SUPPLY CHAINS AFTER COVID-19 – THE CALL FOR CHANGE
The tense situation surrounding deliveries throughout Europe is currently causing problems for bicycle retailers and producers alike. According to a survey by the association Cycling Industries Europe (CIE), 85 per cent of manufacturers questioned fear that further delays in delivery may occur – and that the situation is not set to improve in the coming months either. Alternative measures are being discussed.
There is little news from Asia on the current delivery situation. Much information is being withheld, public communication is undesirable. European producers are constantly complaining that they are receiving very little information or details of delivery times from their long-standing Asian partners. When information does seep through, it is either spontaneous or not really reliable. Many countries that had hitherto remained more or less unaffected by Covid-19 are now having to cope with stricter preventive measures. This is the case for instance in Malaysia and Taiwan. To make the situation worse, the Pacific island also suffered a severe drought this spring, which even led to rationing of drinking water supplies. The resulting closures of production sites combined with increased global demand have resulted in a tremendous shortage of components in particular – which has affected almost every bike producer. In addition to all this, the times for preordering have been extended, which means more investment for the bike producers. This poses major challenges especially for small and medium-sized manufacturers, also because they are unable to calculate whether the current boom will persist over the coming years and whether long-term investment in growth will really pay off. At CIE, however, whose members include some of the major players on the market, such as the Accell Group, Pon Bike, Sram and Trek, there are projections that annual bike sales throughout Europe may rise from the current level of just under 20 million to as high as 40 million by the year 2030. A more cautious estimate still assumes sales of at least 25 million bikes – and this increasing demand has to be addressed. Kevin Mayne, Chief Executive of CIE, even reports of the political pressure that is now being exerted on the bike industry. Politicians, who have been investing millions in expanding bike infrastructure for a number of years, are visibly unimpressed by the fact that the supply of bikes is failing to meet the demand.
Promoting digitisation of the supply chain
Further digitisation of the supply chains is an important part of the solution for improving planning security. Supply chains are becoming increasingly complex, as recent months have shown. For a long time it has not simply been a matter of procuring finished goods, but instead of advanced planning in the longer term to assure the supply of raw materials and production resources. As electrification of bikes increases, the bicycle industry is entering into direct competition with the automotive and IT sectors. And here too production capacities soon become exhausted, as evidenced by the substantial waiting times for semiconductors and computer chips in early 2021. Even the car industry, which for a long time now has been relying on growing digitisation of the supply chain, has been taken by surprise. To ensure that the increasing complexity remains manageable, a digital transformation of the supply chains similarly appears to be unavoidable for the bike industry. This will allow for better processing of large volumes of data and improved forecasts with the aid of artificial intelligence. Apparently there were computer-assisted analyses that predicted the growing demand for bikes back in spring 2020 and – even at this early stage – were encouraging companies to place more orders while the lockdown was still in force. However, if such digitisation tools are to be used successfully, there is a need for high-quality data – and this is lacking, especially in smaller enterprises. Yet without a large source of data, all of the decisions based on this could be wrong. For instance, there are forecasts from some market players that assume the current strong demand will drop off again by 2023. This is why companies are taking a critical view of longer-term investments and preferring to wait. Complicating matters still further is the fact that top priority for many producers, particularly the smaller ones, is on managing the tremendous demand. Interest and opportunities to invest resources in innovations and further projects are therefore limited.
Even amongst logistics providers, actually one of the driving forces behind digitisation, there is still a clear need for improvement, as a survey by Hermes logistics shows. The survey found that only some 25 per cent of logistics operators questioned had already developed a strategy for digitising the supply chain. Although companies were apparently aware of the need for digital transformation, there was a lack of know-how as well as financial and personnel resources. A shortage of skilled labour is to be expected in the field of logistics in particular because of the lack of IT specialists so important for the transformation – and this is not only the case in Europe, but especially so in China, as the Mercator Institute for China Studies discovered some years ago. Another problem is that the global supply chains are extremely fragile when facing sudden, unpredictable changes. The blockage of the Suez Canal as well as the shutdown at the Chinese port of Yantian have led to major setbacks – including a worldwide shortage of containers and the ensuing price increases. It will take weeks yet for logistics to resume smooth operations – provided there are no further disruptions.
Reshoring to Europe
More production capacities in Europe would help rectify the current supply bottlenecks, at least in part. Giant, for instance, opened a plant in Hungary in 2020, the drive specialist Bafang and the producer of children’s bikes Woom moved to Poland, while Riese & Müller now has its frames produced in Portugal. Interruptions in the supply chain owing to the global uncertainty caused by Covid-19 combined with rising transport costs mean that these countries are regarded as extremely lucrative production sites. Even in the manufacture of carbon frames, there are already opportunities to relocate production from Asia back to Europe. The topic of sustainability also plays a role here because more and more end consumers care about where their product comes from and attach great importance to sustainable production, involving the shortest possible transport routes and a small CO2 footprint. Yet large-scale reshoring of frame production to Europe makes little sense if the components continue to be produced in Asia. At present, a shortage of capacities and know-how is preventing the production of components in Europe for the mass market. European skilled workers are not always able to achieve the vertical range of manufacture required. Consequently, in order to introduce a greater level of planning into the expected growing demand, CIE is drawing up a roadmap for Europe, which is to be implemented by 2030. Examples of the measures included are the creation of more qualified jobs or the provision of more investment, but also the sourcing of raw materials as well as support for development and innovation.
Pooling capacities and generating collaboration arrangements with other industry partners may provide the key to success in the long term. In the case of developments that extend beyond the company’s core business, too, alliances with other partners can help, and this is an area that is set to become more important, particularly in the context of electromobility and connectivity. Divisions of labour between companies are characteristic features of highly developed economies, writes Prof Hans-Christian Pfohl of the University of Darmstadt in an article for the German business magazine “Manager Wissen”. This would allow companies to concentrate on their core competencies while exploiting the expertise of other enterprises for additional measures. That would save on overheads, he continues, but would lead to greater complexity in the supply chain. Furthermore, the transfer of competencies demands openness from all partners. Yet many players are not yet ready to take such steps because they see collaboration with others as hindering maximisation of their own profit. A rethink, though, is essential in order to prepare for the future, according to a forecast from the Berlin-based innovation workshop Velolab. Communal events and gatherings with participants beyond the realms of the bike sector may also help to improve the exchange of ideas and cooperation. After all, the challenges confronting the bike sector are certainly not getting any smaller.