The disarticulation of the productive chains is imposing new challenges to companies, which are already looking for alternatives and changing strategies to maintain the production rhythm without compromising profit margins.

The strong global demand for components, the war between Russia and Ukraine, the escalating international freight prices, the volatility of the exchange rate and commodities, and the lockdown in China have created a nebulous scenario of uncertainties.

Companies already weigh down on stocks, bet on the regionalization of value chains, on the expansion of the number of partners and on increasingly verticalized production. André Clark, senior vice president for the Siemens Energy hub in Latin America and general manager of Siemens Energy Brazil, says that there is no visibility as to when exactly this will settle down to a new level.

“Currently, international global supply chains are facing profound setbacks. This system, which was designed for decades to be ultra-efficient and integrated, is having to adapt to abrupt plant closures due to Covid, logistical challenges due to war, and many other problems,” he says.

Within this scenario, and especially when it comes to energy assets, Mr. Clark points to a trend of investment in the concept of nearshoring, that is, a regionalization of value chains.

“It’s a change in value chain strategy to reduce volatility, both in value chains and also in currencies, because when you create costs in the same currency in that you serve the market, your risks are lower. At Siemens Energy that is what we are doing, trying to bring supplies closer together and decreasing dependence on large transports, such as container transports,” he says.

The company used to import from Germany all the insulating materials for equipment aimed at the power transmission market. Now, in addition to this alternative, the manufacturer is developing partnerships with domestic companies to supply the demand. The same happens with cooling systems, for which Siemens Energy is buying locally.

Leandro Barreto, partner at Solve Shipping, speaks about the impact of congestion in Asian ports and the difficulty to move products on the Brazil-Asia route. The cost of freight is around $2,600 a container, impacting the viability of the shipment of commodities and contributing to the rise of global inflation.

“As the world has not managed to put an end to the queues and congestion in the yards of the main ports of the world, we are entering the peak cargo season with a good part of the world’s supply capacity stuck. And this should remain throughout 2022,” says Mr. Barreto.

In these situations, Ricardo Lee, modernization sales head at Voith Hydro Latin America, says the company uses the strategy of looking for goods and services in other countries that have more competitive conditions.

“We use the global sourcing strategy, relying on the team work of the Voith Group. Our intercompany planning has increased internal production between plants around the world. This way, we are able to secure deliveries to customers.

In 2021, Vestas installed about 2 gigawatts of capacity in Brazil and to maintain this pace, the wind turbine manufacturer seeks close partners. The Danish company has a manufacturing unit in the Northeast region of Brazil and has a network of direct local suppliers, integrated to the global structure.

Eduardo Ricotte, Vestas CEO in Latin America, says the company is working to duplicate suppliers in more sensitive areas, with long-term contracts and fixed capacity to prevent delays from reoccurring.

“We have inputs imported from Denmark, we have a local supply chain with more than 80 suppliers that we developed over the years, and we do all the assembly in Ceará, which is closer to the wind farms,” he says. Vestas also has a plant in Mexico for its regionalization strategy.

WEG, based in Santa Catarina, reinforced strategic stocks of raw materials and sought suppliers in several geographies since the first signs of disruption in the development chain. The verticalization of the production process also brought relief.

“In the short term, we have no concerns. We reinforced our strategic inventories throughout 2021. Obviously, this had a price, which was to put working capital into the inventory line beyond our needs, but it gives us a certain comfort at this time of uncertainty. WEG is supplied at this moment for deliveries, but if this lasts, it may cause concern down the road,” says CFO André Rodrigues.

Another point of attention for the executive is the lockdown in China, since the Asian country is one of WEG’s main markets. “And while there is this policy of zero Covid in China, the world’s global supply chain will be under pressure. On the other hand, our verticalized production model is a competitive advantage,” evaluates Mr. Rodrigues.

There is still a large imbalance in the price of commodities, which make up a significant part of the cost structure of companies, says PSR consulting company CEO Luiz Barroso.

“For the industry, there are still three complicated factors. One is the balance between supply and demand for energy, which impacts the price of commodities, and is exacerbated by the war in Ukraine. Second is that prices of raw materials and inputs for the production chain have also increased. And, in Brazil, we have all this under the impact of an exchange rate that is very volatile. This has halted some operations and brought new elements of uncertainty to the table”.

Source: Valor International

https://valorinternational.globo.com