The New Supply Chain Challenge: Managing Resource Scarcity

China remains the dominant supplier and producers of REE’s – 95% on rare earth oxide equivalent basis.  Other countries with production capability include India, Malaysia and Brazil.   There is however significant exploration ongoing in Australia with mining activity expected shortly.

The US did have rare earth production at Mountain Pass mine in California until 2002.   Recently reopened, owned by the Molycorp, Inc., it is expected to commence production in 2012.  This decision was prompted not only by the dominance of China in REE production, but the decision by China in 2007 to restrict exports of REE’s in order to give priority to Chinese manufacturers. There is also concern that should China remain the dominant producer, the US could become completely dependent on the Chinese for components destined for the defense supply chain.

What does this mean then for the supply chain, in general, and for the necessity to maintain a balance between supply and demand in respect of resource management?   A recent article in Supply Chain Management Review points to some answers. It is the ability of the Supply Chain manager to better appreciate the “where”, “why”, “when” and “how”.

Where – REE’s are used in every conceivable product that consumers and industry require.   In this writer’s opinion, REE’s should be considered as non-renewable resource.   REEs are unlike timber or crops that when harvested can be re-grown in a relatively short period of time.

Why – In the case of REE’s, it can be traced to the explosive demand in consumption from not only OECD countries, but India and China and a desire for more Western goods.  And the degradation built into the products we buy – and an approach to date that has not allowed for complete recyclability in products – has exacerbated the shortages.

When – At what point will resource scarcity impact the availability of products that consumers and industry require? There is already recognition that resource scarcity is impacting supply chains. Cited in the Supply Chain Management Review is the report by PwC that “69 leading manufacturing companies found that 58 percent already were being impacted by metals scarcity and 70 percent expected the impact of scarcity on their company to increase in the next five years” (Supply Chain Management, 2012)

How – What mitigation techniques will be implemented by Supply Chain Managers to manage the risks of resource scarcity in their supply chains?

A recent research project at the University of Tennessee has led to a series of recommendations that will prove useful to those in Supply Chain Management:

1)     Identify:  Scan the environment for resource scarcity risks that will move a specific resource from a state of availability to one of scarcity.

2)     Recognize:  Identify scarcity impacts on resources including where and in what quantities scarce resources appear in product supply chains.

3)     Mitigate: Create strategies that avoid the use of scarce resources in product designs while increasing the focus on recovery and reclamation.

4)     Collaborate:  Work with suppliers and customers to locate resource scarcity threats that may be multiple layers forward or backwards in a supply chain.

5)     Integrate: Design and build closed loop supply chains with partners that are based on increased levels of recovery and the wise use and allocation of scarce resources.

6)     Control: Create internal policy to mandate when and how to use scarce resources in product and service supply chains.

 7)     Promote: Educate stakeholders and advocate with industry and government for policies that control and mitigate the impact of natural resource scarcity.

The question for all of us to answer is even with all of these mitigation measures whether the time is now upon on us to challenge the ways in which industry responds to the demands of consumers in the modern world.  Scott Carpenter, Astronaut, maybe best expresses the absolute necessity to treat our plant with the utmost respect.

This planet is not terra firma. It is a delicate flower and it must be cared for. It’s lonely. It’s small. It’s isolated, and there is no resupply. And we are mistreating it. Clearly, the highest loyalty we should have is not to our own country or our own religion or our hometown or even to ourselves. It should be to, number two, the family of man, and number one, the planet at large. This is our home, and this is all we’ve got. Scott Carpenter, Mercury 7 astronaut, speech at Millersville University, Pennsylvania. 15 October 1992.

 

Richard Buchanan, BK Advisory, is an advocate of integrating sustainability at all levels within an organization in order to change the genetic makeup permanently.  He is particularly interested in the challenges of living on a finite planet and how a new global economy could be shaped.  He may be reached at richardkbuchanan@gmail.com.  His twitter id is@rk_buchanan.