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Resilience and sustainability of European bio-based value chains during pandemic
The pandemic has had a big impact on our systems. Due to disrupted supply chains, producers have faced high competition for exporting goods and had to find inventive ways to transport goods. The effects of the crisis, however, differ per sector and company, having each company faced different risks before the pandemic broke out.
In February, together with Arhea we have carried out a qualitative study to determine the resilience and sustainability of the European bio-based value chains. We researched 20 companies from Baden-Württemberg, Germany, and Slovenia in cosmetics, food, and natural pharmaceutical industries. In this article, we present the most relevant findings from the study, according to individual value chain segment. These findings can serve the advancements of the European bio-based value chains in the post-pandemic period.
The pandemic negatively affected approximately two thirds of the participating companies, and both ends of the value chains (demand and supply) were affected.
Supply & Logistics
- In general, companies have combined and implemented multiple strategies to mitigate the challenges brought by the pandemic and to increase their resilience and stability. Some companies required short-term solutions due to the broken supply chains and transport disruptions, as suppliers scattered worldwide proved to be very fragile. For others, the pandemic raised the importance of working on preventive measures.
- Most often mentioned strategies on the supply side were: strengthening the relationships with existing suppliers, multi-sourcing, sourcing from more reliable suppliers instead of the cheapest ones, re-shoring closer to home, shortening (already short) value chains, or even moving some of the operations in-house.
- However, despite general trends in the manufacturing industry, only individual participating companies considered stress testing their supply chains, and only two large ones implemented this measure.
- The majority of the companies did not face significant production-related challenges. Difficulties were mainly temporary and related to lockdown measures that created specific bottlenecks, primarily due to the lack of qualified workers because of lockdown measures or sick leaves.
- The companies mostly mitigated the problems with the help of governmental support.
- The main lessons learned for the companies were to consider implementing new technologies in order to compensate for employees’ absence and to strengthen their supply chains.
- To mitigate the main market-related problems (lower demand and breakdown of traditional sales channels) companies went online or strengthened existing online channels and communication with end consumers.
- Some temporarily reduced the product portfolio and focused on the best-selling products to cut the costs.
- To stay or become even more attractive to the consumers, they also intensified marketing and product innovation activities. And in the B2B arena, they tried to target new market segments.
Companies perceive digitalisation as very important for their business but not as crucial for solving their Covid-19 problems.
Stimuli for digitalisation
On the market side, the primary stimuli for digitalisation were the introduction of strengthening e-commerce to assure complementary sales channels, improve marketing communication and transparency. Internally, optimising production and processes, ensuring smooth operations, and easier and more efficient internal communication represented essential stimuli for increased digitalisation.
The pandemic accelerated ongoing digitalisation activities to improve internal processes and operations (e.g., production, testing, quality assurance), as well as for market-related usages, such as online sales and communication with clients and suppliers.
The participating companies face various challenges: high costs (and long ROI), lack of digital skills, and difficulty attracting skilled employees or finding digitalisation experts. Often the companies are not fully ready and face incompatibility problems. Some also find it hard to find appropriate digital tools on the market or adopt ready-made digital solutions for some of their business processes.
The pandemic has fuelled changes in our societies that were already at play before its outbreak and will continue to impact our value chains as well in the post Covid-19 times. For example, consumers have never been more health-conscious and are increasingly searching for additive-free products with traceable origin, preferably local. Alongside the international political tensions, the coronavirus is putting brakes on international trade, which may result in changing trade conditions. Regional and local production will continue to develop. Food safety concerns will be further heightened through the pandemic, leading to tighter rules and standards. Technological innovations can address supply chain issues and improve its efficiency, sustainability and visibility. The pandemic may slow down the transition to the climate-neutral society, but it presents also an opportunity to accelerate it.
This article was written in collaboration with Arhea.
This study was co-funded by the European Union Funds (ERDF and IPA).