European industries again rely on stockpiling due to bottlenecks found in the supply chain

New survey by reichelt elektronik finds European industries are evolving to pave the way for more resilient supply chains

Delays due to product or material shortage in the supply chain process continue to have a significant impact on industrial companies in Europe. A survey by reichelt elektronik finds supply chain processes have become significantly worse with only 50% of respondents feeling optimistic about an improvement within the next 12 months, falling from a 63% rate according to a survey conducted in June 2021. In order to avoid future production downtime, companies are adopting different strategies to minimise the difficulties.

Stockpiling has significantly increased

The survey found that 86% of respondents were strongly impacted in the past year, including complete shutdown of production due to congestion in the production system. In comparison to a survey conducted in June 2021, companies recorded an average of 36 days of production downtime due to bottlenecks found in the supply chain process. Six months later the figure had risen to 47 days. This increase means that many companies will have to rethink their strategy in order to bring the number down. In the past, companies turned to reduce inventory to a minimum in line with the just-in-time principle however, this proves to be a subpar approach in terms of addressing delays in delivery.

*86 prozent of european industrial companies face daily limits due to supply chain bottlenecks*

To mitigate the difficulties, inventories are currently being increased. More than half of all respondents (57%) confirm that they are significantly increasing their stocks in 2022. By comparison, only 47% had done so in June 2021. The tight market situation and volatile supply chains are creating problems for companies to obtain stock – overall, 82% are struggling to source certain components or materials.

Is local production a solution?

Resource scarcity was found to be a problem in June 2021 according to 40% of respondents. As the situation has since worsened, 47% see it as a direct risk to their own company. The biggest concern for companies the rising energy prices (45%). In addition, they also fear a price increase for critical components due to unstable supply chains (43%). The concern for the lack of skilled workers, which used to be very present, drops to 39%, and is no longer the biggest concern of companies.

This only highlights the dependence of European industries in needing to source specific resources elsewhere. To counteract this, 54% say they are now producing certain components themselves that were previously purchasing. 33% plan to start producing products themselves again and only 13% say they currently have no plans to begin.

However, not all products can be easily manufactured in-house, such as semiconductors. For European companies, European locations are becoming an attractive alternative option to close the materials shortage gap. For this, Europe would need more of its own factories, although even then, it is still questionable whether European semiconductors can keep up with those produced from East Asia in terms of price.

When asked what criteria European semiconductor producers would have to meet so that companies would buy the same product despite higher prices, the most important thing for the respondents is the guaranteed security of supply. Furthermore, minimal price differences (49%), longer-term price stability (42%) and a better environmental balance than the competition (33%) are also factors taken into consideration.

Increased investment and promotion of future technologies in Germany

In order to not lose sight of the global market in future technologies, such as semiconductor production, companies are eager for politicians to provide more support for local research into the production of essential components (40%). In June 2021, only 38 percent were in favour of this. This shows that in the short period of time, a considerable re-evaluation towards localising research has taken place among organisations.

With all the innovative alternatives at hand, the question still remains whether supply chain disruption will continue after the pandemic. 54,5% think that companies will return to just-in-time after the crisis is over – at least for most components. 29% think this is true for all components. However, 14% say that just-in-time is history. Whether the changes are permanent or currently just a band-aid solution to bridge the vulnerability remains to be unanswered.