taskforce INTERIM EXECUTIVE Peter Fischer on the growing importance of strategic supply chain management for reliable delivery processes.
The pandemic is slowly coming to an end but many consequences will remain. In your view, how have the changes to supply and demand affected global supply chains?
The coronavirus pandemic has shown us how vulnerable our global supply chains are. The unexpected closure of borders and blockage of traffic routes can give rise to long transit times for goods, shortages of key parts and, as a result, high demand for storage, which in turn results in considerable costs. What is more, restrictions and lockdowns around the world have changed the availability of personnel. Suddenly, materials were harder to procure, and employees in the supply industry and the automotive supply industry, for example, were often only available for a limited time. Particularly in Europe but also elsewhere, supply chains are less aligned to national borders than to competences, resources and capacities. The accident involving the "Ever Given" container vessel in the Suez Canal showed us how susceptible our otherwise hardly noticeable global delivery routes actually are. The blocked canal was a symbolic example of the high risks in global trade, such as longer transit routes, rapidly rising transport costs, and increasing production downtimes.
At the same time, we are experiencing incredible changes in demand. Most observers thought that demand would decline because of the pandemic, but actually the opposite occurred. Important markets, such as China and the USA, have already bounced back and are generating significantly higher demand than expected. As a result, even simple materials have suddenly become scarce: natural products, like wood and leather, but also mass-produced electronic components, such as computer chips. In the past, chips have been treated almost like C-parts, because their purchase price is so low. However, now people have established that these mass-produced products are important key components. Many Chinese electronics manufacturers, such as Huawei, have begun to build up massive stocks, which is why these parts are no longer available to us as usual. It follows that, in future, we will also need to view C-parts very differently. As a result, supply chain management is increasingly becoming risk management. Whether pandemics, major accidents, natural disasters or political crises: it is important to plan as efficiently as possible and as redundantly as is necessary. Because we all need to be prepared for these disruptions occurring time and time again, and perhaps even more frequently.
Against this background, can we expect a trend towards deglobalization?
I do not think so, in principle, but we will see a shift. The industrialized nations will focus on bringing critical processes, in particular, which have been outsourced globally in the past, back into more controllable regional areas. This applies in particular to core and key technologies, such as the production of electronic components, pharmaceutical supply chains or automotive components. Depending on the risk profile, companies will try to rebuild or relocate certain key components in Europe in the next few years - and this has already begun.
But that does not mean that there will be deglobalization. The global economy will remain globally networked. Growth and wealth gains are largely based on this. There will merely be an attempt to bring the suppliers who are urgently needed a little closer to a company’s production networks. For example, with deliveries from here to China or South America, it means that suppliers must be encouraged to build additional supplier sites closer to OEM plants to shorten the supply chains. In this respect, things will become even more global, as providers and suppliers have to try to produce even more multinationally upstream of their customers' factories, or at least to maintain proper storage there.
What challenges will Interim Managers face in the SCM environment in future?
The challenges inevitably come from what I have alluded to above. Fundamentally, it is a matter of ensuring supply, that is, being able to supply global production structures locally. This also means that we have to think a little bit more about whether we can use alternative materials or technologies. Peugeot is a very topical example of this. As they currently have no more chips for their digital instruments, they are now once again installing analog speedometers into their 308 models and selling the cars €400 cheaper. But at least they are able to produce.
Across the board, we are currently pretty short in almost all sectors: metals, like copper, or even plastic granules. The challenge for Supply Chain Managers, as technology and change drivers, is to consider alternative options to strategically slow down the impending bottlenecks, and steer the company towards resilient delivery processes.
What can INTERIM EXECUTIVES do to help?
The main advantage of an experienced Interim Executive over experts who otherwise work in a company is that they are familiar with many different industries, understand the networks well, and have an overview of the different technologies. This makes the Interim Executive the innovation driver for the supply chain, which is usually only operated as a pure procurement or logistics structure. The Interim Executive sets the stage for designing products from product development to delivery in such a way that the company is equipped to withstand crises and can still continue to produce. This is essentially preceded by the establishment of a massive strategic risk management system to anticipate alternative solutions and options for action for different requirements and scenarios.
Have you already experienced this or did this come about through the pandemic?
There have always been certain wave movements with all materials. We are constantly seeing fluctuations in supply and demand. At the moment, markets like Asia have suddenly bounced back. The consumer backlog, for example in the automotive sector or in the fast-moving consumer goods sector, has skyrocketed. But if everyone wants to access the same material at the same time to secure their supply chains, this quickly gives rise to a boosting effect in which shortages, price increases and further growing demand continue to rocket. However, this can be changed by not just focusing on securing favorable purchasing prices, but on ensuring real security of supply, for instance by agreeing volume contracts and encouraging suppliers to build up and reserve the relevant storage capacities.
What about make-or-buy decisions?
I would make a differentiation here. The traditional "make" approach where I make everything myself will no longer exist. Rather, new alliances will emerge. A fine example of this is Porsche, which is currently building a new plant in Saxony for its battery supply. They are not producing them themselves. They simply generate the impetus and then look for someone to do it for them. This means not doing it yourself, but locating supply in a local environment close to production to establish the necessary security of supply for the core components. Of course, this cannot be done with all elements for reasons of cost and capacity. But the elements that are crucial for the product, that is, the critical components, need to be brought closer. This is done by establishing appropriate cooperation partnerships that will provide the company with reliability of supply in times of crisis.