In the context of consequential LCA modeling, long-term market trends and constraints play a key role in identifying the marginal suppliers in the long term for each product, i.e., suppliers who will adjust their production capacity in response to an accumulated change in product demand. When there is only one supplier of a particular product, or when a specific group of companies is so closely linked in a supply chain that there are no alternative suppliers in practice, these specific suppliers will also be the ones who will change their production capacity in response to changes in the demand of specific customers. However, in the absence of information justifying that a specific supplier (or group of suppliers) will be affected, it is advisable to assume that there is a market, which requires more in-depth attention.
Within a given market, not all potential suppliers/technologies will actually be influenced by a change in demand. For short-term changes, the immediately affected suppliers will typically be the less competitive ones (often using older technologies), as they are more sensitive to price variations and will usually have available capacity. In an LCA analysis, we typically study a long-term change in response to an accumulated demand variation. In such cases, the affected suppliers will depend on the overall market trend. In a declining market, the affected suppliers who are phased out of the market will typically be the least competitive ones. If the market is growing (or decreasing at a rate below the average rate of capital plant replacement), new capacity will need to be installed, typically involving modern and competitive technology.
It follows from the above distinction that if the overall market volume is decreasing at about the average replacement rate for capital equipment, the effect of a change can oscillate between suppliers with very different technologies, necessitating the formulation of two separate scenarios. This can be relevant for a rather wide range of market volume trends, as the replacement rate for capital equipment is a relatively flexible parameter (planned retirement can be postponed for a period, for example by increasing maintenance).
In general, the replacement rate for production equipment is determined as the inverse of the estimated equipment lifespan. By default, when market trend information is not available, one can assume a market increase, as this is - despite obvious exceptions - the general situation for most products, due to the overall increase in population and wealth. There may be other reasons besides market trends and competitiveness that cause a potential supplier to be constrained, i.e., unable to react to consumer demand, particularly shortages in the supply of raw materials or other production factors (resource constraints), and market failures, regulations, or quota systems (political constraints).
If no supplier is able to respond to a change in demand, the entire market may be constrained, and therefore a change in demand will instead impact other activities consuming the product. Rarely is there only one supplier of a specific product. The typical situation is that a combination of suppliers will be affected by the change in demand. These marginal suppliers may use different technologies that are all unconstrained, or may be in different countries, of which only some will be able to respond to a change in demand. For long-term studies, it may be relevant to consider future scenarios instead of simple extrapolations of past trends.
FIGURE 1: Decision tree attempting to explain the iterative way of working on different suppliers to identify the marginal supplier.
Next lesson - In-depth analysis "Absent, Declining, and Growing Markets"
