Jan Burian
Jan Burian (Associate Vice President, Manufacturing Insights, IDC EMEA)

Heavy machinery, automotive, and machine building typically have complex bills of material, multi-tier supply chain networks, and depend on carbon-intensive materials such as steel, aluminum, and plastics. To meet sustainability goals, these engineering-oriented value chains (EOVC) must undergo a transformative shift.

Manufacturing organizations stand at the forefront of decarbonization efforts worldwide. In 2022, IDC’s Industry Intelligence Survey found that customer requirements drove investments in sustainability as a strategic business priority for 45% of U.S. and 39% of European manufacturing respondents. For 40% of U.S and European respondents, regulatory requirements were the leading sustainability investment driver.

Decarbonizing the entire value chain — with a particular focus on Scope 3 emissions — is central to the evolution of EOVCs. Scope 3 emissions represent a significant share of a company’s overall carbon footprint, extending beyond direct operational activities (Scope 1) and indirect energy consumption (Scope 2). Scope 3 emissions encompass indirect emissions generated across the value chain, including the production of materials like steel, plastics, aluminum, batteries, and glass.

Understanding the dynamics of affordable (and available) clean and renewable energy is crucial to developing an emissions-free supply chain. Europe, however, faces significant challenges in deploying the low-carbon energy resources crucial to decarbonizing supply chains in general.

Many challenges related to value chain decarbonization are addressed at the C-suite level. However, the roles that must implement these strategies include material engineers, procurement department leaders, quality managers, and supplier management leaders.

As material and production technology evolves, new components are developed, and new regulations emerge, those in supplier network management-related positions must have detailed knowledge about the impact of component materials on carbon footprints. We are not talking about emissions related solely to logistics, but about the carbon footprint of the production process itself.

Products like steel, aluminum, electric batteries, and plastics are often referred to as “hotspots” — that is, making them produces major emissions of CO2 and other greenhouse gases and is a leading contributor to the auto industry’s emissions footprint.

According to a McKinsey & Company study, typical upstream EV emissions include the battery (40%–60%), steel (15%–20%), aluminum (10%–20%), and plastics (around 10%). Upstream internal combustion engine (ICE) vehicle emissions include steel (25%–35%), aluminum (20%–30%), and plastics (15%–20%).

Let’s briefly examine the carbon-emitting hotspots in EOVC supply chains.

Batteries

The rise of EVs has highlighted the environmental impact of battery production. Manufacturing lithium-ion batteries involves resource-intensive processes that contribute to Scope 3 emissions. EV batteries contain nickel, manganese, cobalt, lithium, and graphite, which emit substantial amounts of GHGs during their mining and refining processes.

Some processes in the production of anode and cathode active materials require high, energy-intensive temperatures. Other factors that determine the amount of embedded production carbon include battery chemistry, the production technology, the raw material suppliers, and transportation routes.

Oliver Zipse, chairman of the Board of Management of BMW, said in a statement that the company’s competence center near Munich is laying the technological foundations for the efficient and resource-saving production of battery cells along the entire value chain. The statement said sample production of sixth-generation round cells has already begun. These cells are characterized by an up to 20% higher energy density, and BMW has been able to reduce the CO2 footprint in cell production by up to 60%, according to the statement.

  • Worth Watching: On November 21, 2023, Swedish company Northvolt announced a state-of-the-art sodium-ion battery developed to expand cost-efficient and sustainable energy storage systems. The cell has been validated for an energy density of 160+ watt-hours per kilogram at the company’s R&D and industrialization campus in Västerås, Sweden. This energy density is close to that of the type of lithium batteries typically used in energy storage. Lithium batteries used in electric cars have an energy density of up to 250–300 watt-hours per kilogram.  Northvolt says the technology can minimize dependence on China for the green transition. Battery designers and engineers, as well as supply chain managers, are advised to keep an eye on the company’s efforts to scale the technology for industrial use.

Steel

Traditional methods of steel production cause high emissions due to the use of fossil fuels in the smelting process. Decarbonization efforts involve adopting innovative technologies like hydrogen-based steelmaking and electric arc furnaces powered by renewable energy. Transitioning to sustainable steel production is vital to mitigating the impact of Scope 3 emissions and reducing the automotive industry’s overall carbon footprint.

Plastics

Plastics, widely used in automotive components, pose an environmental and sustainability challenge. The production of plastics, particularly from petrochemical sources, contributes significantly to carbon emissions. Addressing this hotspot involves embracing circular economy principles, recycling plastics, and developing bio-based alternatives. Recycling initiatives and reducing dependence on fossil fuels for plastic production will enable the automotive industry to make substantial strides in Scope 3 emissions reduction.

Aluminum

Aluminum, valued for its lightweight properties crucial to fuel efficiency, is a key material in automotive manufacturing. Traditional aluminum production is energy-intensive and contributes to significant carbon emissions. The adoption of recycled aluminum, coupled with advancements in low-carbon primary aluminum production, is essential to mitigate environmental impacts. Innovations in aluminum production processes (e.g., smelting using renewable energy sources) offer promising avenues for reducing Scope 3 emissions.

Conclusion

Collaboration across the entire value chain — from raw material suppliers to manufacturers and consumers — is critical to drive meaningful change and accelerate the transition toward a low-carbon EOVC sector.

Establishing a transparent and trusted carbon-free environment requires an understanding of the entire Scope 3 upstream supplier footprint. Understanding the Scope 2 emissions of each supplier is also essential. Acquiring this level of transparency requires tools and data platforms that offer access to trusted information provided by suppliers and suppliers’ suppliers, as well as tools that monitor OEM compliance with regulatory obligations.

The future of decarbonization of the entire manufacturing supply chain is, of course, inevitably enabled by ubiquitous data. Sustainable zero-carbon efforts span not only the visible chain of tier suppliers but also primary and secondary raw material processing plants and green energy providers.

Automotive, machinery, and heavy machinery OEMs may share suppliers; hence, an OEM can benefit from the sustainability-related transparency of the supplier network established by another OEM.

Utilizing a secure, scalable, and transparent digital data collection platform is an absolute must to successfully achieve the net-zero supply chain transition. I was pleasantly surprised to find that 70% of global manufacturing respondents to IDC’s 2022 Industry Intelligence Survey were already using cloud infrastructure to support sustainability metrics.

My Recommendation: Go beyond the obvious. In addition to Scope 3, focus on Scope 1 and Scope 2 of each entity in your supply chain. Turn suppliers into ecosystem stakeholders. Provide them with knowledge, help develop their workforce, and offer digital technology support!

 

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