“Recalibrating, reinventing – in all directions”
We appreciate your taking the time for this interview because we can imagine that it’s currently in scarcer supply than ever, considering how one crisis after another – like the pandemic or the war in Ukraine – has been putting supply chains under permanent stress. What’s the current state?
It’s true that the situation around supply chains is very tense. Every day, we can tell that that’s the case – both in our personal lives and in business. However, looking at the sectors of relevance to Schaeffler – Industrials and especially Automotive – we can say that our supply chains are stable. They’ve been obstructed under the prevailing stress here and there but they didn’t break down.
Stress tests provide opportunities to recognize strengths and weaknesses and to learn from them. What knowledge have you gained in recent months?
All of us have become even more acutely aware of the system-critical nature of transportation or supply chains. Most supply chains, as far as I can tell from my areas of responsibility, have held up to the stress they’ve been exposed to in recent months. However, it has taken massive efforts to keep the systems running because many modes of transportation are not designed for modern production processes yet.
In what respect?
Take a current container ship, for example. It has mammoth dimensions. That’s very impressive – but also way too rigid, way too inflexible. That no longer fits modern production processes in which customization rather than large volume is playing an increasingly important role. So, how long of a wait until such a giant container vessel has been loaded to capacity is reasonable? Yet that’s a prerequisite for its profitability, not to even mention sustainability aspects. Highly complex supply chains trimmed for volume also become unhinged quickly when freight routes change due to market movements, trade restrictions or scarcity of supply, which has frequently been the case recently. That’s when the situation becomes expensive and inefficient. That’s why – using the maritime example again – we need a larger number of efficient speedboats and fewer of the costly giant container ships – in all areas. Supply chains have to recalibrate and reinvent themselves – in all directions.
"Supply chains will become less global and more regional or even local and therefore more crisis-proof."
Also in terms of locations?
Yes. In my view, some things have to change – and will – especially in this area. Supply chains will become less global and more regional or even local and therefore more crisis-proof. That’s another thing we’ve learned in the past two and a half years.
Extrication from dependencies on suppliers both in terms of goods and raw materials. Supply chains have to become diversified for greater resilience in the case of disruptions.
Turning to another area of your responsibility as a member of the executive board, can such dependencies be resolved also by changes to production processes? After all, if critical materials could be replaced then that would benefit sustainability as well.
That’s already happening, especially when it comes to products. The number of elements from the period system being used is continually increasing – also at Schaeffler. One reason is that the product range keeps growing and another one is that there’s a motivation to change certain things, be it due to material availability or sustainability. There’s a lot going on in the areas of bioengineering and biomass, in terms of materials as well as processes. In this context, for instance, I’m referring to chemical processes involving a lot of harmful substances and energy use that in some value chains are being replaced by microbiological ones. That’s another case in point at Schaeffler.
suppliers were recognized for outstanding collaboration performance at this year’s Schaeffler Supplier Day. Andreas Schick said: “Our suppliers provide major leverage in the bid to reduce greenhouse gases. We are having to rethink materials and reconfigure the processes used to produce them. We expect our suppliers to follow suit. By working together in this way, we will succeed in achieving climate neutrality by 2040.”
A highly popular letter in the periodic system at the moment is H for hydrogen. With good reason?
Definitely. In our view, hydrogen is not only the energy source of the future but a central component of decarbonizing the global economy and many production processes. It can replace fossil raw materials in the chemical, petrochemical, steel-producing or agricultural industries. At Schaeffler, “green steel,” where hydrogen replaces the previously used carbon in iron ore reduction, is a focus topic. We have a direct and indirect steel requirement of around two million metric tons (2.2 million short tons) per year and for each metric ton (1.1 short ton) of steel, roughly two metric tons (2.2 short tons) of CO₂ emissions are generated. These statistics illustrate how that translates into a large lever when, at Schaeffler, we’re talking about 2040 as a target year for climate-neutral production. The purchase of steel and other materials, referred to as Scope-3 Upstream, accounts for 85 percent of our carbon footprint. That’s why we focus on this area.
Are there any specific examples of related countermeasures taken by Schaeffler?
In an initial appreciable step in the area of material purchasing, we recently agreed a collaborative partnership with Swedish green steel startup H2GS including the delivery of 100,000 metric tons (110,000 short tons) of green steel starting in 2025. But since that doesn’t cover our requirement we’re also going to pursue a consistent path toward carbon-neutral steel with other suppliers as well. Plus, the decarbonization of steel is only the first step to be followed by plastics and alumuminum.
What effect does hydrogen have on global supply chains?
On the one hand, it can be used as propulsion energy for hauling goods. Logistics accounts for five to seven percent of the global carbon footprint, and counting. Here, hydrogen can help reduce emissions especially in medium- and long-haul transportation. On the other hand, the structual changes that will be required to adapt supply chains to a hydrogen economy should not be underestimated.
What exactly do you mean by that?
