Challenges and Recommendations for Sustainable Supply Chain in Automobile Industry

This article discusses the challenges faced by automobile companies in achieving a sustainable and stable supply chain, including excessive inventory, risk of loss of materials, sales returns, volatility of demands, government policies, logistics challenges, and ethical issues. It also provides recommendations for companies to develop a stable and sustainable supply chain, such as promoting electrical vehicles and implementing strict procurement policies.

SUPPLY CHAIN OF MINERALS
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Table of Contents
Introduction:................................................................................................................................2
Challenges to achieve sustainable and stable supply chain:........................................................3
Excessive inventory:....................................................................................................................3
Risk of loss of materials:.............................................................................................................4
Sales returns and consequent losses:...........................................................................................5
Volatility of demands for electrical automobiles:.......................................................................6
Government policies:...................................................................................................................6
Logistics challenges:....................................................................................................................7
Ethical issues:..............................................................................................................................8
Recommendations to companies to develop a stable and sustainable supply chain:.......................8
Promotion of electrical vehicles:.................................................................................................9
Strict procurement policies:.......................................................................................................10
Conclusion:....................................................................................................................................11
References:....................................................................................................................................13

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Introduction:
‘Going green’ or embracing sustainability is one the major challenges which the global
automobile companies are facing today. The governments of various countries like Australia and
France have laid down stringent environmental laws to control the pollution caused by the
automobile industry both at the manufacturing and consumption stages. The customers today are
also preferring automobiles which cause less pollution. The increasing awareness in the society
about the large scale pollution which the effluents automobiles give out cause and the damaging
effects which the pollutants have on the human health have led to the society in general
increasing support shift towards The automobile companies in order to adapt to this political,
societal and customer pressures are shifting towards sustainability (Zailani et al. 2015). These
companies are channelizing their technological capital, human capital and knowledge capital
towards manufacturing vehicles using sustainable fuel like electricity which causes less pollution
compared to coal and petrol. The electrical vehicles or EVs today use batteries which contain the
electrical fuel which is harnessed when the car is driven. However, this embracing sustainability
has its own challenges. The article titled ‘Going Green is not that easy for electric vehicles’
which was published in the Financial Times on December 7, 2018 shows that ‘going green’
poses several challenges to the supply chains of the automobile companies (Dizard 2018). These
challenges stem due to external factors like political decisions and shortage of raw materials.
They have emerged as strong impediments to the sustainability in the supply chains in the
automobile industry often challenging the very stability of the chains. The aim of the report is to
explore the challenges which supply chains of the automobile companies encounter in order to
embrace sustainability (Hsu, Tan and Mohamad Zailani 2016). The analysis of the challenges
would pave to the recommending measures which the automobile companies can take to mitigate

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or at least reduce the challenges they face while embracing sustainability and make their supply
chains more stable.
Challenges to achieve sustainable and stable supply chain:
The following are the challenges which automobile companies around the globe have to
encounter to embrace sustainability:
1. Excessive inventory:
The automobile companies have to face the issue or challenge of excessive inventory
while operating in the market. The automobile companies today in order to embrace
sustainability have to manufacture or acquire batteries which can hold electrical which in turn
can be harnessed by the cars while plying on the roads. However, it can be pointed out that the
major automobile companies are based in Europe, Asia and North America (Chinadaily.com.cn.
2018). The main sources of minerals like cobalt are located in African countries like Congo. This
means that there are huge time gaps between placement of orders for raw materials of batteries in
the automobile companies and the actual delivery of automobiles. The automobile companies in
order to continue their production during this time lag and ensure steady mobilisation of raw
materials towards the production of electrical vehicles have to stock huge inventory of batteries.
Similarly, the companies manufacturing the batteries have to stock immense quantities of raw
materials which go into manufacturing of the batteries like cobalt and nickel, of of which are
very expensive. Moreover, these firms manufacturing batteries which are moistly located in
developed markets like Europe and emerging markets like Asia. The main countries producing
these metals are situated in Africa which means that battery manufacturing firms located in Asia
and Europe have to bear immense cost to import these materials from Africa (Kay 2018). This
analysis shows that the firms manufacturing batteries as well as the firms using these batteries in

