Euralarm concerned about supply chain issues in the fire and security industry but also sees opportunities
Since the corona pandemic introduced the world to the concept of “the new normal,” nothing is normal anymore. A simple incident can be disastrous for something as vital as the supply chain as we have seen with the blockage of the Suez Canal. The essence of that chain is to give companies the certainty that raw materials and components are available in order to produce the finished goods. The pandemic resulted in lockdowns, and a high demand because of digitization together with economic recovery. This meant that this certainty is challenged. When manufacturers are looking for alternative material and components they can face re-certification of their products, or new developed products cannot be released. As a result of this existing products must stay longer available. The fire safety and security market is highly dependent on electronics and with that the industry is affected by the supply chain crisis.
Supply chains are formed by complex connections between companies. It starts with the raw materials and ends with finished goods for industry and end user. One chain can include up to thousands of companies. This is not a problem because, thanks to proven forecasting methods, the activities of the companies in the supply chain are precisely coordinated. This considers demand, supply, seasonal influences or specific characteristics of regions. What is not considered – and what is not possible – are unknown factors. These can lead to the forecasts no longer being correct. The well-oiled machine of the supply chain then quickly starts to creak and squeak.
One unknown factor the world faced in 2019 was COVID-19. This made it clear that society is not prepared for events that are not likely to happen but can have a major impact on society. Unfortunately, the start of pandemic happened in a country where a large part of the world’s production takes place. For years, Western companies have located parts of their production there. When the production heart of the world temporarily stops beating, the world comes to a standstill. Problems in the supply chain are a direct consequence.
Several industries had problems even before COVID-19. Producers of chips, computer parts and other components needed for the digitalization of our society were already under great pressure. The production capacity of these goods is limited worldwide and the slightest change in demand can cause supply problems. This was already the case with smartphones, (game) computers or televisions. Chips had already entered the automotive industry on a large scale, and with the electrification of this industry, the demand for chips soared. We see
a similar development in industries and parts of society where the (Industrial) Internet of Things is becoming commonplace.
The consequences of the corona crisis have led many governments to recognize that the high dependence on producers out of one region poses a great a risk to certain sectors. For example, the fact that many European countries have no production capacity for facemasks which were needed during the pandemic, is perhaps the best example of this. For electronic chips and components we face the same challenge; to reduce the risks there is simply a need for more and better distributed production facilities. In the pursuit of lean manufacturing, production has been outsourced to Asia which means that a shutdown of factories in one country can have a global impact. The EU also recognized this even before the pandemic. Accelerated by the corona crisis, the EU is focusing its policy, among other things, on increasing domestic capacity and diversifying the number of suppliers.
Following the rapid spread of the coronavirus in China, European companies were affected. The lockdowns introduced in China led to a virtual standstill in production and restricted the freedom of movement of residents, which also brought logistics providers to a standstill. As quickly as companies were caught off guard by these lockdowns, the recovery in demand was also swift.
For many companies that were caught off guard by global lockdowns, the speed of recovery is almost as insidious and led to another supply chain crisis during the pandemic. Increased consumer spending and thus demand for products, combined with delayed transportation by sea and air caused major shortages and record backlogs. The tightness on container capacity is expected to continue for some time. This will not help to clear shortages of electronic components, which is expected to continue for some time.
Effects on the Fire Safety and Security industry
The supply chain crisis caused by the pandemic also affects companies in the fire safety and security industry. The effects not only concern the manufacturers of equipment but also companies in the field of service and maintenance of systems. Outside this there are other areas that can impact building safety. An example of this is that recommended emergency escape routes that were in place before the lockdowns are now mixed with the one-way traffic signs intended to allow employees to pass at a safe distance from each other.
Manufacturers of electronic fire safety and security equipment are affected by the disruption in transport and shortages on natural resources and core materials. COVID-19 has shown that unexpected events can shatter the basic premise that materials will be easily accessible, disrupting supply chain performance. The chain reaction initially caused by the shutdown of factories in countries effected not only the supply chains but also the workflows within and between companies.
Paul van der Zanden, General Director of Euralarm adds: “Another relevant topic that affects our industry is the compliance of the products that the industry delivers. With electronic components not being available due to the supply chain problems, manufacturers need to reconsider replacement of parts that aren’t available. However, with the replacement of certain components, the conformity of the final product may also be at stake.” This could make it necessary to have the product retested and recertified. High (and unnecessary) costs could result from this.
When service and maintenance companies were faced with problems in reaching the customers during the pandemic, these organizations learned other flexible ways to stay in contact with their customers. Many industries and businesses have started modifying their operational methods. They are now operating their business online. The fire safety and security industry is doing the same by starting virtual offices and using remote service and diagnostic tools to support their customers.
Customers are moving to hybrid working models which are applied throughout society and could lead to downsizing or repurposing of buildings. This also can require that the fire safety and security requirements need to be adapted to the new use or size of the building.
Effects for the Green Deal
Securing a sustainable supply of metals and minerals used for components in fire safety and security equipment is also key to meet the energy and climate targets for 2030 and beyond. The European Green Deal aims to make the EU’s economy sustainable. That creates many opportunities for the European society and industry in the current context of both the climate crisis and the COVID-19-outbreak. However, the transition towards green technologies, like renewable energy, e-mobility and stationary energy storage relies heavily on critical raw materials, such as cobalt, neodymium, tungsten, etc. and on new products and services. Both globally and in Europe it is expected that the demand for these materials will continue to increase. This can create challenges for the Green Deal. The impact of extracting and processing these resources is high while the supply chains are often not transparent and may lack traceability. Another challenge is the recycling of the materials. For most critical raw materials, the recycling efficiencies are low while the dependency on non-EU countries is high and still increasing.
The green ambitions of the EU could therefore also lead to certain activities being brought back to the West either to reduce the dependency of non-EU countries or to avoid CO2 emission as result of transporting goods from other parts of the world to Europe. This could lead to shorter logistics chains and more sustainability in several sectors. In that sense the current crisis in the high-tech supply chains contributes to a greener world and a stronger Europe.