Due to the limited visibility of critical minerals supply chains, A&D companies – particularly prime contractors – must have a better understanding of these supply chains and take steps to avoid disruptions. The steps taken to enhance resilience in relation to critical minerals will also support organisations to meet broader Environment, Social and Governance (ESG) regulatory requirements and expectations.

In this article we look at the challenges prime contractors in the A&D sector face and offer solutions to promote resilience, particularly as replacing critical minerals is unrealistic in the short-term.

Critical minerals supply challenges in A&D

From F-35s and nuclear submarines to commercial aircraft, drones and satellites, manufacturing advanced technologies needs high purity and quality critical minerals. For example:

• Rare earth elements (REEs) are needed to produce strong alloys used in aircraft engines and missiles.
• Gallium is used to create semiconductors which are integral to all electronic systems, such as navigation, communication and flight control systems.
• Cobalt is used to produce superalloys and battery cathodes.
• Hafnium is used as an alloying element in high temperature alloys.

These raw materials are chosen because of their specialist performance properties, including strength, heat and corrosion resistance, and cannot be replaced easily without compromising component performance.¹

However, access to these critical minerals is through complex and opaque supply chains which are sometimes impacted by trade restrictions and associated with ESG issues, making them susceptible to disruption. Primarily, these issues stem from the challenging jurisdictions in which critical minerals exist and monopolies within the supply chain. For example, across 13 critical minerals strategically significant to the A&D sector, one nation can be responsible for 50 to 70 per cent of the entire output.² As China announces further critical mineral trade restrictions from October, this time for REEs, the growing threat posed by critical mineral supply chains becomes clearer still.

In addition, many critical minerals used in the A&D sector are minor/companion metals which are produced as a by-product of extracting base metals (for example hafnium is a by-product of Zirconium, and gallium a by-product of aluminium). As such, they are extracted in low volumes, rarely traded on formal exchanges and reliant on the output of base metals.

There is also limited flexibility for dual sourcing as the sector is focused on component quality rather than diversification.³

Digitisation, the energy transition and growth in the A&D sector will increase demand for critical minerals significantly. This will likely lead to a rapid increase in these supply chain risks and could cause a considerable restriction on supply.

Supply chain visibility and oversight

Most large A&D companies are typically prime contractors and are accountable for the assembly of finished or semi-finished components and alloys produced by suppliers in a complex supply chain. As such, they have limited exposure to critical minerals extraction and processing.

The suppliers are also often Small and Medium-sized Enterprises (SMEs) that have less capacity and capability to track provenance and assess risk.

This limits oversight and transparency of critical minerals supply chains and restricts the ability of prime contractors to detect and respond to upstream disruption.

Three key considerations to build supply chain resilience

A&D companies must have a better understanding of these supply chains and take steps to avoid disruptions. Here are three key things to consider:

• Establish consistent supplier data requests: Work with suppliers to standardise and simplify their data requests. This will ease the burden on SME suppliers and help them establish the right data collection capabilities. The resources provided by the Responsible Minerals Initiative are a good place to start.⁴
• Develop circularity: Preserve and maximise the use of critical minerals by integrating circular design principles – this is particularly important for minor metals which have greater supply chain vulnerabilities. For example, introducing circularity practices for rhenium in aircraft engines resulted in a significant reduction in costs and supply chain disruption.⁵
• Evaluate supplier qualification and component requirements: Assess where alternative sourcing might be possible without impacting safety, performance or quality of the input used. In addition, check whether qualification requirements are fit for purpose, or whether they are too stringent (overengineering). While this may not be appropriate in all cases, it is a good starting point for mitigating risk.

Implementing the above will also help organisations to meet broader ESG regulatory requirements and expectations, for example in relation to decarbonisation of the supply chain and achievement of net zero ambitions. Organisations must consider sustainability and resilience holistically, and not as separate issues.

Get in touch to discuss how your organisation can improve supply chain resilience to secure better access to critical minerals.

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