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manufacturing electrical cars have to stock huge inventory. This immense inventory of raw
materials (metals to make batteries) and work-in-progress (batteries to be used in EVs) lock an
immense proportion of current assets of the battery manufacturers and car manufacturers
respectively (Mukherjee 2018). Thus, it can be pointed out that manufacturing of EVs require the
companies to maintain excessive inventory.
Figure 1. Value chain of electric car batteries
(Source: Bcg.com. 2019)
2. Risk of loss of materials:
The car companies often suffer of hue risks of loss of car batteries which escalates their
operating costs. This because companies manufacturing automobiles have to acquire immense
stock of car batteries. Spoilage of batteries due to exposure to moisture, damages to batteries
during transit and lack of proper warehousing results in damage to the batteries. Thus, it can be
pointed out that the automobile companies have to face immense risks in order to hold huge
stock of batteries. This is because damage to batteries also result in losses of the entire capital the

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companies have invested to acquire the batteries (Pulakkat 2018). This non-recovery of a portion
of the capital invested to acquire batteries result in immense amount of financial losses to the
automobile companies. The companies manufacturing batteries on the other hand have to invest
immense capital to acquire and hold the inventory of metals which are used in the manufacture
of the batteries. It can again be pointed out in this respect that loss of quality of the metals due to
environmental factors like moisture also result in huge losses to the companies manufacturing
batteries. Thus, it can be pointed out that in order to embrace sustainability the automobile
companeis have to bear huge expenses due to losses and damage to their inventory of
batteries(companies making EVs) and raw materials to batteries(companies making batteries).
3. Sales returns and consequent losses:
The third challenge which sustainable supply chains of automobile companies face are
sales return and its consequent losses. It can be pointed out that the logistics plays in transporting
of batteries from the firms manufacturing batteries to the automobile firms using the batteries to
manufacture vehicles using sustainable sources of fuel like electricity. It can be pointed out in
this respect that companies manufacturing these sustainable vehicles often have to experience
sales returns from customers due to faulty batteries (Blomgren 2017). These firms manufacturing
EVs often have to encounter face cancellation of orders for EVs on the grounds of low battery
qualities. This means that the firms manufacturing sustainable automobiles like EVs have to bear
hug losses due to sales returns of batteries from customers. Similarly, the firms belong to the
supply chain of these automobile companies have to immense losses owing to sales returns of
batteries from the firms manufacturing autombiles. This it can be inferred from the discussion
that firm manufacturing electrical automobiles as well as firms manufacturing batteries have to
incur high costs due to sales returns (Schmuch et al. 2014).

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4. Volatility of demands for electrical automobiles:
The second challenge which maintaining supply chains face while embracing
sustainability is volatility of demands for electrical automobiles. It can be pointed out that
demands for electrical automobiles in the global market has experiencing rapid growth.
However, it can be pointed out that manufacturing of electrical and sustainable vehicles require
the companies to invest immense capital towards manufacturing these vehicles. It can also be
pointed out that the demand for the electrical vehicles are still very low compared to their petrol
and diesel driven counterparts. This means that the automobile manufacturing sustainable
electricity driven vehicles faces huge challenges (Casals et al. 2017). This is because these
companies investing in EVs face immense revenue losses. Thus it can be pointed out that though
manufacturing of electrical vehicles create immense opportunities in the automobile industries to
face sustainability, it can be pointed out that volatility of demands and consequent revenue losses
are serious challenges which the automobile companies face (Wang et al. 2016).
5. Government policies:
The third factor which challenges the adoption of sustainable practices in the automobile
companies are the government policies. The first challenge which the automobile companies
have to face immense challenges to comply with the environmental laws. It can be pointed out
that governments of almost all the countries like Australia, the United Kingdom, China and the
United States have laid down complex and strict environmental policies. The automobile
companies have to pay immense amount of taxes to hold assets like plants to operate in these
countries. The companies have to bear huge expenses to import batteries from foreign countries.
They have to comply with the laws like customs laws. Moreover, the countries in Africa like
Congo producing metals which are used in batteries impose immense loyalty charges to earn

