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Innovation clears supply chain logjam

Luxembourg, 22 November 2021 – The pandemic and the associated economic standstill have disrupted many supply chains. No quick fixes are in sight, especially since the energy shortage in China is racking up new pressure. “If you want to deliver even in times of crisis, you have to reposition”, said Uta Dietrich, Senior Portfolio Manager at Moventum AM. “Innovation is the only way to clear the supply chain logjam.”

Right now, the economy is in a stranglehold between high demand and tight supply. “Consumers, as well as businesses, want to make up for what they did not buy during the lockdown – but nothing is available”, Dietrich pointed out. Many economists now argue that the supply chain problem can only be solved by decreasing demand. Once the consumption backlog was cleared, everything would work again fine. “But that is too short-sighted”, Dietrich highlighted.

When higher demand meets an equal or even tighter supply, prices will be rising, which triggers a spiral: higher price levels eliminate consumers as market participants who can no longer afford to pay the higher prices. The prospect of having to wait a very long time for certain products also makes consumers reluctant to buy, or they select more readily available, regional alternatives. Both of these effects cause demand to fall, and consequently prices to fall.

“But this effect then also hits companies which had just ramped up production again and are now faced with falling sales”, Dietrich said. As a result, these effects are feeding on each other and have a depressing effect on the global economy. “Corporate innovations could help to counter the supply chain logjam in a novel way and clear it without burdening the economy with the countermovement”, Dietrich mentioned.

Particularly in logistics and warehousing, many companies are still lacking in innovation. “The old way of thinking of either stocking or having everything delivered just in time continues to dominate”, Dietrich said. A number of companies have realised, however, that they also need to modernise these areas of the business, especially to digitalise them. “The crisis is acting as a catalyst, and we are definitely seeing significant investment in these formerly neglected business areas”, Dietrich explained.

But innovations have to be financed. Many companies continue to be reluctant to take a really big plunge, precisely because they fear the aforementioned countermovement due to a drop in demand. “This is where government is actually needed as a driver of innovation as well”, Dietrich said. “In times like these, promoting research and innovation is essential. The economy and the markets will thank us in the long run.”

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