Covid trauma causes industry to resume inventories

​After years of keeping raw material inventories low, companies are back to having inputs stopped in warehouses. Without the pre-pandemic price and deadline guarantees, businesses returned to stocking parts to avoid the risk of an order not being fulfilled due to lack of material to produce.

Almost two years after the beginning of the crisis that disorganized the supply chains, difficulties with inputs still haunt companies. In December, 83% of micro and small industries in São Paulo still reported high prices for raw materials, according to a Datafolha survey for Simpi (the sector’s union). For 51%, there was still a lack of product at the suppliers.

The solution found by Invent Smart Intralogistics Solutions was to stock a year’s worth of steel parts used in the construction of electronic conveyor belts, used in airports and logistics distribution centers.

The decision, from the beginning of 2021, was taken to avoid price fluctuations and delivery times of more than 90 days. With each inventory issue, the company prepares a new order in sequence, so that the level of surplus material is maintained.

In addition, the factory replaced several metal parts with hard plastic. Production was internalized through the purchase of four 3D printers. The exchanges required an elaborate adaptation of the designs, but they were worth it, says co-founder and vice president of sales, Augusto Ghiraldello.

“Production 100% in steel was a kind of commodity on the market. But, in addition to the price, the terms have increased a lot. I have contracts with sanctions if not delivered to the customer. We were forced to find alternatives, “he says.

Last year, without cardboard boxes to pack the teaching materials he produces at a factory in Santo André (ABC), Cesar de Oliveira Guimarães, executive director of MMP, had to ship orders packed directly onto the transport pallets.

“Today I already find to buy, but with a high price and delay in delivery. My financial schedule was more compromised, which forced me to make bigger purchases”, he says. The boxes, which cost BRL 4.80 at the beginning of 2020, now cost BRL 8.80.

The rise in the price of the raw polymer used in the manufacture of plastic and EVA materials reached more than 150%. Recently, the value has stabilized at lower levels, but is still equivalent to twice what was practiced two years ago, according to the Executive.

To avoid headaches, Guimarães says he has increased the stock level of raw materials and finished products. “Everyone always said that having stock is bad, because it’s idle money, but I never thought it was a good idea not to have product, because my sale is seasonal and I can’t take the risk of not doing it. [o negócio].”

The succession of difficulties led to a loss that, to be stopped, required the company to increase prices by 20%, on average. “I spent the year holding the price, but when I saw it, it was in the negative, and that’s what I didn’t consider the cost of stock. I already know that I’ll have to make a new adjustment in a few months”, says Guimarães. “It’s sad that my suppliers say the exact same thing: ‘buy now because it’s going to go up’.”

According to the Simpi survey, in addition to rising raw material prices, micro and small industries are also pressured by the general increase in costs. Spending on water, electricity, transport and logistics and labor — everything became more expensive.

“The increase in costs was the worst in the historical series. We see a persistent increase, month after month, which still affects almost 85% of companies”, says Joseph Couri, President of Simpi.

A survey by the CNI (National Confederation of Industries) shows that the sector’s production level, measured by the use of installed capacity, is 68%. The percentage is lower than the 70% recorded in 2020, but higher than the average for December (67%).

Companies’ inventories (which refer to finished products, not to production inputs) remained at a stable and low level. The scale created by the CNI predicts that above 50 points there is a higher inventory than planned. In December 2021, the index stood at 49.1 points.

In the assessment of economist Rafael Cagnin, from Iedi (Instituto de Estudos para o Desenvolvimento Industrial), stock conditions are less serious than they were a year ago and, in some sectors, they are already close to a comfortable level.

This indicator is important because it signals whether industry sectors are still vulnerable to spikes and bottlenecks in the distribution chain. The omicron variant of the coronavirus, however, which has led to a new surge in cases of the disease, makes the normalization of distribution chains more unpredictable.

“It has been improving very slowly and the situation is already less acute. I think 2022 will still be stabilized. As long as there is a pandemic, this will be a risk.”

The breaking of chains is not just a problem in Brazil. Around the world, industries from different sectors are still racing to cope with new demands and the transformations accelerated by the pandemic.

On Thursday (20), during a panel on the subject at the World Economic Forum, Sultan Ahmed bin Sulayem, chief executive of logistics giant DP World, said that the pandemic has exposed the weaknesses of the supply chain and bet that it will still take about two years for conditions to improve. The digitization of the sector may be one of the ways, according to him.

“The future is digital” is a catchphrase often repeated on forum panels. And the digitization of the world is part of another global difficulty compounded by the pandemic, which is the lack of semiconductor chips.

For the director general of the WTO (World Trade Organization), Ngozi Okonjo-Iweala, the reorganization of supply chains can be an opportunity to improve the distribution of business around the world and integrate developing countries.

“We need to see the supply chain not just as a problem, but as an opportunity. I want to urge investors, like Pat, to use this as an opportunity,” he said, citing Intel Chief Executive Pat Gelsinger, who also participated in the panel.