UPDATE: A groundbreaking trade agreement announced in November 2023 has temporarily suspended export controls on rare earth elements (REEs) from China, paving the way for a more stable supply of these critical components crucial to technology infrastructure. This development comes as concerns over supply chain disruptions have reached a peak, impacting industries reliant on semiconductors and data center equipment.
Rare earths are essential for manufacturing semiconductors that power servers and cool data centers. With China controlling approximately 70% of the global supply and an astonishing 90% of its refinement, the stakes are incredibly high for organizations worldwide, especially for Chief Information Officers (CIOs) who must navigate these turbulent waters.
Despite the panic over potential shortages, experts, including Cori Masters, Senior Research Analyst Director at Gartner, report that CIOs are not currently experiencing significant delays in server equipment delivery. However, the recent agreement is viewed as a short-term fix, with Masters cautioning, “It’s still viewed from a supply chain perspective as a single source of supply—detrimental reliance on a single geography.”
The complexity of the tech supply chain makes it challenging for CIOs to assess the risk of REEs effectively. As noted by Ashish Nadkarni, Group Vice President of IDC, rare earths are often hidden deep within the supply chain, making them virtually invisible to CIOs focused on procurement. “The cost will show up in a premium,” Nadkarni explained, emphasizing that CIOs may not realize the underlying issues affecting costs and availability.
CIOs must remain vigilant, demanding greater transparency and diversification from Tier 1 partners. Experts recommend utilizing supply chain risk monitoring software to identify potential disruptions earlier and adapt strategies accordingly. “Demand supplier visibility—indirect monitoring,” Masters advised, underscoring the need for CIOs to actively seek indications of material shortages within their supply base.
As the reliance on a single source of REEs continues to pose risks, CIOs are urged to support geographic diversification efforts. While innovations in extraction and recycling of rare earths are being pursued, the current solutions remain limited. Masters encourages CIOs to pay close attention to suppliers employing alternative sourcing methods, as these commitments could bolster long-term resilience.
The urgent need for strategic planning is clear. As governments and industries work towards creating sustainable sources of rare earths, the path forward will require creativity and collaboration. With the stakes so high, organizations must prioritize mitigating risks associated with their supply chains to ensure continued access to vital technology resources.
This developing situation highlights the critical intersection of global trade, technology, and supply chain management, impacting CIOs and organizations worldwide. As the landscape evolves, staying informed and proactive will be key to navigating these challenges effectively.
