The volatile situation on the procurement markets is particularly noticeable in the German industrial SME sector. Companies are struggling with rising raw material and energy prices, which they can only pass on to customers to a limited extent due to fierce competition. There is no quick end in sight to the economic problems in Germany, caused by the long-term effects of the pandemic and the war in Ukraine, among other things. It is therefore essential that companies align themselves strategically in order to counteract fluctuations and minimize losses. As 50% to 70% of costs in German SMEs are attributable to Procurement , this is an influential sticking point. Accordingly, this is precisely where companies should start in order to arm themselves against macroeconomic crises in the long term. 

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In addition to strategic Procurement , there are also other options that help to future-proof Procurement . These are summarized in the download resource.

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Current macroeconomic situation in Germany

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The German economy is currently characterized by high inflation, which is not only making everyday life more expensive for private individuals, but is also presenting companies with new challenges. As a result of the enormous price increases, which even rising wages cannot keep up with, a loss of prosperity and an increase in unemployment are expected.

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The decline in global trade due to pandemic restrictions in China and delivery stoppages for products from Ukraine is also making itself felt in Germany. Container ships are jammed at German North Sea ports and exporting ships are unable to leave on time. 

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The effects of the current situation are particularly pronounced in the SME mechanical engineering sector. In this sector, sales are still expected to increase by almost 12% in 2022 compared to the previous year. This figure is due to backlogged orders from the pandemic period that still need to be processed. However, the same metric has fallen to just 6.7 % in the forecast for 2023 due to rising purchase prices and declining order volumes.

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German companies are being put to the test not only by supply bottlenecks, but also by the energy crisis associated with inflation. Experts suspect that the impact could be as severe as that of the Lehman Brothers bankruptcy in 2008 (Handelsblatt 1, 2022). According to a forecast by the Leibniz Institute, economic output will fall slightly in 2023, but consumer prices will rise by almost 10 %. The predicted rise in inflation to 11% in V1 2023 will also further worsen the economic situation and reduce people's purchasing power (Spiegel, 2022). 

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Experts assume that the high prices will persist for another two to three years before they fall again. Until then, it is hoped that rising wages will partially offset purchasing power (Handelsblatt 2, 2022).

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Procurement market situation in the SME sector

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Procurement has not been spared from this downturn. At present, everyday purchasing in the procurement departments of German SMEs is characterized by supply bottlenecks or even non-existent products from regular suppliers. 90% of the mechanical engineering companies surveyed stated that they are struggling with bottlenecks in the supply of raw materials and preliminary products (Beschaffung aktuell, 2022).

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Among other things, the war in Ukraine and global shipping problems have contributed to the shortage of raw materials and the drastic increase (up to 200%) in prices for semiconductors, steel and plastics, for example. Companies that are unable to react quickly to bottlenecks have to extend delivery times, reduce their production or even bring it to a complete standstill.

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This has a major impact on the economy, as 98% of all German exports come from SMEs. These companies often face strong competition on the global market, which means that it is usually not possible to shift prices to customers (Handelsblatt 2, 2022).

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Options for limiting risk

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In order to limit the volatility of delivery times, some companies are turning to purely European suppliers to ensure geographical proximity and thus potentially avoid long waiting times. In addition, 61% of German SMEs plan to expand their internal value creation and regionalize their procurement (Handelsblatt 2, 2022). 

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The strategy of multi-sourcing - using several suppliers for the same parts or raw materials - is also helpful in crisis situations. Procurement is protected if a supplier is unable to deliver and is in a stronger negotiating position. However, this tactic makes it more difficult to build close relationships with suppliers.

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However, it is not only supplier changes, but also good relationships and communication with suppliers that can enable better supply security in difficult times. If you play with open cards, you can plan together with the supplier and react quickly to bottlenecks.

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In order to control not only delivery times but also prices, there is the option of financial hedging at the bank through forwards (over-the-counter) or futures (on the futures exchange) contracts that guarantee fixed prices. For this to work, both parties to the contract undertake to buy a certain quantity of commodities at a predetermined price at a certain time. However, this prevents companies from being able to take advantage of the lower price in the event of a price reduction (Handelsblatt 2, 2022).

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The option of minimizing risk through long-term contracts is also common in the SME sector. These not only minimize price fluctuations, but also support supplier relationships, as they build mutual trust through their duration and protect both sides. However, such long-term contracts are often highly complex and must be drawn up with care in order to avoid future disputes.

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Strategic Procurement, which includes price and supplier management, is essential for companies to act cleverly in volatile times. This allows experts to take advantage of low price phases and create clever hedges (Handelsblatt 2, 2022). According to mechanical engineering industry expert Ralf Sauter, this can involve, for example, gaining a better overview of cost structures. According to a survey of 48 Procurement decision-makers, 40% of mechanical and plant engineering companies are already giving high priority to this.

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Tacto as a solution

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In order to keep a better eye on cost structures and strengthen strategic Procurement , digital solutions are needed that clearly evaluate and display procurement activities and suppliers and enable buyers to act with agility. 

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Tacto is designed by SMEs for SMEs and was developed in close cooperation with purchasers to meet the exact needs of industrial SMEs. For example, the purchasing cockpit allows you to view all important key figures such as procurement volume, quantity, price trends or delivery times at a glance, based on suppliers, Categories or item level. This gives purchasers a clear comparison of their suppliers and allows them to determine, based on data, which suppliers they are working with on the best terms.

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With Tacto's inquiry module, operational activities can be simplified, giving the buyer more time for strategic activities. With the help of this module, requests can be sent to suppliers in a standardized way, who can respond without logging in. The buyer then receives an automated price comparison - without the hassle of typing in Excel from various emails, Excel spreadsheets and PDF documents.

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Our supplier portal & management gives buyers a clear overview of all important supplier data and metrics, even in chaotic times. All documents such as NDAs and ISO certifications are stored in one place. The buyer therefore knows immediately which suppliers are qualified, which qualifications and certificates are still outstanding and which are about to expire.

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Tacto is the digital solution for SME Procurement that allows buyers to keep a cool head and make strategically smart decisions, especially in times of crisis. Together for future-proof Procurement.

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References

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Mirror

Trade journal 1

Handelsblatt 2

The situation on the procurement markets in the industrial SME sector is tense. How can you future-proof your Procurement ?