CSH POLICY BRIEF 6/2020
[Translation of the Policy Brief “Wie robust sind die österreichischen Lieferketten”.
To see the figures (description in German), please follow this link.]
HOW ROBUST ARE THE AUSTRIAN SUPPLY CHAINS?
It is of strategic importance to have a better understanding of the supplier networks of the Austrian economy in order to identify weak points and to be able to systematically make the economy more resilient and crisis-resistant. A survey was conducted for the first time to determine the supply chain risks in the Austrian economy. The analysis shows that one third of the companies surveyed have at least one supplier whose failure would mean a complete standstill of operations after the current stocks have been used up. For 55 percent of these central suppliers (or 40 percent of all suppliers) there are no alternatives. Relatively high inventories buffer the risk, so that in the event of delivery failures, there is no immediate loss of production across the board.
BACKGROUND
The risk of supply chain crises has increased continuously over the last decades due to globalization, especially the outsourcing of production. How big it is now became visible worldwide through the COVID 19 crisis—for example, there was a crisis in car production in the EU and Korea [1] or a collapse in meat supply and a crisis in medical goods in the USA [2, 3]. In Austria, too, a short-term shortfall in yeast deliveries made it clear how quickly production downtimes can occur.
If a company is no longer supplied with essential production components and its own stocks are used up, it cannot produce; in the trade or service sector, production comes to a standstill. If preliminary products cannot be delivered to other companies, delivery failures can spread through the entire supply chain network in cascades and, in the worst case, lead to the complete failure of entire branches of industry—a so-called supply chain collapse.
What do supply chains in Austria look like? How resilient is the companies’ supplier network, how large and how full are their warehouses, and how long can they continue to produce after a failure of their main suppliers? These questions were the central theme of a survey conducted by the Austrian Economic Chambers (WKO), which was compiled and analysed by the CSH.
METHODS
An electronic questionnaire was sent to 102,386 members of the WKO on 8 April 2020 with the request to reply by 20 April—i.e. in the middle of the corona crisis. The companies were asked to identify their main suppliers and customers and their typical stock levels. In addition, the number of employees who could be absent before production was threatened and the number of employees who were available during the corona crisis were recorded. A total of 17,393 companies replied to the questionnaire and 5,955 provided details about their suppliers and customers. The anonymous questionnaires were statistically evaluated by the CSH.
RESULTS IN DETAIL
1. CRITICAL SUPPLIERS
More than a third of the companies stated that they had at least one supplier whose failure would lead to a complete shutdown of their operations. This applies to small and large companies alike (see Figure 1). The situation is similar for all sectors, i.e. trade, construction, services and manufacturing.
[Description Fig 1: Importance of central suppliers. More than one third of the companies state that they have at least one supplier whose failure would lead to a complete shutdown. The result is independent of the size of the firms and concerns all sectors studied (services, construction, trade and manufacturing.]
About 40 percent of all the suppliers mentioned come from abroad. Even of those suppliers that are highly critical for the companies, about 35 percent are located abroad (Figure 2).
[Description Fig 2: Importance of the central suppliers (broken down by origin Austria or abroad). About 60 percent of the suppliers mentioned are located in Austria.
2. REPLACEMENT FOR CRITICAL SUPPLIERS
When asked whether there are alternatives to the suppliers mentioned, for more than 40 percent of all suppliers the answer was “no.” About 40 percent of the companies stated that they had alternative suppliers, the rest answered with “don’t know.” Approximately one third of the companies have at least one supplier whose failure would lead to a complete standstill of operations. Of these companies, 55 percent have no alternative for their highly critical suppliers.
[Description Figure Fig 3: Alternative suppliers to avoid total failure? 55 percent of the companies do not have one.]
3. STOCK SIZES
When asked how long companies can continue to work with their current stockpile before a supplier-related shutdown occurs, 14 percent reported inventories for more than two months, 18 percent inventories up to four weeks. A quarter of the companies stated that no problems were to be expected, about a quarter did not want to make an estimate.