We need to not only address the production, transportation and utilization of hydrogen – which Schaeffler is doing in the areas of hydrogen fuel cell technology as well as with the development of LOHC, in other words liquid organic hydrogen carriers – but also the question of whether transportation of hydrogen even makes sense. In some cases, it will, but definitely not across the board. There will also be production processes for which local use of hydrogen will make more sense. Again, let’s take steel for example. In the old days, the steel industry established its mills at locations providing the coal for iron ore reduction. In Germany, that was the Ruhr region. Going forward, the steel industry, or at least some of it, will be located where green hydrogen can be produced or at least will be easily available. In such considerations, it may definitely make sense to think about splitting up integrated steel mills. In that case, the iron ore reduction process would take place close to the hydrogen source and the steel production process closer to the user. It will be necessary to adapt various supply chains to the production scenarios that will have to be reorganized in the wake of a hydrogen economy.
Let’s turn from hydrogen to the perennial technology theme of digitalization. How can that help make supply chains more efficient and sustainable?
Digitalization can be of particular help in making the complex flow-of-goods systems more transparent. How? Well, we all know Google Maps and use it when we travel on the road. Because all vehicles and their occupants constantly supply data in real time Google Maps is the perfect digital twin of real-world traffic situations. As a result, we’re always able to see if there are any traffic problems on our route and when we’re going to arrive at our destination. Such a holistic digital twin in which the data of all the players involved are merged and analyzed is lacking in relation to the flow of goods. It would be of huge help for synchronizing the complex systems of the supply chain and for making them more efficient and sustainable.
Has digitalization on the factory floor become more advanced than that?
At least for Schaeffler, I can answer that with a clear yes. We’ve been integrating several thousand machines in networks per year and keep doing so. In three years’ time, we plan to have achieved one hundred percent network integration. That means we’re going to have an exact overview of which machine is working where on what and how much and will be able to intervene immediately in the event of idle times, excessive workloads or machine trouble. Through network integration we optimize the efficiency of our internal flows of goods and energy consumption.
But not the consumption of materials?
In that area, action must be taken much earlier – in the product development stage, where performance and costs used to be the focus of attention. Today, we’re increasingly focusing on usage of materials, resource conservation and CO2 efficiency, not least because that has become more important to our customers as well. Digitalization helps optimize processes based on recorded performance indicators as well as in synchronizing product development and production. At Schaeffler, these control loops have traditionally been interlinked very closely – but, obviously, that doesn’t mean that we don’t want to improve in that area, too. When talking about the optimization of processes we mustn’t lose sight of our upstream and downstream partners, where closer digital integration will help conserve resources as well.
You mentioned partners. How important are they for achieving your own sustainability goals?
We feel that it’s our responsibility to understand and to continue developing the new supply chains across their entire lengths together with our partners. That’s why finding the right partners for the required processes will be of crucial importance, not only in terms of their professional or technical expertise but also based on the firm conviction that the pathway toward a sustainable world has to be pursued with no ifs and buts. Equally important is the consensus that that will be associated with massive additional costs that, ultimately, will also have to be borne by the consumer, in other words by all of us. We have to understand that as well.
The success of changes always heavily depends on people, too. How do you stimulate the pioneering spirit of your employeees?
Actually, it doesn’t have to be stimulated. A pioneering spirit is firmly anchored in Schaeffler’s DNA. We’re sensing a very, very high motivation among our employees to develop and implement sustainable solutions at all of our plants and at all of our locations. Our people are proud of pursuing new pathways, be it in product development, on the factory floor or in relation to establishing the things that are necessary in the supply chains. To actively promote and appreciate top performances delivered by our employees, the executive board together with the family shareholders created the Schaeffler Award a few years ago. Mr. Schaeffler personally presents the award to the winners in four categories reflecting our corporate values “Sustainable,” “Innovative,” “Excellent” and “Passionate.” That’s another example that shows how much the company values the pioneering spirit of its workforce.
In closing, would you share with us where Schaeffler currently stands on the road toward “zero emissions”?
We plan to achieve climate-neutral operations starting in 2040. This target includes the entire supply chain and is underpinned by ambitious mid-term goals. Our own manufacturing operations, that is Scope 1 and 2, will be climate-neutral as early as by 2030. We’re definitely headed in the right direction because we’re executing our plans consistently. Since 2021, Schaeffler has been purchasing 100 percent of its electric power from renewable sources at its European production sites. By 2024, we plan to do so at all of our locations worldwide. We’re making good progress also in terms of energy efficiency. Before the end of the year, we’re going to save around 47 gigawatthours, which roughly equates to the annual electricity consumption of 15,000 two-person households in Germany. The implementation of our Sustainability Roadmap is progressing as planned. The international Carbon Disclosure Project non-profit organization has upgraded us in a special water rating from “B–” to “A–” and awarded us with an overall “A–” rating as well. In the EcoVadis sustainability rating, the Schaeffler Group scored 75 out of 100 possible points equating to Platinum status. As a result, we’re now in the top one percent of our peer group.