Italian companies rethinking supply chain risk management

The pandemic brought substantial changes in supply chain management and, not surprisingly, most companies are rethinking in an effort to maintain efficiency and resilience at the same time.

International trade was effectively rebooted in March 2021 because of the vaccination campaign in the US, which allowed for the reopening of most business activity.

Most advanced countries, including Italy, should achieve herd immunity by the summer, thus enabling a real return to a ‘normal’ market situation on a global trade basis.

But obstacles remain on the demand side that are increasingly visible and present major risks for Italian and international businesses.

This big topic was addressed during a recent webinar organized by Anra, the Italian risk and insurance management association, and Allianz, represented by Massimo Reale, MMEA commercial director at the group’s credit insurer Euler Hermes.

Mr Reale explained that Euler Hermes recently carried out a survey of almost 1,200 companies in five countries (US, UK, France, Germany and Italy) and six sectors (IT, technology and telecommunications, machinery, chemicals, energy and utilities, automotive and agri-food).

“The recovery in global demand is assuming a U shape and is now registering record numbers across all sectors. However, the offer is struggling to keep up with increasing demand, particularly in the consumer goods, raw materials and technology sectors. The level of pent-up demand estimated in Italy corresponds to about 1.5% of the country’s GDP,” Mr Reale explained.

Despite the possible hitches along the way, Italy is expected to reach healthy growth numbers for both 2021 and 2022. Official estimates predict an increase in GDP of between 4.1% and 4.5% for 2021, and between 4.3% and 4.8% for 2022.

However, Mr Reale added: “Business failures will also start to grow again, after the artificially low levels of 2020 related to incentives and state support to face up to closures. The number of bankruptcies is expected to increase by 7% in 2021 and the same in 2022, and the construction and automotive sectors in particular will be affected.”

The big question for many is: will Covid-19 mark the beginning of the end of globalisation? Currently, there is no visible major change in the reorganisation of supply chains, but it does vary across countries.

“Many companies are trying to find new suppliers nationwide and to bring their production closer. The tendency to reshoring, that is to bring production back to the national territory, is much more pronounced in the US, France, Germany and the UK, countries in which 46%, 35%, 33% and 32% of the companies respectively made this choice. But this is much less in Italy (16%) and the main reason is that companies are worried about possible increases in production costs,” Mr Reale explained.

So, what other strategies are companies taking to address supply chain disruptions? The Euler Hermes report finds that one in two companies managed the problem through hedging strategies, including insurance, storage and alternative procurement solutions.

“A clear finding is that digital maturity has proved decisive. Highly digitalised companies have taken significantly more actions to mitigate supply chain disruptions than less-digitalised ones,” commented Mr Reale.

The next obvious question discussed during the Anra webinar was: how can the resilience of the supply chain be improved?

According to Italian companies, the answer is primarily (44%) by providing national tax incentives for relocation, secondly (38%) by improving access to information on the supply chain and risk management. Further important factors include investment in research and development at the state level (35%), introducing free-trade agreements to reduce the costs of trade along the supply chain, and trying to make the domestic labour market more flexible (both 33%), and taking measures to retrain the national workforce (32%).

So, what are the trends and prospects for Italy? “The increase in production costs will be a decisive factor, and attractiveness is the main concern. China, followed by France, appears to be one of the most interesting countries for the transfer of Italian production sites,” concluded Mr Reale.

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