Global supply problems burden mechanical engineering
Global supply problems burden mechanical engineering – What possible solutions are there?
A brief summary of the most important points
The nine most important reasons for global supply bottlenecks
The Corona crisis is often cited as the reason for the worldwide supply bottlenecks. However, this was not the only decisive factor. There are other reasons, which we briefly outline here:
Increased consumption in many countries
Due to the economic upswing, consumption is increasing strongly in many formerly poorer countries. Probably the best-known example is China, where an enormous increase in demand is having an impact on the global economy. But there is also more and more demand for consumer goods and machinery from other continents. In the long term, this is changing the flow of goods and supply chains worldwide. In some cases, logistics, transport routes and infrastructure are not yet optimally geared to this.
Management errors in procurement
Various producers, e.g. in the automotive industry, reduced their orders for semiconductors because the demand for automobiles had dropped off in the meantime. When more orders came in again, these components could no longer be purchased to the desired extent because consumer electronics had increasingly bought them up. The consequences were sporadic production stoppages in the automobile industry due to a lack of components. And this is only one example.
All in all, it can be stated that the approach of “just-in-time” deliveries, which has prevailed for decades and has been optimised over time, no longer provides a secure basis for scheduled production in the current situation with worldwide supply bottlenecks. Buyers who had ordered too carefully or too little are now being punished. The extensive avoidance of warehousing, storage costs and capital commitment – or their partial shifting to the component manufacturers – is now taking its toll.
Shortage of truck drivers & staff in logistics
In Germany alone, there is a shortage of about 80,000 professional drivers and the shortage is becoming more and more serious. Indeed, it is estimated that about 30,000 drivers retire every year, while only a total of about 15,000 new driving licences are issued. There is also an increasing shortage of warehouse and loading/unloading staff, such as forklift drivers. These facts contribute to the fact that the situation in logistics continues to worsen.
Restrictions on production due to Corona
Factory closures, first in China and later in other parts of the world, had a major impact on the supply situation worldwide for certain end products and also for intermediate products and components used in mechanical engineering.
Transport problems due to Corona
The closure of ports in China at the beginning of the pandemic and repeatedly thereafter during new covid cases, as well as nationwide lockdowns such as in India, led to enormous transport problems. Goods piled up in the respective ports, some of which could not be unloaded and transported further or loaded and shipped. This resulted in massive restrictions in production.
Corona-related changes in consumption
The demand for laptops, printers, monitors, microphones as well as consumer electronics increased strongly due to increased home offices and lockdowns. In contrast, there was initially less demand in the automotive industry, which has changed again over time. These strong fluctuations in demand pose major challenges for the respective producers and put additional strain on supply chains.
Energy policy in China
The huge demand for energy in China actually has an indirect impact on supply chains. China still relies 50% on coal-fired power. When this becomes scarce (e.g. due to trade disputes with Australia), electricity is rationed, which slows down industry in China and thus the production of important components.
Trade difficulties between the USA and China can affect logistics and production worldwide. If there are embargoes or pressure to no longer include components from China, for example, in machines that are to be imported into the USA, this poses major challenges for manufacturers, as the parts then have to be sourced elsewhere.
Individual logjams on transport routes
Isolated events, such as the eight-day blockage of the Suez Canal by a container ship, clearly showed how susceptible international transport routes are to disruption and how strongly this can affect international supply chains.
Supply bottlenecks are in many cases the symptom rather than the cause of the problem!
The chaos in the global supply chains and the resulting supply and production bottlenecks are not solely due to Corona. There are deep structural problems. The structures that have prevailed so far need to be reconsidered and adapted. More on-site production, more warehousing and a different approach to procurement are necessary for mechanical engineering in Germany to continue its success story.
What role does the conflict between China and the USA play?
The conflict between the USA and China is also causing concern among mechanical engineering companies in Germany. Fear of being caught between the fronts is great. At least half of the companies purchase components from the USA or China, mostly electronic parts, but materials such as steel, castings or preliminary products are also imported. If trade disputes arise, producers around the world come under pressure and risk bans by one country on buying and using products from the other. This could severely hamper the supply of components.
