News Roundup: Supply Chain Resilience, Labor Disputes, and the Future of AI in Sustainability

Ready to revolutionize your understanding of supply chain resilience? This week's Chain Reaction Podcast promises to unpack strategic moves and insightful reports shaping the global supply chain landscape. We'll explore IKEA's bold strategy to regionalize production closer to the Americas, mitigating risks such as Houthi attacks in the Red Sea. Dive into HSBC's comprehensive report on supply chain resilience, focusing on risk assessments and planning for unforeseen disruptions, from geopolitical tensions to natural disasters. Plus, we tackle Nick Clegg’s controversial remarks on Europe’s AI innovation landscape and Meta's concerns over EU regulatory pressures, particularly the Digital Markets Act.

We also turn our attention to labor disputes and their potential to wreak havoc on global supply chains. Discover the ripple effects of Hyundai workers’ demands for higher wages and profit-sharing in South Korea, alongside the challenges facing the aircraft industry, where giants like Boeing and Airbus struggle to meet output targets, impacting airlines such as Lufthansa. As we wrap up, get a sneak peek at upcoming episodes, including a compelling discussion with Madhu Hosagura on the intersection of artificial intelligence and sustainability at Schneider Electric. Don’t miss your chance to stay ahead of the curve; subscribe, share your thoughts, and join us for more in-depth analyses and engaging conversations!

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Transcript

Tony Hines: 0:04

Hello, tony here, you're listening to the Chain Reaction podcast. All about supply chain advantage. This is the news roundup all things impacting global supply chains this week, and you're going to catch up on them in just a moment. So stick around, stay tuned, stay informed. Chain Reaction. So stick around, stay tuned, stay informed.

Tony Hines: 0:27

Ikea wants to build resilience in its supply chains and it's regionalizing to do that. It wants to build closer to the markets, so it wants to build in the United States and nearby for markets in the Americas. So that's our first story this week and, following on from that, hsbc published a report on building resilient supply chains this week and we've got a summary of that. Critical minerals are vital to the future of the clean, lean, green transition, and there's a story on that, too, coming your way, and there's a story on there, too, coming your way. And there's also the battery fire in a factory in South Korea. So all that and more coming along in just a few moments.

Tony Hines: 1:17

Now here's an interesting story that caught my eye. It was in the Irish Times and it was written by Oliver Telling, and he was talking about IKEA wanting to boost production across the United States and the Americas, and this is all because of shipping disruptions taking place in global trade. Well, the company's been affected by the Houthi attacks on shipping in the Red Sea and because of that, obviously delays and the switch of traffic around the Cape has added time to crossings. But the strategy of IKEA has been to produce goods that it sells in the likes of the Americas in local factories, so they're not so dependent on that shipping. Interikea is the part of the company which is responsible for supplying products to IKEA franchises and to those stores around the world that have that franchise. It's already begun to move a lot of production closer to where the markets are. Historically, of course, they've been very dependent on factory production in Asia, but, like many companies, they've switched their thinking and they're beginning to make goods in Mexico for the US market. Us markets are very dependent on ocean flows from Asia and if there are disruptions, such as those faced by companies with the attacks from the Houthis in the Red Sea areas, then that's a serious issue. Many expect these attacks to continue into the future and don't see them stopping anytime soon. So, having already been battered by COVID-19 and, of course, russia's war in Ukraine, companies are looking to longer term solutions to solve the problem and to cut out those areas of risk that they can control. And companies have also brought forward their shipping plans. So, for example, moller-mersk has said that customers are already shipping goods for later in the year to avoid disruptions in supply chains. So various strategies being employed here.

