What are the consequences of the strain on supply chains?

There was one event that truly epitomised the fragility of global supply chains: In March, the container ship Ever Given blocked the Suez Canal, the main logistical and transport artery of the global economy, for almost a week. While the media presentation of this event sparked many a cutting remark, not everybody was in the mood for humour: Like falling dominoes, the blockage caused damage to the world economy worth several billion Euro.

Over a year later, even people without a degree in logistics management probably know how important the supply chain is. When books become more expensive, pasta shelves remain empty, and shoppers at the supermarket have to think twice about that pound of butter, one reason behind this is the massive increase in the costs of energy, but it is far from the only one. Many raw materials are still being extracted in the quantities needed, many goods are still being produced. But they cannot find a way to their destination.

According to a study published by the international consulting agency Accenture at the annual conference of the World Economic Forum in Davos, disruptions to the supply chain in connection with Covid-19 caused the GNP of the national economies of the Euro zone to shrink by 122.7 billion Euro in the year 2021. Therefore, the situation has been critical since before the Russian invasion in Ukraine, though it can certainly be said that the war has exacerbated it. Should the war continue in the long term, Accenture expects further losses within the Euro economy, amounting to 318 billion Euro in 2022 and another 602 billion Euro in 2023.

But what does this mean for the packaging industry?Simply put, this old adage applies: "Without packaging, there is no product.” Packaging manufacturers therefore have to make sure that their own production continues without a hitch (or with as few as possible) in order to stay competitive. Packaging manufacturers in the supply chains of other industries also play an important part, whether the need is for cardboard boxes, vials or stretch wrapped pallets. But how can the industry make sure there will be no greater disruptions?

„"Transparency in the supply networks, including tier 2 and tier 3 suppliers, is of the utmost importance. Companies must switch from a just-in-time to a just-in-case approach, by diversifying their base of suppliers, planning alternative shipping routes, making their centres of distribution more flexible and increasing stockpiling. This comes at a cost, but it amounts to a kind of 'insurance' against future shocks", says Kris Timmermans, head of the Supply Chain & Operations division at Accenture.

From its inception in Japan, the just-in-time delivery model set a precedent globally in many different industries during the second half of the 20th century. The idea is simple: perfectly timed deliveries save companies from having to maintain large, costly storage facilities. The larger the products are, which is to say the more space they take up in storage, the greater the corresponding savings. But this "warehouse on wheels" has one crucial weakness, which is now becoming increasingly evident:The longer the supply chain, the greater the likelihood of disruptions. This applies both to the geographic distance between the individual steps in production as well as to the number of them.

The study suggests that therefore supply chains need to be reinvented in order to adapt to the change in paradigm. Supply chains were primarily conceived to optimise financial costs. In today's world, they must, however, also be robust and flexible, in order to be able to react to increasing uncertainties in supply. At the same time, they are becoming an important competitive advantage to make future growth possible. A key term: just-in-case. Meaning the storage of necessary materials for production.

Storage space is not cheap. However, in the light of the growing uncertainty surrounding supplies and political developments that are difficult to predict, companies have to ask themselves whether this isn't the lesser evil compared with, at worst, a stand-still of production because of a lack of materials.

The model can be supplemented by digital aids. Gathering new data sets, including real time data, from inside and outside the company and along the entire value creation chain, will be vital. Automation and artificial intelligence will enable companies to identify new data patterns quickly so that they can make better decisions.

"The key will be to invest in new technologies for better use of data – from digital twins and analyses to supervisory bodies for supply chains – and in the Cloud Continuum, which offers enormous processing power in a non-expensive, flexible and sustainable way," Timmermanns concludes.