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A single major supplier is often cheaper. In times of crisis, however, it becomes clear that this dependency harbors risks.
The war in Ukraine and the aftermath of the corona pandemic are weighing on the global economy. Rising inflation is also a concern. It’s the highest it’s been in decades. Increased energy prices for gas, petrol and oil are driving inflation. But not only, says economics professor Reto Föllmi from the University of St. Gallen (HSG).
Expert recommends more suppliers
According to Föllmi, Russia and Ukraine are not the largest economies. But for many raw materials, Russia is an important player. «I am thinking of fertilizers, but also of other raw materials such as steel. All of these raw materials are now more difficult to obtain, leading to price increases throughout the supply chain.”
Fertilizers, steel, food – many things are becoming more expensive because of these gaps in the supply chains. According to Föllmi, one remedy would be more broadly based business relationships with a larger number of suppliers worldwide.
“The corona crisis already taught us that it is important not to be dependent on a single supplier in the supply chain, but that you might have a second or third one in reserve. However, this is not free. Of course, it’s always cheapest when you concentrate on one supplier and can produce in large quantities,” explains Föllmi.
ECB hesitation
The European Central Bank (ECB) plays a central role in the fight against inflation. This decided on Thursday to keep the key interest rate at zero percent.
The monetary policy of the ECB is currently difficult to understand because the inflationary risks are building up, says Föllmi. “In my opinion, sticking to the low interest rates means that later, when inflation has continued to rise, you really have to step on the brakes. And the costs will then be higher than if we initiate a turnaround now.”
Because the past has shown that the longer inflation lasts, the more expensive it becomes to get rid of it.