supply of raw materials in economic distress; A roadmap for maintaining production chains

Intensification of embargoes and blockade restrictions, high inflation, lack of liquidity, difficulty in importing and limited exports have turned the supply of raw materials into one of the issues that determine the survival of production. What is the way out of this situation and save industries? The supply post of raw materials in economic distress; The roadmap for maintaining production chains appeared first on Safir Arjan.

According to Ambassador Arjan, the intensification of sanctions and blockade restrictions, high inflation, lack of liquidity, difficulty in importing and limited production have turned the supply of raw materials into one of the issues that determine the survival of production. In this situation, the reduction of the capacity of some parent industries, such as steel and petrochemicals, can transmit the disruption to hundreds of downstream industries. The problem is not only the increase in input prices; Prolonged purchase time, uncertain delivery, and the company's inability to provide working capital puts even units with orders and markets at risk of being stopped.

Material supply policy should simultaneously pay attention to availability, price, financing and the possibility of selling the product

Arman Khaleghi, Secretary General and member of the Board of Directors of Iran's Chamber of Industry, Mining and Trade, regarding the supply of raw materials for the country's industries, said in a conversation with Ambassador Arjan: "The report of the Iranian Chamber of Shahrivar 1405 indicates the continued decrease in the stock of raw materials, the intensification of cost pressure, and the problems of currency allocation, import and transportation." At the same time, the weakness of purchasing power has limited the possibility of fully transferring the cost increase to the selling price.

He added: This combination puts pressure on the company from two sides; Firstly, the purchase of raw materials becomes more expensive and secondly, it becomes more difficult to return the money from the sale. Therefore, the material supply policy should simultaneously pay attention to the availability, price, financing and the possibility of selling the product.

Nominal capacity alone is not a suitable basis for resource allocation / the same allocation of currency and facilities, without recognizing the differences, makes limited resources less effective.

Stating that the first step is to prepare an accurate picture of the state of industrial and mining fields, he said: Nominal capacity alone is not a suitable basis for allocating resources. Consumable inventory, operational capacity with respect to energy, valid order, import dependency, supply time and possibility of replacement should be determined for each field.

This industrial official reminded: Higher priority should be given to products that are related to people's livelihood and health, and stopping them disrupts several chains or have no available substitutes.

Khaleghi added: In this evaluation, the importance of an item is not necessarily equal to its Rial value; Lack of an additive, catalyst or small part can stop a great line. It is also necessary to distinguish between the real lack of goods, financial inability of the buyer and distribution disorder; Because each one has a different solution. The same allocation of currency and facilities, without recognizing these differences, makes limited resources less effective.

In the food, pharmaceutical, health and agricultural input industries, the priority should be the continuity of production and priority should be given to the supply of essential items.

A member of the board of directors of Iran's House of Industry, Mining and Trade emphasized that in the food, pharmaceutical, health and agricultural input industries, the priority should be the continuity of production and priority should be given to the supply of essential items, and clarified: effective ingredients, specialized additives, oils, livestock inputs and sensitive packaging materials, depending on the product, require a specific supply plan.

He added: the precautionary reserve should be determined based on the real time of replacement, shelf life and amount of consumption; The same stockpiling for all items can lock up capital and increase waste.

According to him, predictable allocation of currency, acceleration of quality control and clearance, collective purchase of small enterprises and sustainable contracts with domestic suppliers are very important in this sector.

Referring to the replacement of materials after technical and sanitary approval, this industry expert said: Replacement of materials should also be done after technical and sanitary approval. Targeted support for the purchasing power of vulnerable households complements this policy; Because supply stability does not last without consumer purchasing power.

In the chain of metals, it is necessary to distinguish between minerals, concentrates, pellets, sponge iron, ingots, sheets and specialized products / increasing the production of one link, in case of lack of feed or energy of the next link, does not necessarily increase the final production

Continuing his speech, Khaleghi said, referring to metal industries: In the chain of metals, it is necessary to distinguish between minerals, concentrates, pellets, sponge iron, ingots, sheets and specialized products. Increasing the production of one ring does not necessarily increase the final production if the next ring lacks feed or energy. The rehabilitation and energy supply program should focus on the bottlenecks whose opening will activate the most downstream capacity.

He stated: For parts making, machine making and infrastructure equipment, supply of required sheets and alloys, long-term delivery contracts and credit sales of materials are suggested. Scrap recycling with quality control also covers part of the need.

He added: On the other hand, the comprehensive ban on exports can reduce the foreign exchange income and self-sufficiency of parent industries; Internal supply management should be targeted, timely and based on the actual balance of each product.

