Raw material buyers are yet to take advantage of opportunities
Although the COVID-19 pandemic has disrupted supply chains worldwide, few participants in the raw materials study are concerned about supplies. The study by INVERTO, the Boston Consulting Group subsidiary specializing in procurement and supply chain management, shows that global demand has fallen as a result of the crisis, which has led to overcapacity and price discounts. However, only 29% of the study participants were able to reduce their procurement costs.
Although the COVID-19 pandemic has disrupted supply chains worldwide, few participants in the raw materials study are concerned about supplies. The study by INVERTO, the Boston Consulting Group subsidiary specializing in procurement and supply chain management, shows that global demand has fallen as a result of the crisis, which has led to overcapacity and price discounts. However, only 29% of the study participants were able to reduce their procurement costs.
LONDON, November 4 – Bottlenecks in the supply chain were experienced by 59% of those surveyed, 33% still state that the planning of raw material supplies is less predictable. The countermeasures most frequently taken by the companies were the establishment of new suppliers (56%), volume shifts between existing suppliers (36%) and the establishment of a “war room” (44%) to be able to react quickly to delays.
“This is more of a troubleshooting than a structured approach,” says Lars-Peter Häfele, Managing Director of INVERTO and an expert on raw materials. He recommends professional risk management for the most important raw materials and primary products. In order to make the supply chain more stable in the long term, Häfele advises a mix of suppliers from different regions – if possible, also locally.
Plastics, chemicals, aluminum and iron are the most important raw materials according to the study participants. Given the fall in prices of crude oil as most metals, the number of those who benefited from this seems low at 29%. Häfele sees two reasons for this: 24% of the study participants stated that they had already agreed on fixed prices before the pandemic began – so they were unable to take advantage of the bear market.
In other cases, the expert suspects a lack of transparency: “Many companies do not buy raw materials directly, but rather intermediate products and do not know the raw material share in them. So they have no basis for negotiation.” Buyers should create transparency, at least for the essential raw materials in order to renegotiate prices with this knowledge – even if fixed prices were agreed upon.
Häfele considers long-term price agreements to be the right solution for having predictable costs. “In many cases, contracts with price escalation clauses for the raw material portion are useful.“ But it depends on whether rising raw material costs can be passed on to the company’s customers: If this is not the case, the cost risk increases. „Then fixed prices are the better alternative – and renegotiation if necessary“ says Häfele.
Study design
The 11th INVERTO Raw Materials Study surveyed 78 managing directors, board members and decision-makers in procurement from Great Britain and German speaking countries. Almost 80% of them work in industry, the rest in trade and services. 68% of the interviewed companies have a procurement volume of over 100 million euros per year. About one third of the participants spend more than 50% of this on raw materials. The study results and an e-book with recommendations can be downloaded free of charge: https://www.inverto.com/en/publikationen/raw-materials-study-2020/
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