At the time of the survey, about 15 percent of the companies had already stopped production.
[Description Figure 4 Stockpiles in different sectors]
The overall picture is that the declared stocks of many farms are sufficient for an average of one month. The stated stock ranges of larger companies tend to be somewhat larger (two to three months is the most frequently stated value for companies with more than 50 employees). Broken down by sector, only five percent of the service companies report low inventory levels (less than two weeks). For the retail sector, this figure rises to ten percent. In the manufacturing industry 15 percent and in the construction industry 18 percent of all companies state low storage ranges of up to two weeks.
However, the picture is reversed when looking at the standstills reported during the survey: Approximately 20 per cent of the firms in the service sector reported a current standstill, while this percentage was eight, five and four per cent respectively for the trade, manufacturing and construction sectors.
4. KEY EMPLOYEES
More than 30 percent of the companies absolutely need their key employees in order to be able to maintain operations (see Figure 5). This applies regardless of the size of the company, i.e. for small companies with two to five employees as well as for larger companies with more than 50 employees. In the manufacturing sector, about half of the companies stated that they absolutely needed 60 to 100 percent of their key employees.
[Description Fig 5: Key employees to maintain operations. The polarization in small firms indicates a smaller number of key employess.]
5. CURRENTLY AVAILABLE STAFF
One fifth of the companies stated that they had no employees available at the time of the survey. Half of the small companies with two to five employees and 40 percent of the medium-sized companies (six to 50 employees) had all employees available.
6. RESTART?
The majority of small companies stated that they would be able to restart operations immediately; larger companies were able to do so within two weeks. Only a very small part needs more than two weeks for the restart (see Figure 6). About one-fifth of the firms could not estimate how quickly it would be possible to reopen. The picture is similar for the various sectors.
[Description Fig 6: How quickly can businesses reopen? Most of the companies make it within two weeks.]
CONCLUSION OF THE CSH
- The high dependence on individual suppliers means that the Austrian supply chain as a whole is only robust to a limited extent. The high proportion of suppliers for whom there are no currently available alternatives increases this risk. Therefore, systemically relevant cascade-like supply crises could occur relatively easily.
- In this context, the great dependence on foreign suppliers should be emphasized.
- Stocks in Austria are relatively high and can buffer a collapse in the event of supplier failures. On average, production can continue for about one month.
- Austrian companies affected by the corona crisis can resume normal operations relatively quickly (within two weeks).
- There is a great need for a precise analysis and knowledge of supplier networks, especially among manufacturers of critical goods, in order to identify weaknesses and to increase the resilience of the Austrian economy as a whole. Following the example of other countries, an interdisciplinary working group—consisting of representatives from science, the public sector and industry—could identify and collect the necessary facts and figures for supply chain analyses and risk assessment.
CSH SCIENTISTS: TOBIAS REISCH, CHRISTIAN DIEM, WILLIAM BURTON, STEFAN THURNER
LITERATURE
[1] https://www.faz.net/aktuell/wirtschaft/unternehmen/corona-krise-autokonzerne-schliessen-fabriken-in-europa-16681639.html, March 16, 2020
[2] https://www.nzz.ch/wirtschaft/kommt-es-zu-fleischmangel-und-farmer-elend-in-amerika-ld.1554334, May 1, 2020
[3] https://www.faz.net/aktuell/wirtschaft/corona-trump-regierung-will-lieferketten-aus-china-herausholen-16754747.html, May 5, 2020
ABOUT THE CSH
The Complexity Science Hub Vienna was founded with the aim of using Big Data for the benefit of society.
Among other things, the CSH systematically and strategically prepares large data sets so that they can be used in agent-based models. These simulations allow the effects of decisions in complex situations to be tested in advance and systematically assessed. Thus, the CSH provides fact-based foundations for an evidence-based governance.
CSH Policy Briefs present socially relevant statements that can be derived from CSH research results.
