How to find companies set for supply chain success

24-Nov-2021
  • David Vos
  • Gareth Williams
  • Nigel Bolton

The supply chain scene

Global supply chains, a term encompassing all necessary components to produce consumer goods, are under strain as both economies and demand ramp up. The early focus was on semiconductors, where limited supply met with a surge in digitalization as remote working became the norm and car makers powered up production of electric vehicles (EVs). We now see some signs of the semi situation easing.

Yet as one concern slowly diminishes, others loom larger. Consider that without semiconductors, car production can’t be completed. But without aluminium, car production can’t even start – and aluminium supply is scarce. A key component to making it – magnesium – has fallen to a third of global capacity. Around half of the world’s magnesium comes from one province in China, and in September, the local government ordered plants to shut down to meet energy consumption targets. This is a microcosm of what we’re seeing across the global economy.

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Plotting supply chain success

Company types by complexity and diversity of product

Company types organized by complexity and diversity of product

Source: BlackRock Fundamental Equities, November 2021. For illustrative purposes only.

Four investment takeaways

We believe the best way for investors to navigate this environment is to focus on those companies that can pass rising costs on to their customers. Active stock pickers, using deep fundamental research and data analysis, are well placed to find the winners. Here are four investment takeaways:

  1. Study the complexity and diversity of company products. The chart above shows how we plot possible supply chain success
  2. Company clout is key
  3. Seek the companies that adapted early to supply chain disruption
  4. Examine the consequences as companies shift from efficiency to resiliency

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