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Supply chains, bottleneck recessions, rising prices: A 21strategies opportunity

By Tanja Zimmermann

In its new study "Strategies against the bottleneck recession: Countermeasures to supply bottlenecks and rising prices", the ifo Institute examines several strategies and options for dealing with the current challenges. To this end, several experts from different fields discuss promising approaches. How are companies from Germany dealing with the current challenges? The majority of companies are trying to respond through diversification. But this in fact increases the degree of complexity. According to Professor Dr. Wanja Wellbrock, Professor of Procurement Management at Heilbronn University of Applied Sciences, companies benefit from the implementation of holistic risk management even in extreme events.

Solutions to supply bottlenecks from the experts

What does it look like to relocate production back to Germany? Could this have positive effects? Precisely not: A relocation or reshoring would entail a 10 percent drop in GDP in Germany. Even nearshoring or relocation to neighboring countries would have a negative effect. Recycling, bioeconomy and the use of regenerative resources are therefore gaining in importance, as these could contribute to a sustainable supply of commodities. However, a strategy geared to the longer term cannot solve current difficulties. A geopolitical approach to ensure reliable access to necessary resources is also being discussed. Accordingly, the behavior of China and the OPEC+ countries are increasingly coming into focus. In the area of strategically scarce raw commodities, the authors see a need for action on the part of companies and politicians. Diversified trade agreements are particularly necessary here. According to the report, companies in Germany rely on diversification to minimize risks and price increases. But this in turn brings with it new difficulties, such as greater complexity, which can usually go hand in hand with greater dynamism. Ultimately, the authors agree that an international presence and diversification of supply sources is a promising approach.

But not all supply bottlenecks are the same

A distinction must be made between the types of supply shortages. One type of supply bottleneck was caused by increased demand or changes in consumer demand or cancellation of contracts in the wake of the corona pandemic. Another area of supply bottlenecks, on the other hand, is of a structural kind. These are often important commodities that are a prerequisite for the production of certain products and which cannot be mined in Europe at all, only in part or not in sufficient quantities. In addition, there are existing and new trade barriers. These are evident, for example, in the area of wood or steel and aluminum, which have contributed to a further increase in prices. The impact on the German economy is enormous, as it has a high degree of international diversification and is strongly networked internationally.

 

Reasons for disrupting up to several levels of the supply chain network are therefore a globalization of the supply chain with accompanying low inventories along the supply chains and a centralization of production and distribution locations. As a result, even small disturbances and interruptions, such as a ship stuck at an angle in the Suez Canal, quickly result in negative effects.

Risk management for the supply chain

Effective holistic risk management has therefore become all the more important. But it is precisely here, according to the experts, that many companies still have a lot of catching up to do. According to Prof. Dr. Wanja Wellbrock, it can even be proven that companies that have already had an efficient risk management system in place for a longer period of time are better prepared and can react more efficiently even to very rare occurrences, such as the Corona pandemic. Accordingly, it is also important that a large number of influencing factors and risks are included in the analysis. Since extreme events can usually trigger a domino effect.

21strategies: AI-powered optimal decisions under uncertainty

Optimal hedging of commodity rates is done with cash-settled financial derivatives on the capital market. In this context, 21strategies AI product hedge21 does not act as a mere risk control system. Rather, the AI is able to provide decision support. This allows companies to strategically and tactically optimize their actions in real-time. 21strategies thus offers an answer to the question: act now or later. Based on distinct suggestions for an action, hedge processes can be optimized and hedge strategies can be developed. Market changes such as the current shortage of commodities and price increases can be recognized early and countered at an early stage – with the effect of helping companies to achieve a higher economic resilience.


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