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revenue. The companies in order to produce batteries are compelled to bear these high royalty
charges as high as 10 percent which eventually escalate their inventory acquisition costs
(Reuters.com. 2018). Moreover, the changes in laws and international relationships between the
countries have severe impacts on the businesses of these battery manufacturing plants. For
example, political disturbances in the African countries results in disruption in the supply chain
of the materials to make batteries and consequently in the supply chain of the automobile plants
which acquire batteries from the former. Thus, it is evident that government policies pose serious
threats to the sustainability and stability of the automobile supply chains.
6. Logistics challenges:
It can be pointed out that one of the biggest challenges which supply chain of automobile
companies face towards attainment of sustainability and stability are logistics challenges. It has
already been pointed out in the articles that the leading companies manufacturing electrical
automobile models are located in Europe, North America and Asia. It has also been pointed out
that African countries like Congo are main producers of the minerals which are used to
manufacture the car batteries used in the electrical vehicles. Thus, it can be pointed out in this
respect that battery manufacturing companies which operate as the ancillary units to the
automobile companies have to bear immense costs to acquire these materials from Africa. It can
also be pointed out that the firms manufacturing batteries have to bear immense logistics costs to
acquire the materials from Africa (Pwc.com. 2019). This immense acquisition costs add to the
costs of production of the battery manufacturing firms. Thus, the automobile manufacturing
firms have to bear immense costs to acquire the batteries from these ancillary companies. It can
also be pointed out that transportation of raw materials from markets like Africa to the battery
manufacturing units and transportation of manufactured batteries to the manufacturing plants of

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the automobile companies result in immense environmental pollution. Thus, it can be pointed out
that logistics is a serious challenge towards sustainability and stability of the supply chains of the
automobile companies (Bhutto et al. 2016).
7. Ethical issues:
Ethical and legal issues are significant issues the sustainability and stability of the supply
chains of the automobile companies face. It can be pointed out that mining companies in Africa
which supply materials to the battery making companies often use unethical means like using of
forced labour and child labour to achieve higher productivity (LeBaron 2016). The mining
companies operating in the African market often make their workers work under hostile
conditions to achieve higher productivity. Moreover, the illegal miners often enter abandoned
mines to get access to minerals at cheaper costs (Dol.gov. 2019). The mining sites in Africa are
under threats by crime groups and terrorist groups. These groups extort the mining companies to
earn large amount of money. These illegal issues which affect the mining works in Africa have
serious ethical implications on the entire supply chain of sustainable batteries as a whole. Thus, it
can be inferred that though the manufacture of electrical vehicles running on batteries hold
immense promise in the automobile companies, the ethical and legal issues are serious
challenges before the industry (LeBaron, et al. 2018).
Recommendations to companies to develop a stable and sustainable supply chain:
The above discussion bring into light several issues which the supply chains of the
automobile companies face in order to attain sustainability and stability. The first issue which
can be pointed out is excessive inventory. The second which infest the supply chain of the
automobile company is risk of loss of materials while the third challenge is high amount of sales
returns and consequent losses. The fourth issue which the automobile companies are facing is

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volatility of demands while fifth issue is government policies. The sixth issue is logistics
challenges while the seventh major issue is ethical and legal issues. An in depth analysis of the
issues brings into the light certain negative impacts wh
ich the supply chains of the automobile companies are facing. They are revenue generation,
liquidity issues and challenges of earning negative ROIs. It can also be pointed out that these
challenges stem due to external factors like governments over which the automobile companies
have no control. Thus, it can be pointed out that the automobile companies have to take serious
steps to counteract or at least minimise the negative effects which they are facing in embracing
sustainability and stability simultaneously due to the aforementioned challenges:
Promotion of electrical vehicles:
The automobile manufacturing companies should promote electrical vehicles in the
global market. The leading automobile companeis like Honda and Ford should use their
marketing channels to promote EVs. For example, they can promote the use of EVs on their
official websites, in newspapers, in magazines and on the social media websites. The approach of
promotion should be based on sustainability and not only profits, These companies should aim to
create awareness in the global market the benefits which electrical vehicles can usher in terms of
reduction of pollution and benefit of social health. They can promote the damage which cars
running on petrol do to the environments and health of the people living in the society. This
aggressive promotion of electrical vehicles would create awareness among the consumers about
the necessity and benefits of using EVs. This promotion of the EVs in the market and consequent
arousal of awareness would enable the automobile companies generate huge sale volume of EVs
in the global market. This boosting of sales would lead to mobilisation of large amount of
inventory towards manufacturing of finished products which would enable the firms to hold less

