SUPPLY CHAIN SUSTAINABILITY CAN’T WAIT ANY LONGER

Now, that picture needs to change – so what’s the best way to get supply chain sustainability back on track? In this article, you’ll find some answers from Fredrik Almhöjd, Director – Automotive and Manufacturing at Capgemini and the company’s go-to-market lead for commercial vehicles in the Nordics, and automotive sustainability specialist Sven Lierzer, Senior Manager, e-Mobility & Commercial Vehicles.

A recent Capgemini Research Institute (CRI) report on the automotive supply chain revealed that automotive sustainability has taken a back seat over the past few years, while companies struggled to mitigate short-term supply chain problems arising from the pandemic and subsequent geopolitical shocks. The figure below illustrates that this trend has continued during 2023.

These findings are not surprising. Recurrent component shortages had a significant impact on production and deliveries, and hence on revenues and costs. Some assembly plants had to shut down completely at the height of the pandemic because suppliers just couldn’t provide the necessary parts.

Given these stresses, it’s hardly surprising that securing the supply chain has been the top priority for truck OEMs and suppliers alike.

Why supply chain sustainability can’t wait any longer

Now, it’s time to turn the spotlight back onto automotive sustainability issues. As mentioned in the CRI report, one projection suggests that the automotive industry could overshoot its Paris Agreement carbon budget by as much as 75% if continues on its current course.

That situation can’t continue. It’s not just that those Paris Agreement targets need to be met – there are other pressures too. More and more, truck companies’ customers are turning their attention to sustainability while maintaining their traditional focus on TCO. CO2 emissions will increasingly affect TCO itself, as governments apply fiscal measures such as emissions taxes to tackle climate change, making electric vehicles more attractive to transportation companies. (For more about this topic, see the International Council on Clean Transportation’s paper A total cost of ownership comparison of truck decarbonization pathways in Europe). In addition, transportation companies are coming under pressure from their customers to satisfy ESG requirements.

For all these reasons, transportation service providers are adding sustainability considerations to their requests for quotations. Legislation such as the German Supply Chain Act will accelerate this type of chain reaction.

And, as we argued in an earlier blog article on truck OEMs and sustainability, an important aspect of meeting sustainability goals is to ensure that inputs to the manufacturing process, such as components, are produced and delivered as sustainably as possible.

Steps that truck companies can take now to build a sustainable supply chain

So what’s the best way to get back on track? It’s worth reading the recommendations from the new CRI report, summarized by the figure below. The suggestion in the sixth and last bubble – about sustainability and circularity – is the one that’s most obviously relevant to the present discussion.

There are several ways to implement this recommendation, beyond the obvious shift to electric vehicles. One idea is to adopt a product-as-a-service (or logistics-as-a-service) model, where the OEM owns the vehicle and the customer subscribes and pays for usage. This approach helps the OEM, working with other players in the supply chain, to optimize the truck’s first life and smooth the transition to its next one. As-a-service models are already appearing, an early example being Sweden’s Einride.

Improved use of packaging, especially reusable packaging, can cut the carbon footprint of the supply chain. One implementation of this idea is Volvo Emballage, a pool of packaging material used by over 3,000 suppliers globally.

Other recommendations from the CRI report are also relevant to the transition to sustainability and circularity. For example, building relationships of trust with suppliers (fourth bubble in the figure) improves transparency, making it easier to see where sustainability improvements are needed, as well as to satisfy customers that ESG requirements are being met. Industry initiatives such as Catena-X should further promote transparency, and so should the as-a-service models mentioned above.

The development of an intelligent, data-driven supply chain (fifth bubble in the figure) is a key step in the sustainability journey because it facilitates the elimination of waste and inefficiency. Platform solutions may be useful here – for example, the Spotos platform can reduce waste by ensuring that each truck carries cargo on its return journey, as well as on the outward one.

Special considerations for trucks

Despite transportation companies’ growing interest in ESG, sustainability can still be hard for truck OEMs to sell to customers. With low margins and high costs, truck companies are reluctant to pay extra for sustainability features – much more so than car customers.

One solution is to show that sustainability and circularity often translate into cost savings or additional revenues.

For example, many commercial vehicle customers are interested in making money from end-of-life batteries, so this is an area to investigate and publicize. It’s worth thinking about how you will use the new battery passport, to be introduced in 2027. This will hold information about how the battery has been used throughout its life, and what applications it is suitable for now (perhaps a battery that is no longer acceptable to power a BEV can be used instead for a stationary appliance). Information about resources such as energy used in making the battery will also be stored in the passport, helping to address ESG requirements.

Another sustainability measure that saves money is the improved use and reuse of packaging – and of course, these savings can be passed on to OEMs’ customers.

Truck manufacturers will find that sustainability issues shape their internal decisions in ever more complex ways. For example, the decision as to whether to go with BEVs or FCEVs will be influenced not only by emissions from vehicles on the road but also by environmental impact right along the value chain. Will a particular choice involve using a mine that produces unacceptable levels of atmospheric pollution – and how will that affect your ability to meet sustainability goals (to say nothing of the PR fallout)?

Progress so far

Already, leading truck companies are recognizing the need for urgent action. For example, Scania has plans to decarbonize its supply chain by 2030, with an emphasis on four hotspots – batteries, steel, aluminium, and cast iron – that jointly account for around 80% of carbon emissions from production materials. Daimler Truck is considering manufacturing the eActros 600 BEV truck in China for sale to the Chinese market.

In addition, some general automotive industry trends are boosting sustainability. For example, the CRI report revealed that OEMs have decreased procurement from offshore locations by 22% over the past two years, with sustainability and circularity among the motivations. With suppliers closer at hand, emissions from transportation naturally reduce, and it becomes more straightforward to partner on reuse and recycling initiatives.

Streamlining your transformation

Creating a sustainable supply chain involves significant effort for truck manufacturers, but fortunately, that effort will also advance other vital objectives – such as acquiring the resilience to deal with major disruption, and the agility to respond to rapidly changing business conditions. By creating a data-driven, intelligent, digital supply chain, companies will gain insights and transparency to support all these goals.

Contact us today to find out how Capgemini can help you build the sustainable, resilient supply chain that you need to safeguard your competitive position in an uncertain future.