Koray Köse is the chief industry officer of Everstream Analytics.
Given the current geopolitical and regulatory environment, energy security and transformation are becoming critical challenges for supply chain leaders. Delaying energy transformation initiatives decreases organizations’ ability to continue operations in volatile times. Supply chain leaders who fail to recognize and act accordingly will ultimately disrupt their ability to manufacture, move products and generate revenue, and will lose global competitiveness.
Inhibiting And Accelerating Energy Transformation Factors
Climate-related matters have become heavily partisan over the years, creating divisions in governments that make cohesive policy formation challenging—and in light of inflation and market instability, businesses might be reluctant to invest heavily in sustainable energy and technology. The current state of innovation and technology has not proven to offer a strategic and significantly effective and cost-efficient alternative. Trade-off calculations often lack the required investment transparency and fail to recognize the insufficient infrastructure for renewable energy deployment. Gaps exist, including unified grid structures, complicated requirement assessments, long infrastructure build-up periods, renewable recycling burdens and the lack of sufficiently advanced technology.
In 2019, the U.S. Department of Energy estimated that less than 5% of lithium-ion batteries, which power electrical vehicles, are recycled—the rest end up in waste. This challenge is augmented by the wide array of battery chemistries and intricate constructions that pose challenges for the development of efficient recycling systems and complicate disassembly. Consequently, a significant economic hurdle persists. An ethical factor persists as well: modern-day slavery. Raw materials needed for energy transformation come from only a few sources globally, among which are autocratic countries that accept forced labor. Cobalt, mica and polysilicon are just a few materials that we know are produced with labor exploitation.
Yet, despite these inhibitors, the signs point to a renewable-first future that’s closer than we think. Notably, the Russia-Ukraine war and other geopolitical events have significantly impacted the access to and costs of energy.
In many cases, governments started energy derisking projects and even offer financial incentives for some renewable energy projects, such as the United States’ Inflation Reduction Act. These, however, are typically tax- or debt-funded, can mislead in length and impact, and can cause inflationary impact. Additionally, third-party organizations in the United States and the European Union are increasingly advocating for climate disclosures for the corporate world to drive energy transformation.
Given these developments, I predict that by 2030, alternative and renewable energy sources will be among the leading form of energy creation and consumption in leading non-BRICS economies. By 2035, my prediction is that the primary consumers of nonrenewable fuels will be developing countries; leading economies will have drastically reduced their usage of nonrenewable fuels, excluding nuclear, by then. What’s more, the 2030s is the decade I expect to see breakthroughs in energy storage revolutionizing grid integration and even a renaissance of nuclear energy development as a bridge.
Impacts Of The Current Energy Transformation Landscape On Supply Chains
As economies in developed nations shift to renewables, transition challenges will disrupt supply chains’ ability to continue to operate as-is and will cause ripples in sourcing, production, pricing and distribution. Additionally, as legal and regulatory requirements increase, businesses will have to pay closer attention to the risk profiles of their n-tier suppliers and be prepared to drop and replace those that aren’t in line or performing to the new expectations. They must also be prepared to remove themselves from markets that do not meet legal and regulatory requirements, that do not have ethical labor practices or that diminish their competitiveness.
Supply chain leaders should not stall on preparing for the future—nobody is waiting for them. Time, resources and manufacturing capacities are limited, and CEOs are increasingly under pressure to take charge. The time is now. It will give them an early-mover advantage that could soon disappear.
Critical Steps For Supply Chain Leaders
Supply chain leaders face challenges including resistance to change from internal stakeholders, abysmal supply chain visibility, a lack of long-term strategic planning, financial constraints and complex permitting processes. Supply chains simply cannot shift overnight into alternative and more sustainable energy practices—the process is gradual.
There are five strategic steps supply chain leaders should take to successfully implement hybrid approaches.
First, augment risk management and implement emerging technologies such as graph technology and advanced AI and machine learning to create supply chain visibility. Visibility enables organizations to monitor the value creation holistically. By staying on top of risk management holistically, including evolving energy disruptions and policies, leaders can take necessary action to manage volatility and fragility, pinpoint strategic opportunities and create the organization of the day after tomorrow.
Second, supply chain leaders should invest in process effectiveness and efficiencies that enable them to become more energy efficient while enhancing their revenue growth potential. Tackling overprocessing and overengineering are parts of balancing what I call the overactivity-underproductivity equation. Technology powered processes that automate the gathering and analysis of data will prove increasingly useful in the innovation and orchestration of the value creation ecosystem with real-time, actionable insights based on sophisticated simplicity. Sophisticated simplicity is the approach I developed and published while at Gartner and is defined as the approach to analyze complex data and scenarios with a few, simple and holistic indicators providing sufficiently accurate insights to make timely, high-quality decisions in fluid situations.
The third step is embracing a hybrid approach to energy transformation initiatives. Quitting traditional energy sources cold turkey is not a feasible approach to an energy transition. Organizations still need to—literally—fuel their businesses as they undergo transformation. Ideally, businesses should incrementally blend renewable energy sources into their usage mix.
Hand-in-hand with a hybrid approach is energy diversification as step four. Resilient supply chains that survive will have backup plans to continue operations when external disruptions occur. Supply chain leaders should pursue energy diversification measures, such as investing in infrastructure for renewable energy. Aand at the same time, they should have alternative sources concurrent, so that they don’t rely solely on one energy source for any critical area. This is where bridge technologies like nuclear energy, carbon capture systems, hydrogen, biofuels and energy storage play a pivotal role.
Finally, supply chain leaders should consistently conduct thorough risk assessments to uncover potential vulnerabilities and risky dependencies, and also develop corresponding contingency plans based on backcasting and trendspotting. Vulnerabilities can quickly materialize in uncertain and fast-moving environments. Organizations need to match external velocity and if stakeholders delay catching and acting on distress signals, they can impair their businesses.
As they take these steps, supply chain leaders should keep in mind that the hybrid energy transition period is just that—a transition period. Its purpose is to prepare global supply chains for the future. The supply chain leaders who will drive their organizations to the top are the ones who are currently thinking about not just what will come tomorrow but what will come the day after tomorrow and act on actionable insights, not gut feelings.
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