Correctly Respond To Delivery Bottlenecks

2023 Author : Hannah Pearcy | [email protected] . Last modified: 2023-05-24 11:12

Standstill machines mean enormous financial damage - companies with suppliers from Asia, Italy and other affected countries are doing their best to keep their production going.

Prof. Dr. Lutz Kaufmann, Chair of International Management and Procurement at WHU - Otto Beisheim School of Management, uses the example of rare earths from China to show various ways of reacting to delivery problems.

Three levels to deal with delivery bottlenecks

Many companies have built highly efficient delivery networks. Supplier parts flow in these networks with very low inventory levels in order to be able to offer running products at low cost. In many industries, purchasing costs account for two thirds or more of the company's total costs - for example, in the electronics and automotive industries. However, the close supply networks also help to be able to offer new products of the best quality as quickly as possible.

However, the corona virus has cut holes in many of these delivery networks . Especially companies whose products contain parts that are manufactured in countries like China are currently being massively challenged to plug these holes. And, of course, it is not just about goods obtained directly from there, but also about preliminary products that need their own suppliers again - so it is important to deal with a multi-stage, supply chain-wide problem.

WHU has defined three levels in which companies have to think and act:

• Level 1 is the individual level: Every company, be it a customer or a supplier, has to try to deal with the problems through its own processes. For example, stocks are used or products are transported by air rather than ocean freight. Or the customer is looking for new suppliers.
• Level 2 is the team level: How can companies solve the situation together with their current suppliers? Production quantities at the supplier and the customer can be relocated to plants in other countries, or parts or materials can be substituted.
• Level 3 is the branch or country level: Here companies try to find solutions together via branch associations or involve politics.

"In the case of rare earths, this was ultimately the only thing that worked, because political channels were used to reduce tariffs and open up new sources in other countries," says Prof. Dr. Merchant. It has been shown that those companies that have grasped the fastest at which level to address the delivery problems have been the most successful.

Prof. Dr. Lutz Kaufmann

What adjustments will be required afterwards?

According to Prof. Kaufmann, there are clever companies that also think outside the box. Tim Cook, CEO of Apple and architect of the highly efficient Apple Supply Chains, is equally focused on the resilience of Apple Supply Chains: If the current challenges are dealt with operationally, what adjustments are necessary to be prepared for the next shocks ? These questions are answered by those companies that will look good in the next cracks in the supply networks.