Fight against supply chain bottlenecks
German industry fills up the camps
11/23/2022 1:27 p.m
The industry has been fighting supply bottlenecks since the pandemic. In order to prevent future disruptions, German companies are stocking up sharply, and many are enlarging their warehouses, reports the IFO Institute. However, it is questionable whether Germany will remain an attractive location in the long term.
German industry is reacting to the repeated disruptions in international supply chains since the beginning of the corona pandemic in 2020 with increased warehousing. According to a survey published by the Munich IFO Institute, 68 percent have increased their warehouses. 65 percent have sought additional suppliers, while 54 percent now monitor their supply chains better than before.
“Companies are fighting on many fronts to avoid supply chain disruptions,” said the head of the IFO Center for Foreign Trade, Lisandra Flach. “Supply chains have become more complex and therefore more prone to disruption. Small breaks can often cause production downtime.” 38 percent of industrial companies are therefore reorganizing existing suppliers. Only 13 percent increase their vertical integration, i.e. they now manufacture parts themselves.
No deindustrialization of Germany
The results differ according to the size of the company: Small and medium-sized companies (SMEs) in particular increase their stock levels (73 percent), large companies do this somewhat less (64 percent). Large companies are primarily looking for new suppliers (72 percent), which is what only 55 percent of SMEs do. Large companies also monitor their supply chain more closely than small ones (59 versus 48 percent). They also switch more between suppliers (43 percent vs. 30 percent). When it comes to bringing production back into the company, there are almost no differences: Large companies do this at 14 percent, small ones at 12 percent.
IFO President Clemens Fuest does not expect deindustrialization in Germany, at least in the short term. Industries could not be relocated that quickly, said the economist. But the question is whether Germany will remain attractive as a location in the long term. “In the case of energy-intensive industries, that is certainly in question. We lose competitiveness compared to other locations.” Further burdens such as a shortage of skilled workers and increasing protectionism would be added. “So I would take the issue seriously,” said Fuest.