JÄGER Busi­ness Blog

Raw mate­r­i­al short­ages due to Coro­na:

How man­u­fac­tur­ing com­pa­nies should react.

19.01.2022   |  Bas­t­ian Won­dratschek  |  Mike Oliv­er Sabionski

/?page_id=93794&preview=true
Fließband für Personalcomputer, Herstellungsprozess. Blog Popup blog/what-are-the-advantages-of-installation-ready-assemblies-in-the-rubber-and-plastics-sector/

WHITEPAPER

Secure the Start of Production

Learn which fac­tors influ­ence your SOP!

The glob­al short­age of raw mate­ri­als has led to sup­ply bot­tle­necks across all sec­tors. The rea­sons for this are, on the one hand, ris­ing demand as a result of the pan­dem­ic-relat­ed eco­nom­ic down­turn and, on the oth­er, the con­tin­u­ing reduced pro­duc­tion capac­i­ties of raw mate­r­i­al sup­pli­ers. This effect has been exac­er­bat­ed by recent dis­rup­tions to glob­al sup­ply chains, such as the block­ade of the Suez Canal or the tem­po­rary clo­sure of the con­tain­er ter­mi­nal at the Chi­nese car­go port of Ningbo-Zhoushan.

Cur­rent­ly, 78 per­cent of medi­um-sized com­pa­nies in Ger­many are affect­ed by mate­r­i­al short­ages. This applies not only to wood and steel, but also to the rub­ber and plas­tics industries.

How can pro­duc­tion com­pa­nies respond to this sit­u­a­tion? What short- and medi­um-term solu­tions are there to over­come this cri­sis? And what can deci­sion-mak­ers do to ensure mate­r­i­al sup­plies despite shortages?

Eval­u­ate alter­na­tive materials

Short-term mea­sures are rel­a­tive­ly dif­fi­cult to imple­ment because the short­age of raw mate­ri­als is a far-reach­ing phe­nom­e­non. Affect­ed com­pa­nies can­not sim­ply switch to anoth­er man­u­fac­tur­er, because sup­ply prob­lems are basi­cal­ly uni­ver­sal. In addi­tion, com­peti­tors are also on the look­out for raw mate­ri­als and input mate­ri­als, which fur­ther fuels the raw mate­ri­als market.

One pos­si­ble solu­tion is to eval­u­ate alter­na­tive mate­ri­als that may be less in demand. These may be gener­ic vari­ants of the same mate­r­i­al, such as a dif­fer­ent brand, or mate­ri­als with slight­ly dif­fer­ent char­ac­ter­is­tics.

In the course of mate­r­i­al selec­tion, for exam­ple, design often cross­es mate­ri­als off its list that are not con­sid­ered because of minor issues. In most cas­es, these fab­rics still meet the pri­ma­ry require­ments. They are just not opti­mal for the intend­ed use. In the cur­rent sit­u­a­tion, it makes sense to give these mate­ri­als a chance.

Unfor­tu­nate­ly, alter­na­tive mate­ri­als are not a short-term option for all indus­tries. In the food or phar­ma­ceu­ti­cal indus­tries, for exam­ple, mate­ri­als go through com­plex approval process­es with mul­ti­ple rounds of test­ing before they are released for pro­duc­tion. Although the release of alter­na­tive mate­ri­als is pos­si­ble in prin­ci­ple, it can take up to six months. In addi­tion, there is no guar­an­tee that the new options will still be avail­able at the end of the eval­u­a­tion process.

Seek­ing coop­er­a­tion with oth­er companies

Despite the com­pet­i­tive sit­u­a­tion, some man­u­fac­tur­ing com­pa­nies are try­ing to counter the cri­sis through coop­er­a­tion. It hap­pens con­tin­u­ous­ly that some­one urgent­ly needs mate­r­i­al A and at the same time has a sur­plus of mate­r­i­al B in stock. In this case, it is pos­si­ble to barter with oth­er com­pa­nies that are in a sim­i­lar situation.

How­ev­er, find­ing part­ners can be rel­a­tive­ly time-con­sum­ing — espe­cial­ly if those respon­si­ble lack the appro­pri­ate con­tacts. For this rea­son, var­i­ous dig­i­tal trad­ing plat­forms for raw mate­ri­als have now become estab­lished on which com­pa­nies can search for resources and offer them for exchange. Cur­rent­ly, these offer­ings are still man­age­able, but it may be worth­while to take a look.

Tip 

If in doubt, it is advis­able to seek con­tact with your sup­pli­ers. They know best which mate­ri­als are avail­able at what price, and can advise you accord­ing­ly. Con­tact us if you need fur­ther information. 

