UPDATE: A crucial trade agreement announced in November 2023 has suspended export controls on rare earth elements (REEs) from China, offering a temporary reprieve for global supply chains reliant on these critical materials. As a result, Chief Information Officers (CIOs) are urged to reassess their strategies amid ongoing volatility in the supply of REEs, which are integral to semiconductors powering servers and cooling data centers.
China dominates the rare earth market, controlling approximately 70% of the global supply and refining up to 90% of these essential materials. While the immediate panic surrounding rare earth shortages has subsided, experts warn that this situation is not a permanent fix. Cori Masters, Senior Research Analyst Director at Gartner, emphasized that reliance on a single geography for REEs remains a significant risk. “It’s still viewed from a supply chain perspective as a detrimental reliance on a single source of supply,” she stated.
As the demand for semiconductors continues to surge, CIOs should be aware that while delays in server equipment deliveries are currently minimal, the potential for longer lead times exists. Ashish Nadkarni, Group Vice President of IDC’s Worldwide Infrastructure Research Group, noted that the hidden costs associated with REEs could manifest as increased prices from vendors. “When you go to buy groceries, if you ask the grocery vendor why your lettuce is $2 more, do you think they’re going to know why?” Nadkarni asked, highlighting the limited visibility CIOs have into their suppliers’ challenges.
The complexity of the tech supply chain poses additional challenges. Rare earths, hidden deep within the supply chain, often reside in Tier 3-5 segments, making them virtually invisible to many CIOs. Masters urged CIOs to demand greater transparency from their Tier 1 suppliers, emphasizing the need to monitor the supply chain more closely. “CIOs should be looking for indications within their supply base that they’re running out of materials,” she advised.
To navigate this volatile landscape, experts recommend that CIOs consider implementing supply chain risk management solutions. These technologies can provide critical insights into the indirect monitoring of supplier networks. Masters pointed out that REEs are not solely confined to IT hardware but span multiple industries, including defense, healthcare, and clean energy.
As the U.S., Australia, and other nations work to diversify their rare earth sourcing, CIOs are encouraged to support these initiatives. “Stay attentive to suppliers who may utilize these alternate sources,” Masters suggested. However, she cautioned that while recycling rare earths from existing devices is currently a time-consuming process, it represents a long-term strategy for mitigating supply risks.
In the wake of this recent agreement, the call for action is clear: CIOs must prioritize diversification and visibility in their supply chains to safeguard against future disruptions. As the landscape evolves, remaining vigilant and proactive is essential for ensuring a resilient and sustainable supply of rare earth elements.