Currently, however, the container shortage is a particular problem worldwide. This is partly due to the Corona pandemic, which began much earlier in China than in the rest of the world. When China closed its factories and ports at that time, containers piled up in the port facilities because hardly any products were shipped from China. Since there is only a limited number of containers in the world overall, they were now lacking in other places to ship goods. The fragile balance of global container shipping was shaken and it is expected that it will take many months before the situation improves.
What are the possible solutions for a machine builder in the event of supply bottlenecks?
Higher stockholding for important parts
Stocking up plays an important role in avoiding bottlenecks in mechanical engineering. Important components should be sufficiently available. Although this ties up capital to a not inconsiderable extent and means higher storage costs, it can protect against production and turnover losses.
Furthermore, it must be considered that delivery costs have risen rapidly in recent months and air freight, for example, costs an enormous amount for short-term requirements. Here it is important to weigh up whether increased warehousing might not be the cheaper option in the end.
Search for alternatives with suppliers & components
New ways of procurement can help to avoid bottlenecks. The search for new suppliers can be just as important as the testing and use of other components. The targeted use of remaining stocks can also be useful.
Sourcing of important parts from production in Germany
Preferentially selecting suppliers from Germany or the EU shortens delivery routes and can ensure short-term and timely procurement. Relocating production back to Germany or the EU can offer great opportunities to avoid supply bottlenecks. This should definitely be examined, especially in the case of important components and preliminary products.
Let us advise you in detail.
GEYSSEL is a special machine business with 50 years of experience in the field of special machines. We manufacture in Germany and develop special machines according to your needs.
Components overhaul for reuse
Production downtimes at the customer can also be avoided if defective components are taken back by the manufacturer and overhauled so that they can be used again. This can be a simpler and quicker solution than building completely new machines for which there are currently not enough preliminary products. This is an option for both the machine builder and the component manufacturer.
Updating existing machines with conversion kits & additional modules
Machines already in use can be adapted by means of conversion kits or additional modules to meet changed requirements in terms of production processes or efficiency without the need to build and use new machines immediately.
Making series machines simpler & more individual at the same time through modularisation
In the long term, it may make sense to continue along the path of modularisation in mechanical engineering. This can not only increase efficiency in mechanical engineering, but also optimise warehousing. This tends to reduce the number of different parts and components that need to be kept in stock for different types of special machines. More parts of the same type can then be kept in stock for repair, maintenance and construction. The dependence on special suppliers and the storage time for individual parts can be reduced, as there tend to be fewer rarely used individual parts that have to be kept in stock.
All in all, by planning ahead and skilfully using alternatives, a mechanical engineering company can ensure that customers are satisfied even in the event of supply bottlenecks.
What solutions are possible to eliminate the global supply bottlenecks?
In the long term, there must be worldwide investment in infrastructure in ports, railways and roads in order to develop a global and at the same time environmentally friendly delivery system. It is imperative that this be less prone to disruption than the current system and that the staffing problem in the logistics industry and working conditions be addressed. However, the solution to the problems can also be to produce more locally again and thus reduce the number of deliveries overall.
Perhaps the solution also lies partly in producing more locally again and thus reducing the number of deliveries.
What are the prospects for German mechanical engineering in the future?
The outlook for the German mechanical engineering sector remains good. There are hardly any cancellations, so sales will only shift if production can only take place later. However, the worldwide global material and supply bottlenecks are already making themselves felt. Careful procurement planning, increasing inventories and examining alternatives are therefore immensely important for the individual mechanical engineering company in order to continue to operate successfully in the market.
Through good and forward-looking planning, an increase in stock levels and many years of trusting cooperation with partner companies, Geyssel, the special machine manufacturer from Cologne, has succeeded in continuing to reliably meet all customer requirements. A good network of suppliers, a solid business base and the use of new technologies and methods will ensure continued good prospects for the future.
Global supply chains are fragile and prone to disruption. Corona has exacerbated the problems, but it is not the only reason for global supply problems. These also lie in the lack of infrastructure, changing consumption patterns, lack of human resources and management failures in procurement.
Forward planning, reliable suppliers, more stockholding, alternative components and long-term modularisation can help machine builders secure production despite supply bottlenecks.
Freight costs have increased enormously and – if air freight becomes necessary – this entails immense costs. However, high inventory levels tie up capital and warehouse management also cost considerable sums. A forward-looking business consideration is therefore absolutely necessary to avoid production bottlenecks.