How can companies build supply chains from Poland?

In recent years and decades, manufacturers have increasingly interlinked their value-added processes with those of their suppliers. This is due to the interplay of several developments, above all

• the globalization of the economy, i.e. the expansion of trade relations, especially after decolonization and the end of the East-West confrontation,
• the rapid development of information technology, which enables digital transformation of the value chain with significant increases in efficiency, and
• the increasing product individuality with ever shorter product cycles.

These developments have made supply chains so complex that a disruption to the value chain can quickly develop into a crisis that threatens the existence of suppliers and customers. This can perhaps be seen most clearly in supply chains from China and other East Asian countries. The fact that an incident such as the accident involving the container ship "Ever Given" on March 23, 2021 in the Suez Canal leads to global bottlenecks and crises makes the vulnerability of global supply chains particularly clear.

However, when even a minor disruption causes delivery times and costs to skyrocket, companies need to redefine their supply chain strategy. In my opinion, such a redefinition must have two goals in mind:

1. a significant shortening of the supply chain or the implementation of a nearshoring strategy; as well as
2. an extensive flexibilization of the supply chain in order to avoid a breakdown in the event of disruptions.

Both goals should be achieved in such a way that supply chain efficiency increases while at the same time reducing dependency on individual suppliers and manufacturers of preliminary products.

Poland is one of the most attractive sourcing locations in the EU

In the context of the two objectives mentioned, the neighboring country of Poland is particularly attractive for German companies as a sourcing location.

1. Poland has significantly expanded its production capacities in recent years and decades. (Evidence of this can be found here, here and here) This enables direct sourcing of parts and products from Poland. Due to the geographical proximity to German production facilities, this can go hand in hand with a considerable shortening of supply chains and improved security of supply.
2. In addition, it is possible to store pre-products or capital goods manufactured abroad and even in East Asia in Poland, pick them and then request them just-in-time from Polish warehouses. The development of supply chains from Poland therefore not only enables the sourcing of components and pre-products that originate from Poland, but also leads to a noticeable increase in delivery flexibility.

It is therefore not surprising that Poland has become one of the most important locations for suppliers in the EU in recent years due to the strong expansion of both production and logistics capacities. For example, 80 percent of the automotive industry (with the exception of chips) already relies on regional and/or European supply chains, with Poland in second place. (Evidence of this can be found here and here.)

Of course, the relatively high production and labor costs of EU member Poland must be taken into account. But in times when the availability of materials, components and preliminary products and their delivery flexibility often carry more weight than their unit cost price, these costs should not be an exclusion criterion from the outset. However, despite the geographical proximity, it is not always easy for German companies to open up the neighboring country of Poland as a new or additional procurement market. To avoid mistakes, I would proceed as follows:

1. weigh up the pros and cons thoroughly.

Even if there is a lot to be said for aligning your supply chain with Poland, you should carefully weigh up the pros and cons of opening up Poland as a procurement market. Most of the aspects have already been mentioned above. One disadvantage in particular is the higher unit costs. This is offset by the quality, the degree of complexity and the fast and/or flexible availability of products and preliminary products.

In view of this, it is worth working with Polish trading partners in industries such as mechanical engineering and automotive industry, but especially for these products:

• Baustoffe,
• Holzerzeugnisse,
• Windows and doors,
• Paper and printed matter,
• plastics and packaging as well as
• agricultural products such as fruit and vegetables, dairy products, meat and poultry, all of which are also organic.

2. Rethink the classic JIT model and adapt it

The development of supply chains to Poland will also (have to) have an impact on the classic just-in-time supply chain. Has this become obsolete? The answer is a clear "yes". Just-in-time remains the rule, but it is limited to regularly supplied, regional procurement warehouses. Delayed deliveries and supply bottlenecks require the classic JIT model to be rethought, modified and cooperation entered into with suppliers and other players close to the border, especially logistics service providers with predictable cost models. It should be borne in mind that transport and storage costs represent the largest cost blocks when optimizing supply chains.

Conclusion:
What makes Poland special is the ability to procure components and products that originate from Polish manufacturers. It is also possible to store and commission parts and systems produced elsewhere in Poland and then order them just-in-time from Polish warehouses.

3. Build a sustainable supplier network.

The building of a supplier network should always be sustainable. "Sustainability" in this context refers to two things,

1. the shortness of transport routes (environmental sustainability) and
2. the resilience of the supplier network (durability).

The decisive factor here is to convince companies to become part of the supply chain with the prospect of a long-term win-win situation, possibly with new models of cooperation. This is because the network will be sustainable in the second sense if

• a fair distribution of cost and financing burdens or risks and
• a fair distribution of value creation shares

is taken into account.

4. Optimize deliveries strategically.

It is also important to strategically optimize deliveries from China and East Asia via Poland. This essentially means setting up multimodal logistics that not only uses the sea route, but also delivery by rail. One positive side effect would be the accelerated exchange of goods: transporting goods by rail shortens delivery times by two to four weeks compared to the sea route.

Such an optimization of deliveries would enable Poland's direct access to railroad lines of the so-called New Silk Road from China:

• in the south via Ukraine, with broad gauge directly to Silesia,
• in central Poland via Belarus with modern container loading facilities and storage capacities and
• in the north via the Kaliningrad enclave to the ports of Gdansk/Gdynia.

However, the Russian attack on Ukraine on February 24, 2022 initially closed this access to the New Silk Roads. However, this does not change the strategic consideration. Once the massive humanitarian and economic crisis has been overcome, this strategic option is likely to open up again.

5. Comply with supply chain due diligence obligations.

Even when establishing supply chains to Poland, no one can avoid fulfilling their supply chain due diligence obligations. This is because the Supply Chain Due Diligence Act (LkSG), which came into force on January 1, 2023, obliges companies based in Germany to comply with "human rights and environmental due diligence obligations". Accordingly, companies with at least 3,000 domestic employees - and from January 1, 2024 also those with 1,000 employees - must draw up compliance rules with which they implement the due diligence obligations set out in §§ 3 to 10.

Conclusion

For production companies from Germany, the establishment of supply chains from Poland has the following advantages:

• moderate wages and storage costs
• immediate proximity to the border and ever-growing road and rail infrastructure
• the largest truck fleet in Europe at competitive prices
• well-developed logistics centers with excellent transport connections and optimal facilities, especially on the A2 and A4 highways towards Germany
• the possibility of prefabrication with elements from China and those manufactured in Poland, their commissioning and subsequent cost-effective storage until call-off in Polish logistics centers
• flexible delivery dates that can be planned by customers