A truth universally acknowledged in the world of free enterprise prior to the outbreak of the COVID-19 crisis was that large warehouse stock should be viewed as working capital frozen for no good reason. Often underscored was the importance of effective logistics enabling input and output to be moved to the right place at the right time, all with the aim of avoiding excess stock. This business model led to the unending development of new and ever smarter solutions for the round-the-clock management of supply chains.
However, COVID-19 – which among other things has cut off the majority of international supply chains – has significantly changed the way people think. Ruling the roost on the markets today are those who can access what they need for production or sales at the right time, which is to say: sufficient stock. If your warehouse is big enough, you are not forced to sell off your output simply to free up space. The ability to manufacture for storage means a company can sell its products once the market and prices have normalised.
Of course, orders can still be placed via apps and money quickly set moving. But the new reality is that neither the raw materials we need nor the completed products we manufacture are guaranteed to arrive on time, which is why there are plans to at least partially bring production back to Europe from Asia.
A lot of countries have come to the same realisation. To be prepared for the second wave of COVID-19, and possibly even a third, it is not only medicines and protective equipment we need to be stocking up on, but also reserves of strategic stocks: fuel, foodstuffs, technology and more. Management of such stocks is sourced from the private sector, which at the end of the day results in a variety of new warehouses.
FinEst-Hall Factory is the market leader among producers and builders of PVC hangars. In the first six months of 2020 we manufactured and installed almost 20% more hangars than in the same period last year. Unfortunately, further growth is restricted by the production space available to us. We construct a range of warehouses quickly and efficiently, but currently lack the production capacity to keep growing.
As such, and despite the complex scenario playing out around the globe, we are working to expand our production by building a new factory with almost 6000 m2 of production space. Given the overall credit situation at present, it goes without saying that this is somewhat problematic. And yet it is precisely now that we need to expand, since we have started receiving orders from Russia as well as from Scandinavia. Looking at the development plans for Rail Baltic, it is clear that constructing such large-scale infrastructure will generate a need to quickly and easily erect portable warehouse space for all manner of construction materials, and that is something we want to be ready for.
Complicated but not impossible
We have no doubt all heard the slogans trotted out about the economy in times of crisis – and, yes, true, you should never let a good crisis go to waste. I fully agree that when it comes to investing, you should strike while the iron is hot.
But it is rather difficult for medium-sized Estonian-owned companies to expand at the moment with the Central Bank forecasting that our economy will shrink by almost 8% by the end of the year.
Adding to the overall uncertainty is the knowledge that neither an effective treatment for nor vaccine against COVID-19 is likely to emerge in the short term and that our neighbours to the east and across the sea to the west still have high rates of infection.
There are various ways of coping in complicated times. The path we have chosen is to invest now so as to be in the best possible starting position once the economy recovers. I am sure that a lot of companies are implementing Plan B (in other words, doing nothing and adopting a wait-and-see approach), but if all were to do the same, the economy would never get back on its feet.
The winners in this race are likely to be those who set sail, face down the storm and plot a course for economic growth.
We have chosen to expand our business. Give it a year and I will be able to tell the readers of Äripäev how we are faring.
Author: Jaanus Laane