Supply chains in the tension zone between resilience and competitiveness
For decades, supply chains have become increasingly internationalised, especially in the electrical and digital industries – and also in SMEs. The manufacturers of electrotechnical capital goods initially followed the global-isation of their large-scale customers to eventually become "global players" themselves. Today, the production of complex electronics calls for supplies of semiconductors and electronic components from all over the world.
Electronic devices whose supplied parts and components are manufactured exclusively in European countries are the absolute exception. The actual place of manufacture, where the electronic device is finished, is irrele-vant to the question of supply chain complexity. A shift in the production location from Asia to Europe, for ex-ample, pulls the multifaceted supply chains behind it like rubber bands. In many cases, the complexity of sup-ply chains will continue to increase. The "reshoring" often invoked by politicians and touted in public media, the bringing back of production to Germany or Europe, is not an effective strategy for the globally active compa-nies in the electronics and digital industry to shorten supply chains and thereby make them more robust!
The globalisation of these industries has progressed for very different reasons. Above all, the proximity to im-portant sales and supply markets in Asia and America plays the most important role. Moreover, the balancing of currency risks, access to competitive labour markets, reaching talent and research and development institu-tions have also always been globalisation drivers. Consequently, the complexity of supply chains has in-creased and the Corona epidemic has ruthlessly exposed the vulnerability of these supply chains. The Corona crisis, however, also shows that the decline in order volumes became the dominant problem after only a few weeks, and that the reaction of companies to the decline in their business opportunities and the unexpectedly rapid recovery of the markets resulted in the actual overstretching of supply chains already as early as the end of 2020.
In the light of this experience, the only effective methods to sustain supply chains and own production are uncomfortable and anything but new. On the one hand, critical components - especially complex semiconduc-tor chips - must already be backed up with alternatives in the product design. This is more and a good deal more demanding than a simple "second source" strategy. In the vast majority of cases, semiconductor chips are proprietary designs with extensive protection of "intellectual property" and therefore cannot be replaced 1:1. Therefore, the "second source" strategy must refer to a second circuit design with other components from other supply sources. This increases the costs and time of development considerably.
The second strategy to stabilise supply chains is to have large ranges of own inventories, both raw and fin-ished goods.
Both strategies are actually "truisms" for electronics manufacturers, and yet the industry has been striving, in a risk assessment, to reduce redundant designs further and further in favour of a faster "time-to-market" as well as reducing inventories of raw materials and finished goods even further, above all in order to tie up less capital. This risk assessment needs to be reconsidered and rebalanced based on the experience gained in the meantime.
The greatest danger resulting from the experience now gained, however, would be a dismantling of established global investments, especially and above all for SMEs active in the electrical and digital sectors. De-globalisation or "de-coupling" would be a step back into closed trading areas or even nation states with the necessary protectionist trade barriers. This scenario would not only have the potential to destroy prosperity in many, if not all, regions of the world. What is more, today's smouldering conflicts at the borders of trading are-as would also break out openly in a largely decoupled world. A de-globalised world will in all likelihood become poorer and more warlike compared to today.
Consequently, the real problem for globally positioned SMEs is not the complexity and vulnerability of interna-tional supply chains, but the danger that open multi-lateral world trade will be increasingly restricted and ulti-mately a politically and economically total decoupling of trade areas would necessitate a complete realignment of value creation.
Guest article by Dr.-Ing. Gunther Kegel
- CEO Pepperl+Fuchs SE
- Member of the Executive Board of Deutsche Messe AG
- President of the Central Association of the Electrical Industry Germany (ZVEI)
- Vice President of the VDE Verband der Elektrotechnik Elektronik Informationstechnik e. V.