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amount of inventory, thus managing the first issue. Continuous mobilisation of raw materials
towards manufacturing would reduce chances of losing inventory due to deterioration due to
prolonged storage, thus enabling to deal with the second issue. This would attribute the
automobile companies with high revenue generation, thus rendering them a larger base of money
to diversify the losses they incur due to high logistics and acquisition costs of the batteries in
order to obtain the same from battery manufacturers. This would reduce the chances of sales
return, thus reducing the incidence of the third issue. The EVs manufacturing companies as a
result would be able to give higher returns to the firms supplying them with the batteries. This
would enable the companies manufacturing batteries the financial power to acquire more
suppliers not only within Africa but the other mineral resource rich markets like Asia and
Australia. Thus, they would become less dependent on Africa and consequently would be
required to pay less amount of revenue as royalties to the African nations. This would reduce
their expenditure and enable these battery manufacturing companies acquire raw materials from
different markets at economies of scale. This would enable them to lower their costs of
production and supply batteries to the automobile manufacturing companies at lower rates. This
would lower the costs production of the automobile companies. Thus, it is evident that promoting
of EVs in the global market and generating high revenue would enable the automobile
companies give higher returns to their suppliers of batteries. The firms supplying batteries would
consequently gain the financial power to expand their respective supply chains, thus increasing
their scopes of gaining economies of scale. This would enable the suppliers depend less on
African suppliers and lower their costs of production. Thus, it is evident that promotion of EVs
would attribute the EVs manufacturing companies as well as their suppliers of batteries the
financial strength to expand their supply chains respectively. Thus, it can be pointed out that

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promotion can pave ways for both the electrical manufacturing companies as well to gain
sustainability and stability.
Strict procurement policies:
The companies involved in the production of electrical cars should restructure their
procurement policies making them extremely strict. The companies manufacturing electrical
vehicles should mention very clearly in the procurement contracts they enter with suppliers of
batteries that use of any illegal means of production like use of child labour and forced labour
would lead to legal actions against them. Similarly, the companies manufacturing batteries
should direct the suppliers concentrated in Africa that any illegal activity would result in
termination of contract between the two parties, thus causing losses to the African mineral
suppliers. These legal stipulations would contribute to a great, if not totally towards curtailing of
illegal activities, thus managing the seventh issue. This would lead to legal sustainability in the
supply chain. It can also be pointed out that lowering amount of illegal activities like use of
forced labour would lower the impacts of the illegal groups involved in supply chains of
minerals. This would result in attributing the global supply chains with higher rates of stability
and sustainability. The supply chain management strategies would would also include the
logistics management. The company should enter into contracts with specific logistics, thus
enabling it to deal with the sixth issue. This is because by entering into contracts with specific
logistics companies, the company would be able to manage them more closely, thus reducing its
logistics expenses.
Conclusion:
It can be concluded that sustainability and stability of supply chains are complex
challenges faced by the automobile companies all round the world. These two issues are so

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complex that automobile manufacturing alone cannot deal with these issues effectively. The
discussion shows that the supply chains supplying parts of electrical vehicles are so complex,
that issues in one part of the supply chain affects all the parties both upstream and downstream. It
can also be pointed out that one company or one single battery supplier is too weak to counteract
these issues. This means that they require to integrate their efforts to counteract issues like use of
illegal labour. Moreover, it is clear that issues like increasing royalties of African nations cannot
be dealt with in a straight forward way. This means that companies involved in the supply chain
both upstream and downstream should make strategies to counteract these threats in indirect
ways. The companies should gain participation of the stakeholders like customers and suppliers
to form strategies to counteract these threats. Finally, it can also be pointed that governments of
the resident countries of automobile companies should take steps to ensure their access to
resources of other countries using diplomatic power which would enable reducing the fifth issue
recognised above..

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