A Little Over the Horizon
Gartner for Supply Chain
Gartner delivers actionable, objective insight to CSCOs, supply chain leaders and their teams.
This is part of?our Newsletter Series. To get expert guidance on supply chain practices?and their impact on the broader political, social and economic landscape, hit the subscribe button here.
By Wade McDaniel , Distinguished VP Advisor
It’s easy to slip into a dystopian mindset about the future, with AI potentially running amok, climate change destroying the earth and nationalism increasing the risks of just about everything. But if we reflect on the past few years, we can see the massive positive response to what could have been a very dystopian outcome: COVID-19.
This gives me hope and leads me to see the world through a half-full glass rather than a half-empty one.
Looking over the horizon to 2030, chief supply chain officers will need to monitor emerging issues and adapt their supply chains accordingly. This is nothing new, but what could be new is the way we respond. It won’t seem as drastic, as we’ve become accustomed to responding to frequent upheavals and altering course. Once again, we need to begin adjusting course with a few things to bear in mind.
Regulation and Litigation
This category has a wide variety to choose from, but we’ll peek at Per- and Polyfluoroalkyl Substances (PFAS), otherwise known as “forever chemicals.” There are nearly 15,000 variants of these useful synthetic chemicals. Dupont developed them in the 1940s, and since then, their use has proliferated into a wide range of products, including fire suppressants, cookware, carpets, cosmetics and semiconductors.
However, industry documents released through litigation show that makers knew of adverse health effects in the early 1960s. The problem is that PFAS are extremely widespread and literally in all of us. They are unavoidable.
A lawyer told a U.S. plastics industry conference earlier this year that litigation over PFAS could potentially dwarf anything related to the size of asbestos payouts.
For example, 3M agreed to compensate U.S. water utilities for cleanup by paying at least $10 billion. 3M has also said it will phase out its PFAS chemicals by the end of next year.
Regulation will reduce the use of PFAS, but the litigation risks are so high that many companies might follow 3M's lead and stop making them, leaving supply chains in a real jam. As of now, many of these chemicals have no suitable replacement.
It’s time to take an inventory of these chemicals in your upstream supply chain.
Into the Night
We’ve been reading about or experiencing massive heatwaves in Northern India, with temperatures surging into the mid-40s Celsius. However, there is a more significant issue: overnight temperatures of about 33 degrees Celsius. This stresses workers who need to work outside during the day when the risk of physical harm is the greatest. It also limits the ability to cool down overnight.
These conditions are leading to water shortages, power shortages and economic strain. The economic strain is both shortage and boom. Air conditioner sales have increased by 40% to 50%, and the economy is shifting into the potentially cooler hill towns for those who can afford it. These activities lead to an adjustment in the supply chain and energy consumption.
If we pull on this thread a bit more, we’ll find that daytime and overnight temperatures are reaching record levels in many parts of the world. Companies will need to plan for a shift in energy consumption, changing working hours and the infrastructure and logistics support needed to keep supply chains moving.
This infrastructure could take many forms, including nighttime child support, transportation to and from work and potentially employee energy subsidies to offset daytime costs while at home.
My Gartner colleagues Sabu Mathai and Casey Logan have investigated this topic more deeply, and this appears to be just the beginning of the story.
Cheaper and More?
I bet your first thought is “More of what?” How about garden-variety semiconductors from China?
Governments have joined forces to limit the manufacturing technology exported to China. This has set the development cycle of the most advanced semiconductors back many years. However, the restrictions don’t apply to lower-technology (28 nanometers and larger) chips that power appliances, cars, TVs and weapons.
Governments have been pouring in subsidy money to increase manufacturing capacity and capabilities. China launched a third tranche of its “Big Fund” in May for $48 billion. The United States has thrown in $53 billion and the EU $49 billion.
In 2023, China bought $32 billion worth of equipment to make mature chips, and in the first four months of 2024, those numbers doubled over the same period last year.
Gartner research shows (subscription required) that by 2027, more than 50% of the volume of key raw materials and wafer fab equipment will be sourced domestically for manufacturing at 28 nanometers and bigger nodes in China, up from less than 20% in mid-2023.
We’ve seen these levels of investment and subsidy from China in the past. And we’re seeing those investments play out now in solar and EVs. It’s not all been a smooth ride for the Chinese government, and the products are not necessarily being adopted in the West. ?
Not all mature chips are easy to build, meaning it will take longer for Chinese manufacturers to catch up. But as we’ve seen with electric vehicles and solar panel subsidies, a friendly regulatory framework and a large domestic market will have significant impacts beyond their borders — just over the horizon.
More Supply Chain Resources
This newsletter provides an opportunity for Gartner analysts to test ideas and move research forward. Some comments or opinions expressed hereunder are those of individual analysts and do not always represent the views of Gartner, Inc. or its management.