JÄGER Busi­ness Blog

Is rub­ber & plas­tics sourc­ing from Asia
com­pat­i­ble with flex­i­ble sup­ply chain management?

29.09.2021   |   Hannes Bolting

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The Coro­na pan­dem­ic has shown how frag­ile the sup­ply chains of mod­ern com­pa­nies real­ly are. Of course, the vul­ner­a­bil­i­ty of branched sup­ply chains to dis­rup­tion is not a new insight. How­ev­er, over the past two years, the glob­al econ­o­my has expe­ri­enced for the first time what hap­pens when the worst hap­pens. In light of this wake-up call, com­pa­nies should ask them­selves whether they want to con­tin­ue sourc­ing their rub­ber and plas­tic mold­ed parts from the Far East.

Com­plex sup­ply chains are always risky

In most com­pa­nies, sup­ply chain man­age­ment is price-dri­ven. If sev­er­al sup­pli­ers offer goods of com­pa­ra­ble qual­i­ty, pur­chas­ing usu­al­ly opts for the less expen­sive sup­pli­er. As a result, a great many pro­duc­ers source their plas­tic and elas­tomer mold­ed parts from Asia, a region char­ac­ter­ized by a robust indus­try and low raw mate­r­i­al and labor costs.

How­ev­er, with the mon­e­tary ben­e­fits that sourc­ing from Asia offers come some risks. For exam­ple, basic deliv­ery times are sig­nif­i­cant­ly high­er than those of Euro­pean sup­pli­ers. An order placed by ocean freight may well be three months in tran­sit before it arrives in Europe.

In addi­tion, the long trans­port route offers more oppor­tu­ni­ties for unfore­seen events that can pre­vent time­ly deliv­ery. On a voy­age last­ing sev­er­al months, there is a much greater chance that bad weath­er or con­gest­ed ports will cause delays. In addi­tion, ship­ments of goods pass through sev­er­al bot­tle­necks on their way from Asia to Europe, where dis­rup­tions can have seri­ous con­se­quences. Just think of the block­ade of the Suez Canal in March 2021.

Then there are geopo­lit­i­cal risk fac­tors. Puni­tive tar­iffs or import restric­tions imposed due to trade dis­putes or diplo­mat­ic inci­dents can also delay or even block ship­ments of goods, often with only a few weeks’ notice.

In a sta­ble eco­nom­ic sit­u­a­tion, these dis­ad­van­tages are com­pen­sat­ed by low­er pur­chase prices. In times of cri­sis, how­ev­er, this changes.

Raw mate­ri­als are cur­rent­ly scarce

The eco­nom­ic impact of the Coro­na pan­dem­ic can­not yet be pre­cise­ly assessed. What is cer­tain, how­ev­er, is that some sec­tors have suf­fered great­ly from the cri­sis. Among oth­er things, sales in the cater­ing, tourism and local trans­port sec­tors have fall­en sharply, which has also had an impact on their sup­pli­ers and ser­vice providers. At the end of this causal chain is the raw mate­ri­als indus­try, which has also suf­fered a drop in sales and has reduced its extrac­tion or pro­duc­tion vol­umes accordingly.

Since sum­mer 2021, the num­ber of new­ly report­ed coro­na cas­es has been declin­ing world­wide. Most indus­tri­al­ized coun­tries are expe­ri­enc­ing an eco­nom­ic upswing. As a result, demand for raw mate­ri­als and sup­plies is cur­rent­ly ris­ing sharply, which in turn is dri­ving up prices. More seri­ous, how­ev­er, is the lack of avail­abil­i­ty of cer­tain raw mate­ri­als. Thanks to the enor­mous demand, some resources (steel or plas­tics, for exam­ple) are almost impos­si­ble to obtain. And if they are, the sup­pli­er often can­not guar­an­tee a fixed deliv­ery date.

Devel­op­ment of elas­tomer price indices (Source: www.wdk.de)

Sourc­ing from Europe is more expen­sive but more reliable

For Euro­pean man­u­fac­tur­ing com­pa­nies whose pro­duc­tion plan­ning depends on on-time deliv­ery of raw mate­ri­als and com­po­nents, this sit­u­a­tion is a major chal­lenge. This is espe­cial­ly true for orga­ni­za­tions that source their rub­ber and plas­tic mold­ed parts from Asia. They lack the flex­i­bil­i­ty to find anoth­er solu­tion at short notice if a sup­pli­er has deliv­ery problems.

It is true that it is pos­si­ble to order goods from the Far East with longer lead times, thus reduc­ing the neg­a­tive impact of delays. How­ev­er, this is only pos­si­ble if the com­pa­ny has suf­fi­cient stor­age capac­i­ty, which on the one hand involves costs and on the oth­er hand con­tra­dicts the basic idea of mod­ern sup­ply chain man­age­ment to move the ware­house to the street.

In the course of this, Euro­pean sup­pli­ers are cur­rent­ly com­ing more into focus. Thanks to their geo­graph­i­cal prox­im­i­ty, their basic deliv­ery times are sig­nif­i­cant­ly short­er than those of Asian man­u­fac­tur­ers. The inner-Euro­pean rail or high­way net­work has no sig­nif­i­cant bot­tle­necks that could form a bot­tle­neck. In addi­tion, there are no bor­der con­trols with­in the Schen­gen area. All these fac­tors ensure that the deliv­ery reli­a­bil­i­ty of Euro­pean sup­pli­ers is sig­nif­i­cant­ly higher.

In sum­ma­ry

Sup­ply chain man­age­ment is always also a ques­tion of risk affin­i­ty. Com­plex sup­ply chains that include raw mate­ri­als, mate­ri­als and com­po­nents from all regions of the world reduce pro­duc­tion costs and thus improve com­pet­i­tive­ness. How­ev­er, they also entail high risks. If a major dis­rup­tion does occur, the com­pa­nies affect­ed find it dif­fi­cult to take coun­ter­mea­sures at short notice. Work­ing with local sup­pli­ers, on the oth­er hand, is much safer, but also involves high­er costs.

Ulti­mate­ly, each com­pa­ny must decide for itself how it wants to set up its sup­ply chain man­age­ment. Some will con­tin­ue to source their resource require­ments from the Far East as they face high price pres­sure. For oth­ers, it makes sense to switch to Euro­pean sup­pli­ers to gain more cer­tain­ty. It is only impor­tant that man­u­fac­tur­ing com­pa­nies are aware of the risks that pure­ly cost-ori­ent­ed sup­ply chain man­age­ment entails. The last two years have shown what can hap­pen in the worst case.

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Author: Hannes Bolting

Hannes Bolt­ing has been work­ing in sales at Jäger since 2018. At the same time, the trained indus­tri­al clerk is com­plet­ing a master’s degree with a focus on sales man­age­ment at the FOM Hochschule für Ökonomie & Man­age­ment in Hanover. 

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