Ready for action & yet at a standstill – supply chains in times of crisis

Nobody has forbidden car manufacturers from continuing to produce vehicles during the lockdown. Nevertheless, most brands have reduced production to zero. Of course, this was also due to the drastic slump in sales. Above all, however, the coronavirus pandemic has caused supply chains to collapse worldwide.

This is because the automotive industry has branched out across the entire globe in recent years. The international division of labor, according to which companies produce where they can do so most cheaply, has helped German companies to play to their strengths and still produce at competitive prices. In reliance on fully functioning supply chains, inventories were largely minimized.

The weakness of this strategy is becoming apparent these days. And it is by no means just a problem for the automotive industry. Almost every industry today is globally networked.

At the beginning of March, the Port of Hamburg reported that 25 fewer mega-freighters than usual had arrived from South East Asia. The pharmaceutical industry, which receives almost all of its raw materials from China and East Asia, has been hit particularly hard. Overland transportation also came to a standstill. Especially when national borders had to be crossed – and the transporter was therefore subject to a wide range of regulations from local health authorities.

It is therefore absolutely necessary to think about alternatives. Of course, it is not a question of every company producing every required component itself. Suppliers can usually do this much better and much more efficiently. But at the very least, it seems sensible to build up backups, i.e. to simply increase the number of suppliers. The simple distance between supplier and customer must also play a greater role in the selection process. To put it bluntly: if the supplier is within walking distance, in case of doubt the management team can deliver components to the assembly line with a handcart.

In addition, a return to warehousing is a possible solution. In the event of a crisis, such a buffer can supply production until logistical structures have been rebuilt. Of course, this is easier if components are not on a freighter for 40 to 45 days. Such a buffer could then also become an argument in negotiations. After all, guaranteed delivery capability will perhaps be just as important as price in the future. Incidentally, the German government also maintains a strategic oil reserve, which makes the country independent of oil supplies for around 90 days in the event of a crisis.