Tony Hines: 3:17

Now do you remember Nick Clegg? He was a politician in the United Kingdom, he was a leader of the Liberal Democrats and he now works as Meta's head of global affairs, and he's made a statement in the past week or two saying that none of the world's top 10 startups are based in Europe in the AI sector. And he says that Meta's warned that Europe's falling behind in innovation as it backs a new round of support to help boost the development of artificial intelligence in the European Union. Well, I'm not sure how accurate he is here, because the evidence shows that there have been startups in Europe, so maybe Mr Clegg's slightly out of touch on this one. And as you've forgotten the great companies that started in the UK, such as DeepMind, well, maybe so. So it's a tenuous statement, I think. He says we're trading on past glories and none of the world's 10 startup ecosystems are in Europe, and he's critical, of course, of the bureaucratic approaches taken in Brussels. He said new rules don't create jobs, but what they do do is protect consumers, and so there has to be some balance here. This strikes me as a ploy by one of the large big tech companies to try and reduce the impact of those rules that they face from the European Union. Meta gets about 11 EU complaints over the use of personal data to train AI models. The company pours plans to use public data on its platforms to train AI models following a request from the data privacy regulators. So I think this says more about Meta's problems with the European Union than it does about the reality of AI startups in Europe, and the big tech companies are trying to push back against what they see as constraints on their activities in the European Union. Apple has also said that it's concerned about the Digital Markets Act, so it's all to do with the pressure that they're feeling from the Digital Markets Act. And isn't that what governments should be doing Putting pressure on tech companies, make them work harder, make them work smarter and make them come up with solutions that work for everybody, including consumers?

Tony Hines: 5:42

Well, there's a new report out called Building Resilient Supply Chains Amid an Uncertain Geopolitical Landscape, and that's published by HSBC In collaboration with procurement leaders, a world 50-group community. They provide a roadmap for organisations to rethink their approach to sourcing, identify vulnerabilities and reduce impacts from external shocks like geopolitical tensions and natural disasters. There are four things that companies should do, according to the report, to assess risk and implement processes to plan for uncertainty. The first thing, they say, is take a risk-based approach to sourcing analysis, rather than reviewing threats by tier, stock-keeping unit or category. Focus on those areas in which organisations are at most risk or where the biggest dangers are going to be. And, they say, take a regional or a country view of this. So it's about looking at the macro picture first. I think that's the message there.

Tony Hines: 6:43

And the second thing is analyse the consequences of supply chain disruption by estimating the likelihood of disruptions. It's difficult, they say, but exploring the likely consequences of disruption is not, so focus on what damage could be caused if disruption happens. What would actually be the impact? How long would it last happens? What would actually be the impact? How long would it last? How quickly would it happen? Do you have alternative plans in place? Are the substitute materials or products, and what are the estimated financial consequences going to be? The third thing they talk about is reviewing options to avoid disruption. What other suppliers do you have as backup? Where are they located? Do they offer exactly the same product or is it a substitute that's acceptable? How viable are they in terms of scale, technology maturity, time to market and quality, and how many backup suppliers are you likely to need? And then the fourth step, they say, is to repeat the process as necessary to avoid new and emerging risks. In other words, it's an ongoing process. So it looks like there are three things plus the ongoing process, and, of course, you can get hold of this report, if you're interested, from HSBC Bye.

Tony Hines: 8:14

Critical minerals are vital to our transition to the future. If we want clean energy and we want clean transport systems, then we need to electrify, and that means critical minerals such as graphite, lithium, cobalt, nickel will all need to be available in sufficient quantities. Now, if we take a look at graphite, that will grow exponentially in terms of demand, and the forecast currently is that we'll have a deficit of about 770,000 tonnes of graphite by 2030, and it's set to worsen by 2040. That's according to the International Energy Agency. They've tracked the growth in demand for these critical minerals and some of them will need to increase by as much as 30%, and supply chains will have to scale up in response. Graphite comprises up to 42% of the volume of an electric vehicle battery, so unless there's a change through innovation lowering the graphite content, then that's going to be the position.

