Reading time approx. 10 Min How to secure Supply ChainsGlobal crises show again and again how vulnerable multinational companies’ supply chains are. What can be done? How can companies make their supply chains more resistant and more responsible at the same time?
It was the nail. Or more precisely, the nail that wasn’t there. In March of this year, it caused still more stress in supply chains that had already been hard hit. The transport and industry associations sounded the alarm, explaining that important products could no longer be delivered. Because all of a sudden, a seemingly mundane product like the Euro pallet wasn't available anymore. Producing a pallet like that requires about 50 nails. They are overwhelmingly made of Russian steel in Russian production. And import of Russian nails was banned by one of the European Commission's first bundles of sanctions.
Moreover, drivers were already in short supply due to the Russian attack on Ukraine. Gasoline and diesel prices were at record highs. The same with transport rates for sea freight. In addition to that, container ships were jammed up in front of the port of Singapore. There, the Chinese government had imposed a quarantine after the COVID pandemic broke out again.For three years, nothing in logistics worked anymore the way it had in the 30 years before that. Hopes that the pandemic would give way to normal, familiar conditions were completely dashed, due to the war in Ukraine, the sanctions and threat of famine, and worsening climate change.
Even before, there were signs of upheaval: For 10 years, sea container freight rates have quintupled. No surprise, actually: Fossil fuels tend to get more expensive – children even learn that in elementary school. But now we're finally there: A confluence of crises has produced a plethora of problems, and things just can't continue the way they have been. "An agile and resilient supply chain is the competitive factor of the 21st century," says Steffen Franz, MHP expert.
Piling onto the problems in logistics, are those of manufacturers and producers of preliminary and agricultural products, components and raw materials – and their availability: Due to the war and the pandemic, core products are either scarce or unavailable. In the worst cases, the two start to tango: Things that are available can’t be delivered. And where transport capacity is available, often there aren’t any products. And that seems to remain the case. Because in the past few years, we've learned that you have to expect the unexpected: It might be weather disasters, virus mutations or military conflicts with worldwide impact. In the “VUCA” world – one ever more affected by volatility, uncertainty, complexity and ambiguity, supply chains and logistics need to be reinvented.
Most German companies have recognized this and intend to change their supply chains from this point on. According to the current DIHK study “Going Global” from 2021, 68 percent of affected companies have already moved to take control of the situation as fast as possible:
The established "just in time" concepts pose a major challenge:What used to be the solution has become the problem. This reliable, well-functioning, seldom volatile system made the highway the warehouse. Truck deliveries were ideally cycled to arrive at exactly the right moment of production or processing. Anyone driving the German autobahns in the evening can see how semi-trucks park in the idling and merging lanes hundreds of yards before rest areas, truck stops and parking lots, because the drivers have to adhere to the rest periods. Parking lots themselves are already chronically jammed, which has resulted in areas for passenger cars or charging stations being designed or landscaped in such a way that trucks can’t get into them.
If the products come late or not at all, there's no more buffer: Production stalls and the system collapses. Under the new conditions, skimping on warehousing loses its cost advantage and poses too big a dependency risk. Where just-in-time no longer works, other solutions have to be found. Where just-in-time no longer works, other solutions have to be found.
MULTI-CLIENT WAREHOUSING & AUTOMATIC BUFFER WAREHOUSES OR HUBS:Warehousing is offered as a service, so that various customers can share the warehouses. With “warehousing as a service”, the customers pay only for the space their products actually fill or that are reserved. Such solutions are easy to scale up or down for the customers, because the risk of full facility utilization is borne by the operator. At the same time, these concepts need only a minimum personnel and whose intelligent digital technology allows chaotic warehousing and thus can actually use every inch of space. Process costs are achieved through a high level of automation and increased handling speeds.
SUPPLY CHAIN PLANNING & CONTROL TOWER TOOLS:The use of modern IT tools will be of central importance in organizations in the future and can support decision-making processes effectively and efficiently. A significant increase in resilience and end-to-end visibility can be achieved in particular by using a digital supply chain control tower. The entire relevant company supply chain is mapped as a digital twin with a connection to real-time data from production and transport. Using digital AI-supported planning and decision-making, the tool enables a quick and targeted reaction to changes in the supply chain with dynamic safety stocks.
DYNAMIC SUPPLY CHAIN RISK MANAGEMENT:Business risks must be constantly evaluated and managed. For example, in the Allianz Risk Barometer for corporate risks, an annual change in risks can be observed. In addition to the outbreak of a pandemic and cyber incidents, war and environmental risks are also increasing significantly in probability this year. Strategies must be formed in advance for these risks and supply chains must be aligned strategically and dynamically.
INCREASING THE ALTERNATIVES IN PROCUREMENT:In case logistics costs continue to rise in the future, and logistics risks remain at today's level, many companies are considering sourcing regionally again. Because if transport costs exceed the savings from the lower wages and generally lower occupational health and safety standards at far-flung suppliers, regional suppliers become attractive again. Even in the event of a breakdown, it is important to have a qualitatively reliable understudy available quickly who already knows all the necessary specifications and is tried and tested in the processes. This diversification creates a buffer. A type of sharing also appears sensible in this case: The most economical supplier gets a larger portion. The more expensive supplier is not fully utilized, but continues to deliver, and therefore provides a sort of emergency solution if there are problems with the main supplier.
SUPPLY CHAIN TRANSPARENCY:Supply chains are often very deep and complex, so a large network of global companies can be involved, from the raw material suppliers to the chip producers to the wafer manufacturers to the component manufacturers and the OEM (including the respective key technology manufacturers for production). Here it is no longer sufficient to only know the direct suppliers and their risks, but the entire network.
FLEXIBILITY & STADARDIZATION IN PRODUCTION:Many companies often have a wide network of global production sites. In practice, however, these locations are only able to manufacture a specific product portfolio. A changeover of production to other locations is not possible in a short time in terms of process and technology. The main reason is a lack of standardization, especially in the processes and the digital connection of machines and systems (IIOT). In the event of a risk, products can only be relocated to other production sites very slowly and with great effort. Being able to flexibly distribute products to alternative locations at short notice will be a major competitive advantage in the future.
These are the ways many companies are updating their structures and adapting to the new conditions. Because there's no going back to the 2010s. We’re experiencing the end of globalization as we know it. It’s time to look for new answers.
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How to secure Supply Chains
It was the nail.
"An agile and resilient supply chain is the competitive factor of the 21st century," says Steffen Franz, MHP expert.
Most German companies have recognized this and intend to change their supply chains from this point on. According to the current DIHK study “Going Global” from 2021, 68 percent of affected companies have already moved to take control of the situation as fast as possible:
The established "just in time" concepts pose a major challenge:
Where just-in-time no longer works, other solutions have to be found.
MULTI-CLIENT WAREHOUSING & AUTOMATIC BUFFER WAREHOUSES OR HUBS:
SUPPLY CHAIN PLANNING & CONTROL TOWER TOOLS:
DYNAMIC SUPPLY CHAIN RISK MANAGEMENT:
INCREASING THE ALTERNATIVES IN PROCUREMENT:
SUPPLY CHAIN TRANSPARENCY:
FLEXIBILITY & STADARDIZATION IN PRODUCTION:
It’s time to look for new answers.
Quantastic!
The new language of packages
Gamified Industry