Frame­work agree­ments are attrac­tive in the medi­um term

In the medi­um term, com­pa­nies have a lit­tle more lee­way in pro­cure­ment. Raw mate­ri­als and inter­me­di­ate prod­ucts are cer­tain­ly avail­able, but often with long deliv­ery times (cur­rent­ly around six months for rub­ber and plas­tics). If you know now what mate­r­i­al require­ments can be expect­ed in six months’ time, you can place orders ear­ly and secure your sup­ply of raw materials.

Frame­work agree­ments are a good way of doing this. In these, the sup­pli­er under­takes to pro­vide a cer­tain quan­ti­ty of goods with­in an agreed peri­od. At the same time, the cus­tomer under­takes to pur­chase these goods. The advan­tage for both sides is that they can enter into this inter­ac­tion on a long-term basis.

One pos­si­ble solu­tion to the short­age of raw mate­ri­als in pro­duc­tion is to pre-order rub­ber and plas­tic com­po­nents to secure medi­um-term require­ments. How­ev­er, keep­ing prod­ucts in stock for a longer peri­od of time requires cor­re­spond­ing stor­age capac­i­ties, which are asso­ci­at­ed with costs. This is where frame­work agree­ments come into play. They offer both sides legal secu­ri­ty and thus enable pro­duc­tion to be shift­ed into the future

/blog/raw-material-shortages-due-to-corona-how-manufacturing-companies-should-react/

Logis­tic center

Why are frame­work agree­ments worth­while when raw mate­ri­als are scarce?

A frame­work agree­ment offers both sides legal secu­ri­ty and gives them enough lee­way to work out the coop­er­a­tion more effi­cient­ly. The sup­pli­er can antic­i­pate that the cus­tomer will buy a cer­tain quan­ti­ty of goods from him and plan his pro­duc­tion accord­ing­ly. The cus­tomer, in turn, does not have to pro­vide addi­tion­al stor­age capac­i­ty, because the time­ly deliv­ery of his required com­po­nents is con­trac­tu­al­ly fixed.

The advan­tages of frame­work agree­ments in the con­text of pan­dem­ic raw mate­r­i­al short­ages are:

How­ev­er, com­pa­nies should not rely 100 per­cent on the last point. The mar­ket is still tight and fur­ther price increas­es are to be expect­ed. In view of this, rub­ber and plas­tics sup­pli­ers may be forced to adjust their prices as well in order not to incur loss­es. In case of doubt, it is advis­able to agree a price esca­la­tion clause to con­trac­tu­al­ly safe­guard this point.

Con­clu­sion

Respond­ing to the cur­rent short­age of raw mate­ri­als and the asso­ci­at­ed sup­ply bot­tle­necks is rel­a­tive­ly dif­fi­cult. Mod­ern sup­ply chains are not designed to respond flex­i­bly to dis­rup­tions and there­fore do not offer inher­ent coun­ter­mea­sures. The best way out of this sit­u­a­tion is to inten­si­fy con­tact with sup­pli­ers and work togeth­er to find a solu­tion. After all, every­one is in the same boat.

It is also impor­tant to learn from the cur­rent cri­sis. The COVID 19 pan­dem­ic has shown how frag­ile the pro­cure­ment strate­gies of mod­ern busi­ness real­ly are. The cur­rent bot­tle­necks should be a rea­son to revise one’s own sup­ply chain man­age­ment and emerge stronger from the cri­sis. Act­ing with fore­sight is the deci­sive key­word in this context.

/blog/raw-material-shortages-due-to-corona-how-manufacturing-companies-should-react/

Whitepa­per:
Secure the Start of Production 

Learn which fac­tors influ­ence your SOP!

/jaeger-gummi-und-kunststoff/our-locations/

Author: Bas­t­ian Wondratschek

Bas­t­ian Won­dratschek has been part of Jäger’s sales team since 2019. The trained whole­sale and for­eign trade mer­chant orig­i­nal­ly comes from the steel indus­try. As a sales rep­re­sen­ta­tive he is respon­si­ble for cus­tomer ser­vice at our Stuttgart location. 
/jaeger-gummi-und-kunststoff/our-locations/

Author: Mike Oliv­er Sabionski

Mike Sabion­s­ki man­ages the cen­tral Jäger loca­tion in Hanover. The mechan­i­cal engi­neer with a degree in busi­ness admin­is­tra­tion and design has been in the busi­ness for more than 30 years. 

Share this post!

Facebook 
LinkedIn 
Telegram 
WhatsApp 
XING 
Email