By Tanja Zimmermann
For many years, just-in-time concepts worked well for German corporations. The drawback: Companies became dependent on global supply chains. But how do they deal with today’s increasing geopolitical uncertainties and risks to global procurement? On behalf of the Konrad Adenauer Foundation, the ifo Institute has investigated the importance of global supply chains for German companies. The results of the study are remarkable against the backdrop of raw material shortages and rising commodity prices or a pandemic. This is because a large proportion of German companies are sticking to global supply chains. 5000 companies took part in the survey conducted by the ifo Institute. It showed that only one in ten companies intends to rely on domestic supply chains. But how are companies solving the risks in the current situation?
The number of suppliers and warehousing are increasing
The time periods considered for efficient risk management are becoming more crucial. It is noticeable that boards are starting to rethink. For example, EY's study finds that risks are now being considered for longer periods of time, over at least five years. For many, efficient risk management with a medium- and long-term focus has become essential - risk management gets a strategic notion.
The survey polled 500 board members worldwide. It turns out that they assess risk management in their companies as being too much anchored in the here and now and too little focused on the future. In fact, it only safeguards the status quo. It does not consider the fact that new risks may arise over time. This is because many risks and developments are judged to be of little significance in the current period. However, their significance and extent may increase in the long term and gain strategic importance.
The complexity, dynamics and effects on other sectors are increasing
Internationally operating companies are planning to expand warehousing and increase the number of suppliers for the purpose of diversification. This is evident in all sectors of the economy. Large companies are trying to reduce risks by increasing the number of suppliers. Small and medium-sized companies, on the other hand, want to expand their warehousing. Overall, it shows that 44 percent of companies want to change their procurement. However, for small and medium-sized companies this is easier said than done. Warehousing is expensive, as it requires space and working capital. Also the restructuring of business relationships involves a great deal of effort. Moreover, it increases complexity within the company. Even more so because the EU as a whole is an important supplier of intermediate products to the USA and China. At the same time, the supply chains within the EU are still the most important for companies based in Germany.
21strategies: efficient global procurement and minimization of risks with artificial intelligence
With an increase in the number of suppliers, the complexity also increases and thus again brings new risks. Coordination problems, currency risks or a required optimal inventory policy make business more complex and riskier. The mitigation of raw material shortages and geopolitical influences, in turn, involves a high financial burden and a possible spread risk.
Deep Technology from 21strategies offers a solution. The startup uses artificial intelligence to detect and analyze market developments and changes. In this way, certain factors influencing commodity prices can be tracked and analyzed in real time. Risks in international trade such as currency, interest rate and commodity price risks can be minimized. The AI-based technology goes one step further by providing concrete suggestions for action in strategic and operational business and delivers decision support for optimal hedging. Based on this, recommendations can be made for an optimal purchasing and sales policy depending on the inventory and warehouse capacities. This corresponds to an intelligent control of the purchasing and sales policy depending on an inventory policy by an algorithmic decision support. An optimal hedging of the commodity price changes is done with financial derivatives on the capital market.
21strategies is a startup seated in Germany, leveraging deep tech AI. To corporates, it provides hedge21® under a license agreement to optimize currency, interest rate and commodity price risks by algorithmic decision support.