Survey by the IFO Institute
German industry is successfully restructuring supply chains
February 12, 2024, 2:29 p.m
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In addition to the shortage of skilled workers, the industry is particularly suffering from material shortages and disrupted supply chains. However, many companies are gradually converting the latter, according to a survey by the IFO Institute. However, the differences between the sectors are very large.
After the corona pandemic, German industry is continuing to improve its supply chains to reduce the risk of dependency and failures. Around 58 percent of the companies surveyed expanded their supply chains in 2023 and found new suppliers, according to a survey by the Munich IFO Institute. According to this, every third company also plans to further expand its own supplier base.
“Despite the significant decline in supply chain disruptions and material shortages last year, the supply chain restructuring of German industry is still in full swing,” said IFO researcher Andreas Baur. “The diversification of supply chains in particular is a long-term task that requires companies to be persistent.”
The industry is also increasing its inventories and in some cases producing more itself again. 45 percent of companies increased their inventory levels last year. However, only twelve percent planned to do this in the future. “Many companies have responded to the supply chain disruptions caused by the pandemic by expanding their inventories,” explained Baur. “In many cases, this adjustment process now appears to be complete.” About 44 percent of companies also reported improved monitoring of their supply chains. “17 percent have increased their vertical integration and reintegrated previously outsourced production steps into the company.”
Paper industry is weakening
There are industry-specific differences in the companies’ approach: In the electronics industry, a particularly large number of companies have increased the number of their suppliers and sources of supply (80 percent), as has the mechanical engineering industry (71 percent). According to the IFO, this proportion is only 28 percent for manufacturers of printed products and 37 percent in the paper industry. In the automotive industry, many companies are relying on increased vertical integration: 34 percent have started producing inputs themselves that they previously purchased from independent suppliers.
Meanwhile, a Europe-wide supply chain law could fail due to resistance from large EU states such as Germany and Italy. The directive is intended to hold companies across Europe accountable for deficiencies in their supply chains, such as human rights violations such as child labor or violations of environmental regulations. Business criticizes the fact that the EU requirements go far beyond the law already in force in Germany and mean additional bureaucracy.