The total volume of production in petrochemical alone does not indicate the adequacy of supply

According to the Secretary General of the Iranian Chamber of Industry, Mining and Trade, in petrochemicals, the total volume of production alone does not indicate the adequacy of supply; Because there may be a surplus of a product, but a shortage of a certain grade will stop the production of food packaging, medical equipment, rubber or industrial parts.

Khaleghi said: It is necessary to prepare the balance of supply and demand for grades, additives and sensitive intermediate materials separately.

This industry expert reminded: reconstruction of bottleneck units, stable supply of food and energy, regular supply program and limited import of deficit items should be seen in one package.

He added: Modifying the formulation, using alternative materials and recycling is also an important capacity, subject to maintaining the product standard. Credit sales to actual consumers and aggregation of small unit purchases can improve access without diverting resources to unproductive intermediation.

The priority of imports in the mining industry sector should be focused on items that resolve equipment stoppages or reduced recovery

Khaleghi also said regarding the supply of primary quads for mining industries: the existence of mineral reserves does not mean production readiness; Because the lack of machinery parts, rubber, mining consumables, processing chemicals and repair equipment can limit the extraction and feed supply. Therefore, for this sector, the priority of imports should be focused on items that will address equipment stoppages or reduced recovery.

He stated: Repairing and renovating machinery, creating common services among small mines, collective supply of parts and improving processing efficiency are more practical measures than the accelerated development of nominal capacity. In cement, glass and ceramics, the production schedule must be coordinated with available energy and real demand so that materials and liquidity do not become unsold inventory.

In electrical equipment, machine building, parts making, and home appliances, sometimes the absence of an electronic part or specialized material prevents the completion of the product.

He continued: In electrical equipment, machinery, component manufacturing, and home appliances, sometimes the absence of an electronic component or specialized material prevents the completion of the product. Making a list of stop items and providing them can turn the semi-finished product into sales and liquidity with limited resources.

Emphasizing on the internalization of parts, Khaleghi said: the internalization of these items should be accompanied by a guaranteed order, quality test, and economic evaluation.

He clarified: Also, for textile, clothing, wood, paper and other small industries, joint purchase of materials, shared warehouses and supply contracts are more important according to the sales order. Supporting these units should improve their access to materials and credit; A mechanism that only large companies can use will not maintain scattered employment in the provinces.

Inflation and the lengthening of the purchase period increases the working capital required to maintain the same amount of production / the ceiling of the facility should not be based solely on the nominal history of the loan.

A member of the Board of Directors of the House of Industry, Mining and Trade continued his speech and said: inflation and the lengthening of the purchase period increases the working capital required to maintain the same amount of production. Therefore, the facility ceiling should not be based solely on the nominal history of the loan. Credit based on valid order, purchase of receivables, chain financing and credit guarantee of small enterprises should be strengthened.

He stated: Direct payment of credit to the supplier against the traceable transaction can reduce the diversion of resources. Settlement of the demands of producers from the government and setting the deadline for payment of debts also helps to free up liquidity. These supports should be accompanied by measuring the ability to repay and the market of the product so as not to lead to the accumulation of debt and the financing of production without demand.

Reducing supply time, reducing line stops and increasing product delivery is the measure of success

Khaleghi suggested: The Ministry of Industry, Mines and Trade, using the existing structures, should be responsible for preparing the balance of vital materials and coordinating the sector program. The central bank should make the timing of the allocation of currency and credit instruments predictable; Customs should be responsible for reducing stoppage of inputs by maintaining necessary controls; The Ministries of Oil and Energy should announce the energy plan for bottleneck industries and the diplomatic system should take action to reduce trade barriers and develop reliable supply routes.

He said: The House of Industry, Mining and Trade, with its provincial network and specialized associations, can identify the real needs of companies, unused capacities and alternative materials and organize cooperation among producers. The Chamber of Commerce can also focus on accreditation of foreign suppliers, purchasing consortia, contracted services and development of transport routes. This division of work must be consensual, transparent and without creating monopoly; Access to support should not be dependent on membership in a particular organization.

He emphasized: For implementation, a program of, say, 90 days is suggested; The first month, identification of critical items and companies subject to suspension; The second month, the implementation of financing and credit packages, as well as the third month of evaluating the results.

Stating that reducing supply time, reducing line stoppages and increasing product delivery are success criteria, this industry expert said: The goal of industrial policy in this period should be to maintain the continuity of production and employment chains with the least consumption of scarce resources; A goal that requires stable decisions, reliable information and joint responsibility of the government and the private sector.