Half of industrial production is delayed due to problems in supply and demand chains. A quarter of manufacturing firms have lost orders due to delays. The situation is not improving. The solution is digital tools to predict, monitor and manage production status.
Much of the materials, parts and commodities cannot be ordered, the rest costs many times more. Production costs for industrial companies have increased by 73% year-on-year. In practice, it is not uncommon for a delivery confirmed several days in advance to be suddenly cancelled without the business partner offering an alternative date. Unable to plan, production is delayed and made more expensive. Companies are trying to diversify suppliers, to frontload key materials, even with all the negative effects on their cash flow.
"We have to constantly change the production plan, our inventory is too high and we are pushing back the delivery dates to our customers," says Kamil Košt'ál from Tatra Trucks a.s.. Atlas Corpo Vacuum Technique is also struggling with the quality of deliveries. "It happens much more often that we get poor quality material. The situation is getting worse and worse," says Jan Večeřa, general manager of the plant.
Supply problems have taken their toll. Czech companies are currently experiencing delays in half of their production (on average 46% of the total volume measured in financial terms).
"It should be noted that a number of companies have experienced great extremes, stating that they are late on almost all of their orders. The median response was approximately one third of the total production in delay," comments Alena Burešová, senior manager for industry at the National Centre for Industry 4.0, on the results of the survey of two hundred and thirteen manufacturing companies.
"The lead time for most of our orders (75%) has increased two to three times," says Květuše Křivánková, Buzuluk's CFO. Jan Müller, director of RETOS VARNSDORF, a traditional Czech machine manufacturer, describes the difficulties in his company. "The contract lead time is between 6 and 12 months in a standard situation, depending on the complexity. In the current situation we are at one and a half times. It is practically impossible to plan anything. Perhaps only with the exaggeration of bankruptcy. If one part is missing, there is no machine."
Customers are often not willing to accept time delays. On average, Czech manufacturing companies lost a fifth (21%) of their contracted orders due to delays in meeting agreed deadlines. A quarter of the surveyed companies (28%) confirmed the loss of orders.
They are trying to resolve the situation through dialogue and diversification of both suppliers and customers. However, they do not always succeed. Only in cases where an entire segment is delayed, or where the final product is of a unique type, do customers have to put up with delays. Sometimes they accept them, sometimes they tolerate them at the price of a penalty.
"Delivery times for materials have doubled. Since the situation is the same for other manufacturers, there has been no loss of orders. It is possible to agree on later delivery dates," says Vladimír Vacek, a member of the supervisory board of Svatavské strojírny.
From the responses of more than 200 directors of manufacturing companies, it is clear that there will be no settlement of business relations in the near future and that the unpredictability of supplies must be taken into account by companies in their business models and production plans.
The majority of companies are trying to diversify their suppliers (87%), but due to problems in supply chains for almost all materials and commodities, only half of them succeed. Prices are high and comparable. Only less than one-fifth of the directors said that they had managed to find suppliers for the commodity or material of importance to them with more favourable terms of trade.
In practice, companies are therefore trying to flexibly adapt their production to the current situation. For example, stock levels, component availability or order status. "The current situation has forced us to change our production mix according to the supply of components. We have to act more operatively and, if necessary, introduce extraordinary shifts on Saturdays," says Václav Michálek, Sales Director of Družstevní závody Dražice - strojírna.
ZPA Smart Energy also had to respond flexibly: 'The shortage of active electronic components is absolutely critical and severely limits our activities. We have the contracts, we don't have the processors. We have to postpone or cancel deliveries. The announced delivery time for some of the active components is around 2 years, i.e. we have to modify the products to new components," describes the crisis management CEO Aleš Mikula.
The just-in-time model is no longer valid. The more demands are placed on companies to manage their production, warehouse and logistics facilities efficiently. Eduard Palíšek, CEO of Siemens Czech Republic, recommends that the current crisis be addressed by making maximum use of digital solutions and technologies: "Digital connectivity to global supply and procurement chains provides us with the flexibility to minimize logistics downtime for a wide range of components. We are able to change both the parameters of supply and the individual suppliers. And we can do it really quickly. The digitalization of production allows us to flexibly change product parameters as customers need them. We can also quickly adapt our products to the components that are available, while maintaining 100% quality and reliability."
For more information and a full analysis, see the analysis Analýze českého průmyslu 3/2022, which will be presented by the National Centre for Industry 4.0 on 8 December 2022 in the Czech Industry Barometer, and which is an annex to this report.
