Relocation of production in times of Corona

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Stabilising supply chains and reducing costs while bringing back production in times of Corona

Published by Geyssel

26. May 2021

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The sudden lack of masks and medical supplies at the beginning of the coronavirus pandemic made Germany’s dependence on international supplies clear to everyone. People quickly demanded that important products be produced in Germany again. The perceived and actual fragility of international supply chains as a whole is also increasing. Not only the coronavirus, but also Brexit or the accident of a container ship in the Suez Canal showed how quickly supply bottlenecks or even production stoppages can occur. Learn more about how to stabilise supply chains and how relocating production back to Germany could defuse the situation.

Key points at a glance:

The coronavirus pandemic underlined our dependence on products from abroad.
Relocating the production of important goods back to Germany could reduce dependence on foreign countries.
The condition for competitive costs would be the automation of production with the help of serial production or special machines.
Both the coronavirus pandemic and Brexit highlighted the fragility of global supply chains.
Delivery routes can be shortened and supply bottlenecks avoided by manufacturing products in Germany.
Increasing stock levels to secure supply would be another costly remedy.

How has the coronavirus pandemic impacted the supply chains?

The pandemic impeded transport and delivery of supplies due to extensive lockdowns in some countries (e.g. India). Supply chains that at other times functioned perfectly became unstable or even collapsed. This meant that important components for further processing were missing in some cases, severely jeopardising production in Germany. There was also a shortage of much-needed products, especially in the medical sector. Masks, medicines and other pharmaceutical products are mainly manufactured in China and India and were lacking in Germany. This led to increased discussions about whether to relocate production back to Germany to a greater extent in order to reduce our dependence on other countries and boost supply security.

How can supply chains and production be secured?

The coronavirus crisis and Brexit have shown that global supply chains are very vulnerable. If important consumables or parts required for further processing are missing due to delivery delays, this can have severe turnover and production consequences. Various measures could conceivably mitigate these problems:

Increasing stock levels in Germany

The delivery of raw materials and parts “just-in-time”, i.e. shortly before further processing, has become established practice in production. Although this approach saves storage costs and cost savings can often be made by purchasing or manufacturing parts abroad, the system collapses very quickly when deliveries are delayed or stop altogether. One way of preventing shortages would be to increase stocks of “critical” goods. However, this ties up a considerable amount of capital and requires larger storage areas, which in turn increases costs.

Securing transport routes

Not only the coronavirus exposed the vulnerability of international supply chains. Brexit, for example, increased delivery times between the UK and the EU increased and considerably complicated transactions. A large cargo ship that blocked the Suez Canal had a major impact on the freight business worldwide. All these examples show just how fragile the international transport system is and the effects disruptions can have. Added to this is the growing dominance of China in international freight traffic and an increasing shortage of containers. Although air freight is currently available in almost unlimited quantities and is also fast and reliable, it is either not suitable or too expensive for many raw materials and products. All companies in Germany thus face the considerable challenge of securing their supply chains. As this task will likely become more difficult rather than easier in the near future, a reduction in transport routes would be an important step towards greater planning reliability.

Relocation of production back to Germany or to Europe

To avoid increased storage costs or high transport costs for emergencies due to air freight in the long term, it might make sense to relocate the production of certain components, parts or products back to Germany or the EU. This would reduce transport costs and routes as well as dependence on foreign countries.
Although as an export nation Germany is unlikely to bring back all its overseas production, there is reason to believe that at least a part of the production of critical or very important products may be relocated back to Germany.
German industry is currently giving this more thought.

How can relocation of production back to Germany succeed?

Ramping up production in Germany again could succeed by reducing costs as much as possible. This could be done by taking the following measures:

State-funded subsidies for locations in Germany

There are increasing calls for the state to promote production in Germany. This can be done through either direct investments or municipal subsidies (e.g. reduced trade tax or similar). From an overall societal perspective, such measures especially make sense for strategically important goods (such as medical products). The coronavirus exposed the need for this – especially in the first phase of the pandemic when there was a shortage of masks. Many medical products are manufactured in China or India and were suddenly no longer available in sufficient quantities at the beginning of the pandemic.

Cost reduction through increased use of machines in production

Due to lower labour costs, many production steps can still be carried out abroad manually, which would not be possible in Germany. Labour-intensive work would have to be carried out by machines in Germany. Thanks to the high level of machine-building expertise in Germany, there are already a large number of serial production machines that could be customised to take over various production processes.

The importance of special machines

If there are no suitable serial production machines, custom-built special machines can be used. Designed and built to meet the specific need, they can ensure the production of high quantities in reliable quality and thus enable efficient production in Germany.

Further increases in production efficiency thanks to Industry 4.0 and AI

Major technological developments are underway that will change work processes – including in production – in the long term. Above all the buzzwords “Industry 4.0” and “AI” (artificial intelligence) come up time and again in this context. Industry 4.0 and AI can boost new machine-building developments and adaptations as well as the digitalisation process and thus increase the efficiency of production in Germany. Relocating production (back) to Germany would thus be more cost-efficient.

Conclusion

The coronavirus pandemic has revealed just how deeply production depends on reliably functioning supply chains. There can be sudden shortages in important medical goods, and just-in-time production works only if deliveries arrive right on schedule – otherwise, production stops. Although the solution will certainly not be a complete relocation of all production back to Germany, this could definitely be a strategy for certain core and vital products. To make production in Germany more efficient and cost-effective, it makes sense to increase the use of serial production and special machines. As a special machine construction and serial machine customisation specialist, GEYSSEL is happy to assist you with experience & competence.

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