changes can have a direct impact to the bottom line.

She added that the raw materials on many people's watch list include silicone (used in wafer production); ceramics (much of which comes from China and is susceptible to regional geopolitical changes); precious metals (widely used in component manufacturing); and, surprisingly, helium (which has been on the edge of a shortage for several months and could be in periodic short supply this year).

“Raw material analysis at the commodity level is required, and most midsized companies don't have the resources to do all this work and keep a pulse on natural resource constraints,” Vikal said. “Analysis [and] early monitoring detection would help companies stay ahead of disasters.”

Some companies have already taken a proactive stand in identifying and managing possible natural resources risks and have linked them to business and supply chain sustainability initiatives.

At Johnson Controls Inc., for example, the company's biggest challenges are material acquisition, including materials containing natural resources, and minimizing risks while maximizing business opportunities within the supply chain, said Charles Harvey, the company's chief diversity officer and vice president of community affairs.

One way the company manages these challenges is by spelling out specific sustainability requirements in every supplier contract, he added. Along those lines, the company, which is a member of the CDP's Supply Chain Committee, mandates that its direct suppliers reduce their greenhouse gas emissions by one percent absolute annually.

Harvey told Velocity via email:

Johnson Controls sees less potential risk and more competitive advantage when [natural resources are] managed appropriately. Processes are also in place to verify contract compliance as well as recognize suppliers for outstanding sustainability performance that address such areas as human rights, diversity, environmental compliance, greenhouse gas emissions, water conservation, conflict minerals, and occupational health and safety.

 Additionally, Johnson Controls has an elaborate risk management program that includes senior management and addresses a wide array of risks, including those associated with natural resources, Harvey said. The program cross-focuses on operational, insurance, regulatory, shareholder, litigation, capital, competitive, and reputational risks.

OEMs also play a big role in setting natural resources-related supply chain expectations. Nokia, for instance, has long been at the forefront of phasing out “substances of concern,” improving energy efficiency, and using renewable materials and smart packaging, according to Markus Terho, head of sustainability; the company regularly introduces new, more sustainable materials such as bio plastics, bio paints, recycled metals and recycled plastics into its devices, he added.

“Global demand for material resources will increase, while resources are becoming less available. This means that we need to manage our resources more effectively, find new ways of substituting materials and recycle and recover resources,” Terho told EBN in an email interview.

How is your organization monitoring and managing potential shortages of these natural resources? Let us know in the comments.

9 comments on “Raw Materials Shortfalls Create Strategic Challenges

  1. FLYINGSCOT
    May 19, 2014

    I imagine it is only the very large companies that need to actively manage the supply of natural resources.  Smaller companies could ensure they have multiple suppliers with different sources or, even better, different materials to offset shortages.  By the way did you mean silicone or silicon for wafers?   I image it was a simple typo but maybe there is a big use for silicone that I am not aware of.

  2. Hailey Lynne McKeefry
    May 19, 2014

    I was talking to one independant distributor who told me that they monitor natural resource availability very closely–with an eye toward capturing strategic advantage. Anyone not looking at raw materials issues is likely to be caught out when a shortage arrives. And those who act quickly and in advance (by changing direction or shifting purchases for example) can get ahead of the pack.

  3. Daniel
    May 19, 2014

    “”Raw material analysis at the commodity level is required, and most midsized companies don't have the resources to do all this work and keep a pulse on natural resource constraints,” Vikal said. “Analysis [and] early monitoring detection would help companies stay ahead of disasters.””

    Jennifer, yes, availability and supply of raw materials matters with production industry. Big companies can monitor about future availability and if needed they can stock it too. But that's not the case with small and medium companies. They don't have such facility to monitor the market well in advance and resources to procure the materials well in advance.

  4. Daniel
    May 19, 2014

    “Anyone not looking at raw materials issues is likely to be caught out when a shortage arrives. And those who act quickly and in advance (by changing direction or shifting purchases for example) can get ahead of the pack.”

    Hailey, that a good strategy because availability of natural resources may not be same all the time. Some may be seasonal or sometime availability can be affected by natural calamities. So those who have a regular monitor on all such parameters can take advantage of it.

  5. ahdand
    May 20, 2014

    @Jacob: Very true. You do need to make the maximum out of what you have but should not rely on it 100% all the time. You do have to look for alternatives in case of an emergency 

  6. Daniel
    May 20, 2014

    “You do need to make the maximum out of what you have but should not rely on it 100% all the time. You do have to look for alternatives in case of an emergency “

    Nimantha, for production industry there may not be any alternative natural resources, but supply channel can be different.

  7. Taimoor Zubar
    May 23, 2014

    “I imagine it is only the very large companies that need to actively manage the supply of natural resources.  Smaller companies could ensure they have multiple suppliers with different sources or, even better, different materials to offset shortages”

    @Flyingscot: I think even if you're a large company with the muscle to stock beforehand or a small company with other options, the rationale of predicting the demand accurately is very much useful. With overstocking there's a high cost involved in the form of capital tied up and the inventory holding cost goes up greatly. With multiple suppliers, there's always an issue of ensuring consistency and that too isn't the best option. The more a company invests in accurate prediction of demand, the better the results will be.

  8. Taimoor Zubar
    May 23, 2014

    “Anyone not looking at raw materials issues is likely to be caught out when a shortage arrives. And those who act quickly and in advance (by changing direction or shifting purchases for example) can get ahead of the pack.”

    @Hailey: I think that's a very smart thing to do particularly when you're dealing with commodities where there supply can fluctuate a lot. An alert about a possible shortfall beforehand can allow the company to take measures so the impact is reduced considerably. I do agree that this can easily lead to a competitive advantage.

  9. ITempire
    May 26, 2014

    Recycling can be one way to utilize defected materials for further manufacturing and to avoid these circumstances to some extent but this is not the permanent solution. Companies need to improve their monitory policies to have a detailed look on their resources which are available or lacking and if needed arrange them before time.

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