Roland Berger: Are Europe's Defence Supply Chains Resilient?

In recent years, critical raw materials have been facing a significant boom in demand, driven by the energy transition, the rapidly growing number of data centres, the increase in AI availability and the ongoing demand for smartphones.

This is causing ongoing delays in materials sourcing and shortages across critical materials – a problem currently hitting the European aerospace and defence industry. 

In a new report, Roland Berger explores how supply chain issues for necessary materials is causing vulnerabilities, and offers key governmental solutions.

Shrinking critical mineral supplies

In recent years, the raw materials market has seen a major boom. What was once seen as a steady resource has now started to undergo major pressure. Ongoing geopolitical developments have reshaped supply chains around the world, placing raw materials front and centre. 

Now, a range of critical supply chains have revealed their structural dependencies on raw materials, particularly as western demand for electrification increases. The global need for clean energy has contributed towards western realisation of underinvestment in domestic capabilities.

With China holding a dominant position in the rare earth elements market – 60% of mining output and more than 90% of refining capabilities – the western has begun to consider its supply chain vulnerabilities. 

Though each country has its own list of critical materials, built off demand and production capabilities, NATO has identified 12 critical raw materials which are a strategic necessity while also facing a supply chain risk. These are: titanium, aluminum, tungsten, platinum, cobalt, lithium, manganese, graphite, beryllium, gallium, germanium, and key rare earth elements.

Meanwhile, the European Critical Raw Materials Act labels 35 materials as essential for supply chain resilience amid Europe's strategic autonomy. 

"Critical raw materials have become one of the most significant risks facing aerospace and defence manufacturers. Demand is rising sharply, whilst supply remains highly concentrated and vulnerable to disruption," Rachel Hugo, Senior Partner at Roland Berger and co-author of the report, told Supply Chain Digital.

"Titanium and rare earth elements sit at the heart of every major platform – engines, airframes, radars, electric motors – so any upstream constraint has an immediate impact on production and capability delivery.

"Aerospace and defence supply chains are only as strong as their weakest link. Roland Berger’s latest report suggests a cumulative aerospace-grade titanium supply chain gap of around 100 kilotons could emerge over the next decade if production and recycling capacity doesn’t scale more quickly. Even relatively small shortages can have ripple effects across aircraft and engine and defence equipment programmes, making the avoidance of bottlenecks a strategic priority."  

Solving industry issues

Though Europe assembles its aerospace and defence components, a significant portion of raw material upstream processing is concentrated in China and Russia. The report, therefore, argues that there are three key measures that can be taken to avoid supply shortage:

• Scaling domestic production reduces reliance on trade and secures supply but it also means high investment costs and time taken before production is possible
• If organisations prioritise materials recycling, it speeds up supply security, but there are still limited quantities
• Substitute materials could be developed, reducing reliance on critical minerals, however many of the core ones needed are non-negotiable

Governments and industries have been working to ensure supply chain resilience, forming new alliances with other nations or investing into domestic production capabilities. To do so efficiently, organisations need to identify their most critical materials and develop risk mitigation strategies which are specifically tailored to their needs. 

The report states that OEMs are predominantly at risk if there are early stage disruptions in the supply chain. 

"No single organisation can solve this alone. Building a resilient raw materials ecosystem requires coordinated investment across OEMs, suppliers and governments," explains Adam Healy, Partner at Roland Berger and co-author of the report.

The aerospace and defence sector need to act in order to mitigate supply chain disruptions which are already threatening to impact operations. The strain on critical materials, however, reaches beyond just this industry. With demand coming from energy, smartphones, data centres and more, markets around the world are at risk of being impacted. As a result, there needs to be cross-industry collaboration in order to proactively ensure the availability of raw materials in the long-term. 

"There is no single solution," Rachel warns. "Manufacturers need to understand where their biggest material dependencies lie and take a proactive approach to securing supply through strategic partnerships alongside alternative sourcing, recycling and investment in domestic capacity. Ultimately, building resilient supply chains requires coordinated action across industry and government to ensure critical materials remain available for generations to come." 

There needs to be mass investment into western production to enable stronger upstream capabilities. Short-term investments – both time and money – will reap long-term benefits, and not just for the aerospace and defence sector.