Supply Chain Woes

“The pandemic was used by many companies to close digitization gaps. At the same time, a large number of robots were sold in China. This led to a boost in productivity. More basic materials are processed, so that the existing production capacities are no longer sufficient even for basic goods.” —Guido Bruch

After semiconductors, basic materials are now also missing

The supply bottlenecks began with semiconductors. Their deficiency was still easy to explain and was discussed here—extremely early on.

In the last few weeks, the lack of even the simplest basic materials has increased. Lumber is scarce and Würth was unable to deliver screws and nails during those days—sold out! 

The amazing thing: it can hardly be due to the actual supply chains. Because so far there have hardly been any bankruptcies. On the contrary, there have been fewer bankruptcies across Europe since the beginning of the pandemic than before. So, no manufacturers have failed for economic reasons. It can’t be because of the logistics either. 

Of course, there are too few cargo ships, but only because of the extreme demand. The freight supply itself has even grown, but is not enough. (Hapag Lloyd alone has provided 500,000 additional containers for ships in the last few months.) Apparently, more is needed than before the pandemic. 

This is largely due to China. The country itself had an economic growth of 2.3% in 2020 and is also strong this year with + 9%. We [German], American and British companies, are also busy. In some cases, the pre-crisis level has already been exceeded. There is enough money: private individuals have saved; states have pumped massive amounts of money into the markets. But there is a lack of capacity. Why is that?

Manufacturers are overwhelmed by the productivity boost from processors

Craftsmen and construction workers have been scarce in many countries for years. Capacity could hardly have been increased naturally. An increase in staff is in fact impossible. This applies to Germany as well as to the USA or China. In China, therefore, real wages rose by a high 5% last year. There is currently no record employment in western countries either. In other words, what is produced or processed is done with fewer staff than before. But now there is a lack of lumber and screws. So suddenly more is being processed than before. (The increase in demand can be explained by the flooding of money.)

The reason is likely to be smaller, cumulative productivity gains as a result of the digitization of the building process ( building information modeling) and also the increasing automation. Robot manufacturers like ABB are already doing well in the market here. 

Newer robots like the Hilti Jaibot can work almost day and night and should quickly replace several people. These continue to work elsewhere, so that the capacity is effectively increased. There are many such examples. More capacity also means more material requirements. The sum of these increases may have overturned the previous equilibrium.