Tony Hines: 9:20

With regard to the shortage of graphite, it's sourced via very long supply chains which are all controlled by China, and that's why the International Energy Authority rates graphite as a pinch point material. It's perhaps the mineral at the biggest risk, and there's an over-dependence on China. In 2030, it's estimated that 90% of the supply of battery-grade graphite will come from China, and having such a dependency on one particular country is a big risk and a threat to the transition to clean energy and, of course, to EV manufacture. And we've only got to look at the trade war that currently exists between the US and China and, of course, the European Union ramping tariffs on China for EVs. It puts a lot of geopolitical pressure on that particular market, and the graphite supply chain becomes particularly vulnerable. So one of the steps that countries need to be taking right now is to ensure the production of graphite. According to many, graphite can be produced synthetically, but it's reliant on fossil fuel and requires high energy inputs. Mined graphite is fully reliant on natural resources and that causes price uncertainty as mines become depleted. The search and opening of new resource mines take about 12 to 18 years in the EU and the US and there's no immediate solution to the problem. So there's a perfect storm brewing in the shortfall of some of these critical minerals. As we move to the future of transitioning to EV production and clean energy, biomaterials will be central to tackling this critical mineral supply issue.

Tony Hines: 11:24

This week, a lithium battery factory in Hwaseong, south Korea, tragically claimed the lives of 23 workers, most of them are Chinese nationals. The fire started as batteries exploded when they were being examined and packaged. It's one of the deadliest incidents to have taken place in a battery factory in South Korea. It's a serious cause for concern about workplace safety and the handling of these lithium batteries, which are known to pose fire risks if they're not carefully managed. It caused a massive factory fire. Several lithium batteries exploded and it was reported initially that 22 people had been killed. It said at least 22 people. The fire broke out on Monday morning at the Aracel plant in Huaxiang. It's a city about 28 miles south of the capital, seoul, and black smoke was seen to be coming out of that particular factory. Most of the bodies were badly burned in the fire and there were other injuries too. There were about 100 people working in the building when this incident occurred and it was said to house about 35,000 battery cells on the floor, where the batteries were inspected and packaged before being stored or shipped out.

Tony Hines: 12:54

The problem when these sort of incidents occurs is that the emergency services also have to be concerned for safety, not just of the crews the fire crews and emergency service crews and ambulance services and so on but for people still in the vicinity, and it makes it difficult to act quickly because there's still concern about further explosions and further damage being done. Materials in the batteries, such as nickel, are very flammable. A lithium fire can become intense if water is sprayed on it, which makes it difficult for firefighters who have to use dry sand to extinguish blaze. At this particular site it took several hours to get the fire under control, and even then things can reignite without warning due to chemical reactions. It's likely we could see more of these sorts of fires, as, of course, this type of production increases and safety is going to be a big concern for those supply chains, and certainly when they start moving batteries around. Transportation also needs to be carefully monitored and carefully planned to avoid any ignition.

Tony Hines: 14:17

Well, we hear about Western governments boasting about the sanctions they've imposed on Russia, and yet a story breaking this week was about Toblerone products still available in Russia. So luxuries are still getting through to the Russian people, to the Russian people. Mondelez, who make Toblerone, said that they plan to isolate the business in the country from its global operations. So what does that mean? Toblerone chocolate is made in Switzerland and Slovakia, and Reuters reported that they've seen documents that indicate 100 tonnes of it were sold in Russia in the first four months of the year, although these volumes are down from a year earlier, when they were just 12%. And if you don't know Toblerone, it's those triangular chocolate packed with nougat, and it does taste quite delicious. So I can understand why the Russian people want Toblerone. I guess everybody wants Toblerone. Food is not included and it doesn't fall under the multitude of sanctions that were imposed by Western governments on Russia after it invaded Ukraine in 2022. But many companies did pledge to either exit the country or sell or wall off the Russian operations. Mondelez said that it was possible. The branded products could be entering Russia through a third-party distributor, grey market importers looking to capitalise on demand for Western brands.

