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Automotive supply chain risks: Vulnerabilities affecting sustainability goals

Discover how hidden vulnerabilities in automotive supply chains can impact sustainability goals. Learn about risks, regulations, and solutions for ethical sourcing.

21/10/2024 · 4 minute read

How hidden vulnerabilities within supply chains can affect sustainability goals for automotive manufacturers 

As automotive manufacturers pivot to help efforts to decarbonise the industry, supply chains can quickly become more complex. Hidden vulnerabilities within supply chains, such as the emergence of suppliers benefitting from forced labour, could adversely impact the operations and social sustainability targets of an organisation.

By 2025, the shift to zero emission vehicles is expected to introduce over 1.24 million electric vehicles to UK roads. This strategy is heavily reliant on raw materials, such as lithium, cobalt, and nickel, which chiefly originate in regions with a higher risk of using forced labour — potentially introducing social sustainability risks.

This is becoming more of a risk issue to manage as governments more closely monitor and act to protect human rights worldwide. In 2023, the UK Government sanctioned 14 operations and individuals using forced labour in Asia. A recent UK Court of Appeal decision underscored these efforts, when it ruled that companies could be prosecuted under the Proceeds of Crime Act if they know or suspect they have imported goods made elsewhere in the supply chain under criminal circumstances, including with forced labour.

As supply chains transform to meet decarbonisation goals, mitigation of the associated risks can help businesses avoid disruptions, reputational damage, and financial impacts. Automotive companies striving to make their transition sustainable and successful must remain cognisant of their social responsibilities — ensuring sourcing is both ethical and sustainable.

Recognising the importance of social issues and regulations

Across the UK, people risks have sharply risen up the boardroom agenda for automotive manufacturers — becoming a topic C-suite and business leaders regularly discuss. Additionally, the general public is similarly demanding sustainability — 77% of consumers were more likely to buy from brands with a social responsibility pledge.

In addition to the regulations previously mentioned, the UK Government has published a notice on tackling modern slavery in government supply chains to exclude suppliers where sufficient evidence demonstrates there are modern slavery violations. In the future, the UK could bring in even stronger regulations that align with policies introduced in other territories, such as the US’s Uyghur Forced Labor Prevention Act or the EU’s Forced Labour Regulation.

Companies must start linking sustainability and supply chains — and addressing ‘social’ vulnerabilities within their supply chains. As supply chains evolve to reach decarbonisation targets, it is essential business leaders are able to effectively review their supply chains for any supplier or partner that is in violation of modern slavery and similar laws in the UK. To support this, certain commercial organisations are also required to annually publish a statement on steps they have taken to prevent modern slavery.

Risks of hidden vulnerabilities within transitioning supply chains

Automotive industry companies — of all sizes — transitioning to decarbonisation strategies must consciously address and mitigate social vulnerabilities within their supply chains. Without thorough consideration of the potential impacts of raw material suppliers using forced labour, hasty moves could introduce enormous risks.

Risks emanating from undiscovered and hidden vulnerabilities within supply chains, could result in:

  • Business interruption
  • Reputational damage
  • Adverse financial impacts
  • Regulatory actions and fines
  • Equipment or material shortages

Before entering new partnerships or exploring new business opportunities, companies must invest in transparency for their supply chains and ensure appropriate due diligence has been carried out. Additionally, organisations should assess whether they possess sufficient expertise and talent within their organisation to identify and manage potential vulnerabilities.

Uncovering hidden supply chain vulnerabilities

The increasing need for supply chain transparency can be rectified by business leaders leveraging new and emerging forms of technology. Artificial intelligence (AI) can analyse vast volumes of data and records — at a rapid pace and a greater degree of accuracy — to provide unparalleled insights into supply chain vulnerabilities.

Organisations embracing AI can analyse suppliers at tier 2, tier 3, and beyond to produce comprehensive maps on the origins of their materials and components. Automating the repetitive or laborious tasks involved in mapping supply chains can reduce errors and boost the productivity of employees. This will enable organisations to effectively and efficiently locate hidden vulnerabilities deep within their complex supply chains.

Furthermore, these practices and techniques also can be used to help automotive companies efficiently locate and source from more sustainable partners, to help achieve ESG-related goals. AI can be leveraged to help identify suppliers with practices that may be more commonly associated with illegal behaviours. AI can also help increase transparency and communication in supply chains — vital for audit reports and whistleblowing.

How we can help

It is important that automotive organisations not only succeed in their sustainability transition, but are in a position to thrive as they build resilience against supply chain threats.

Mercer’s People Risk Report 2024, can help organisations understand, address, and mitigate potential workforce and supplier risks within their business. Additionally, Marsh McLennan has also recently released Sentrisk, an AI-powered platform that harnesses data capabilities to highlight hidden vulnerabilities within a client’s supply chains.

Strengthening supply chains, knowing your suppliers, and improving social sustainability can help you grow into a successful and responsible business. For further information on any of the issues raised above, please reach out to your Marsh contact or get in touch.

Our people

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Kasia Lipinska

Marsh UK Industries - Automotive & Manufacturing Industries Leader

Monique Wright

Monique Wright

Automotive Industry Practice Leader, Mercer Marsh Benefits UK

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