Sustainable supply chain at Daimler

Sabine Angermann, 42, has the steering wheel firmly in her grip. She works at Mercedes-Benz Cars, where she heads the unit that is responsible, among other things, for raw materials procurement. “The exciting thing about the EQC is that a completely new range of supplies has to be purchased for it: new parts, new components, and new raw materials. In my job, this is both a challenge and an opportunity,” she says.

The EQC is the first all-electric Mercedes-Benz vehicle of the EQ brand. The fact that the EQC lacks exhaust pipes shows that it marks an important step on the path to sustainable mobility. However, it’s by no means the last such step. After all, every vehicle that’s on the road has to be produced, transported, and eventually recycled. Battery-electric vehicles in particular require manufacturers to begin with the supply chain if they wish to become sustainable. That’s because a large part of the CO2 emissions that are produced by an electric vehicle during its lifecycle arises in the supply chain, i.e. before the vehicle even rolls off the assembly line in one of our plants.

What makes a supply chain really sustainable?

As a result, a large part of the effort to make mobility sustainable is devoted to the reduction of CO2 emissions in the supply chain. This is where the expertise of Sabine Angermann and her team comes into play. The increasing number of battery-electric automobiles is causing demand to rise, not least for cobalt and lithium, two chemical elements that are found in the electric vehicles’ lithium-ion batteries. “With regard to cobalt and lithium mining, the challenge in the first step is to prevent human rights violations and environmental damage. In the second step, the aim is, of course, also to limit CO2 emissions in production. As a company that uses these raw materials, we want to gain insights and ensure transparency.”

This isn’t easy because some of the supply chains consist of six or more stages. More specifically, this means that a product which a supplier sells to Daimler contains parts that come from third-party supplier further down the line. These parts, in turn, themselves contain parts that their supplier obtained from other suppliers.

Environmentally compatible procurement for electric vehicles is a big challenge. But if you take a closer look, you will see that the proactive development of a sustainable supply chain is an important upstream step for the environmental balance. At the moment, electric vehicles still give rise to 80 percent higher CO2 emissions during production than is the case with automobiles equipped with combustion engines. However, they produce about 65 percent less CO2 in operating status, provided they use a conventional electricity mix. As a result, their total emissions of CO2 during their entire lifecycle are at least 40 percent lower than that of combustion engine vehicles over the same distance.

If a battery-powered car can run solely on electricity generated from renewable resources, its CO2 emissions over the entire lifecycle will be 70 percent lower than those of a combustion engine vehicle. This huge potential reduction in CO2 emissions is an undisputed advantage of electric vehicles. Moreover, it’s the reason why these vehicles are considered the big hopefuls when it comes to sustainable private transport.

Ambition2039 — our strategy for climate-neutral mobility

In its Ambition2039 strategy, Mercedes-Benz has set itself the clear goal of making its fleet of new vehicles CO2-neutral in less than three product cycles. Moreover, we want half of our car sales to be plug-in hybrids or all-electric vehicles in 2030.

How do such objectives affect Angermann’s work? “We buy the battery cells from our direct suppliers on the world market. This ensures that we have access to the latest technology. Our direct suppliers source their raw materials worldwide,” says Angermann about the strategy. “For example, the production of battery cells can potentially generate amounts of emissions. We can and will use our influence on the supply chain to reduce these CO2 emissions.”

It’s a huge task for the manufacturers as well as the suppliers. Because different countries mean different factors have to be taken into account to ensure a sustainable supply chain. These factors include different cultural settings or economic conditions.

Three fields of action for a sustainable supply chain

Specifically, there are three important fields of action that manufacturers can influence: Human rights, CO2 reduction, and resource conservation.

The first field of action addresses a very important topic: the upholding of human rights in all of the stages of the supply chain. “Although we only have a contract with our direct suppliers, we go far beyond that when it comes to the upholding of human rights. In cooperation with our compliance and human rights experts at Integrity and Legal Affairs, we also examine the situation on the ground and work together with independent partners to make sure our ethical standards are adhered to.”

For example, we work with our suppliers to jointly identify and eliminate possible problems. Another element of our sustainability work is social commitment at the local level.

With regard to our second field of action, CO2 reduction, alternative drive systems are especially affected by the upstream supply chain. For these systems, the supply chain accounts for a large part of the entire lifecycle’s CO2 balance. That’s why Angermann’s team is taking part in workshops with existing suppliers to develop measures for shaping the path to CO2 neutrality. “For example, we are working together to come up with ideas on how to eliminate blast furnaces from steel production — what kinds of alternative production techniques could be feasible?,” Angermann says.

Moreover, we are talking with the suppliers about whether and how production might be able to switch to green electricity. Daimler is setting a good example here: In 2018, Mercedes-Benz Cars became the first major industrial customer to obtain electricity from German wind power facilities whose subsidies in accordance with Germany’s Renewable Energy Act (EEG) are due to expire after 2020. The associated contract ensures that six citizen-owned wind farms can continue to operate. In addition, the way in which CO2 emissions are addressed will play an important role in future supply contracts.

The third field of action, resource conservation, deals with approaches for increasing the share of recycled materials in the supplied parts and for ideally creating a closed loop system. By 2030, Daimler AG aims to reduce the use of the most important primary raw materials for electric drive systems by 40 percent. Specifically, the objective is to make appropriate technical improvements in order to reduce the use of primary raw materials. This will especially be done by using secondary materials wherever this is technologically possible and makes sense from a business standpoint.

A simple but effective example of this would be a more precise separation of the various types of scrap metal. Steel, for example, can be recycled very efficiently in certain cases. Daimler also aims to reduce the amount of waste as well as the use of other production materials and resources such as water. Furthermore, it plans to introduce industry-specific technical innovations and improvements that would boost energy efficiency, for example. In the last step, the company could offset unavoidable CO2 emissions in the supply chain. When doing so, we will especially focus on the CO2-intensive raw materials aluminum and steel as well as on those used in batteries.

Blockchain technology makes supply chain more transparent

There are also indications that progress is being made in the digital realm that will increase transparency in the supply chain and thus make it more sustainable. Blockchain technology, for example, could potentially completely revolutionize procurement processes. This could affect nearly the entire value chain.

“We are currently testing a prototype blockchain, which should help to create transparency, especially in areas that lie outside of our direct suppliers,” says Angermann about the technology’s potential. “We require all of our direct suppliers to pass on the standards and contractual commitments within the supply chain and to ensure that they are complied with. This applies in particular to sustainability and ethical behavior.”

If one of the subcontractors should deviate from these contractual commitments, this behavior will become visible in the blockchain much in the way it does in a secure accounting system. The blockchain doesn’t contain confidential information or anything that would affect competitiveness. It only includes data that tell us something about sustainability. In this way, we are also creating trust in our supply chain.

Meanwhile, our ride in the all-electric EQC has come to an end. What was the trip’s footprint? Zero grams of CO2, but lots of new knowledge. Climate-neutral individual mobility must also be possible. But, as Sabine Angermann says: “We can’t do it on our own. It’s not just about Daimler and its suppliers. It’s about the entire industry! We all have to work together. The more we mobilize the entire automotive industry community, the faster we will be successful. Maybe we can even become CO2-neutral earlier than in 2039.”