Tony Hines: 15:51

Amazing, isn't it, how commerce finds its way through the regulatory frameworks that governments try to impose. Nothing new is there, so supply chains still working their way around whatever regulations the government set. And of course, companies too may well want to continue those relationships, because if you've got a profitable operation that you've built up over years, you don't really want to give that up under almost any circumstances. So here we are Difficult to regulate, difficult to control, difficult to stop.

Tony Hines: 16:44

Now, one of the trends we've witnessed over the past few years, when it comes down to unionised labour's demands for increases in pay, have been the impacts of management action, which have resulted in trying to keep labour costs down, but at the same time, they've been demanding changes to work patterns, work routines, and they've also been taking action to extend working life or working schedules. And so when I say working life, I mean extending retirement ages. And of course, that hit a plant in South Korea, the Hyundai plant in South Korea, where workers have voted 90% of them to take strike action unless the company changes its tune on providing the demands for a wage increase. And also they want 30% of the annual profits distributed as bonuses. And this is a retaliatory action in some respects, because Hyundai has also said they want the working age to rise from 60 to 64. In other words, a four-year extension to retirement. And that's because, also, the pension payments that are made by employees are not sufficient for the pensions that are paid out. So there's a whole host of things wrapped up in this discussion and it'll be interesting to see how that one goes. But it's a commonality, not just in South Korea but in other countries around the globe, that when negotiations come about, it's changes to work patterns, it's extending shift arrangements, it's increasing the retirement age, the retirement age, it's a whole host of things that are packaged now in these complex negotiations that take place. And of course, that's one of the things that's likely to impact supply chains if labour disputes aren't resolved quickly. So you can have all the best plans for resilient supply chains, but if there's a labour dispute, that will hit it. So the wage claim at Hyundai is for $114 per month. That's the increase they want, and they also want 30% of the annual profits as performance-related pay.

Tony Hines: 19:19

Now the aircraft industry has been grappling for some time with difficulties achieving its target output figures. And that's both at Boeing, who've gone through a series of disruptive incidents and are under the watchful eye of the regulator in the United States, who are very concerned about what's been going on at Boeing, and are under the watchful eye of the regulator in the United States, who are very concerned about what's been going on at Boeing. And, of course, dave Calhoun, the CEO, is about to leave the company this year because of the pressure from all of the episodes that disrupted Boeing's quality and production. Airbus, too, have not achieved their outputs this year, and that's putting pressure on companies like Lufthansa. Lufthansa said this week that it could cost them up to 535 million dollars before the end of the decade if they're unable to get the planes that they actually want to carry out their operations. At any one point in time. Lufthansa's fleet of about 750 planes, 100 are out of action for maintenance issues, and this is all due both the operational side of the aircraft operator, in this case Lufthansa, and, of course, to the manufacturers. Because of a shortage of components, they can't get the parts that they actually need on time, and that's a real issue and a real problem. So that needs to get sorted out and, of course, all the disruptions since the pandemic have really caused chaos in supply chains.

Tony Hines: 20:56

Well, that's it for the News Roundup this week.

Tony Hines: 20:58

I hope you've enjoyed the episode, I hope you found out something you didn't know before you listened, and I hope you'll be back to join us for the midweek edition of the Chain Reaction Podcast when I'll be taking a look at supply chain diversification, and there are some really good episodes coming your way in the next few weeks. There's an episode where I talk to Madhu Hosagura about artificial intelligence and sustainability at Schneider Electric. So you want to stop by and pick that one up, and if you're not already a subscriber to the Chain Reaction Podcast, then subscribe and you'll be first to know what's coming your way and, of course, you'll be first to hear the episode. So I'd like you to do that. And also, if you like what we're doing, give us a like and tell us, and you can always text us and let us know what you think of the show. Well, that's it for this episode. As I said, I'm Tony Hines, I'm signing off and I'll see you in the next episode of the Chain Reaction Podcast. Bye for now, thank you.