The volatile situation in procurement markets is particularly noticeable in Germany's industrial mid-market. Companies are struggling with rising raw material and energy prices, which they can only pass on to customers to a limited extent due to strong competition. With Germany's economic problems, caused in part by the aftereffects of the pandemic and the war in Ukraine, no quick end is in sight. That is why it is essential for companies to position themselves strategically to counteract fluctuations and minimize losses. Since 50% - 70% of costs in German mid-sized companies are attributable to procurement, this is a crucial leverage point. Accordingly, companies should focus precisely here to sustainably protect themselves against macroeconomic crises. 

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In addition to strategic procurement, there are other ways to future-proof procurement. These are summarized in the downloadable resource.

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Current Macroeconomic Situation in Germany

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The German economy is currently characterized by high inflation, which not only makes everyday life more expensive for individuals but also presents 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, caused by pandemic restrictions in China and supply disruptions for products from Ukraine, is also being felt in Germany. Container ships are backing up at German North Sea ports, and exporting ships cannot depart on time. 

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The effects of the current situation are particularly pronounced in mid-market mechanical engineering. In this industry, a revenue increase of almost 12% compared to the previous year is still expected for 2022. This figure is driven by backlogged orders from the pandemic period that still need to be fulfilled. However, the same metric in the 2023 forecast has dropped to just 6.7% due to rising procurement prices and declining order volumes.

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Not only supply bottlenecks, but also the energy crisis accompanying inflation is testing German companies. Experts believe the impacts could be as severe as those of the Lehman Brothers collapse in 2008 (Handelsblatt 1, 2022). According to a forecast by the Leibniz Institute, economic output will decline slightly in 2023, while consumer prices will rise by almost 10%. The predicted inflation increase to 11% in Q1 2023 will further worsen the economic situation and reduce citizens' purchasing power (Spiegel, 2022). 

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Experts believe that high prices will persist for another two to three years before they decrease again. Until then, a partial purchasing power offset through rising wages is hoped for (Handelsblatt 2, 2022).

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Procurement Market Situation in the Mid-Market

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Procurement is not spared from this downturn either. Currently, the daily procurement routine in German mid-market procurement departments is characterized by supply bottlenecks or even unavailable products from regular suppliers. 90% of mechanical engineering companies surveyed report struggling with shortages in the supply of raw materials and intermediate products (Beschaffung aktuell, 2022).

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Among other things, the war in Ukraine and global shipping problems have contributed to raw material scarcity and drastic price increases (up to 200%) for semiconductors, steel, or plastics, for example. Companies that cannot respond agilely to bottlenecks must extend delivery times, scale back production, or even shut down completely.

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This has a major impact on the economy, as 98% of all German exports come from mid-sized companies. These often compete against strong competition in the global market, making price pass-through to customers usually impossible (Handelsblatt 2, 2022).

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Risk Mitigation Options

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To limit the volatility of delivery times, some companies are turning to purely European suppliers to ensure geographic proximity and potentially avoid long waiting times. Additionally, 61% of German mid-sized companies plan to expand internal value creation and regionalize their procurement (Handelsblatt 2, 2022). 

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Furthermore, the multi-sourcing strategy – using multiple suppliers for the same parts or raw materials – is helpful in crisis situations. This way, procurement is protected if one supplier cannot deliver and is in a stronger negotiating position. However, this tactic makes it harder to build close relationships with suppliers.

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However, not only supplier changes but also good relationships and communication with suppliers are further characteristics that can enable better supply security in difficult times. Those who play with open cards can plan together with the supplier and respond quickly to bottlenecks.

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To control not only delivery times but also prices, there is the option of financial hedging through bank forwards (over-the-counter) or futures (on the exchange) contracts that guarantee fixed prices. For this to work, both contracting parties commit to buying a certain quantity of raw materials at a predetermined price at a specific time. However, this prevents companies from taking advantage of a lower price in the event of a price decrease (Handelsblatt 2, 2022).

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In the mid-market, risk minimization through long-term contracts is also common. These not only minimize price fluctuations but also support supplier relationships, as their duration builds mutual trust and protects both sides. However, such long-term contracts often have great complexity and must be set up carefully to exclude future points of dispute.

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For companies to act smartly in volatile times, strategic procurement encompassing price and supplier management is essential. This allows experts to take advantage of low-price phases and make clever hedging arrangements (Handelsblatt 2, 2022). According to mechanical engineering industry expert Ralf Sauter, these can consist, for example, of gaining better oversight of cost structures. According to a survey of 48 procurement decision-makers, 40% of machine and plant builders are already addressing this with high priority.

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Tacto as the Solution

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To better monitor cost structures and strengthen strategic procurement, digital solutions are needed that clearly evaluate and display procurement activities and suppliers and enable agile action by procurement professionals. 

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Tacto is built by the mid-market for the mid-market and was developed close to daily operations, with procurement professionals, to be precisely tailored to the needs of the industrial mid-market. For example, using the procurement cockpit, all important KPIs such as procurement volume, quantities, price developments, or delivery times – at the supplier, commodity group, or item level – can be viewed at a glance. This gives procurement professionals a clear comparison of their suppliers and enables data-driven decisions about which suppliers offer the best conditions.

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With Tacto's inquiry module, operational tasks can be simplified, giving the procurement professional more time for strategic activities. Using this module, standardized inquiries can be sent to suppliers, who can respond without having to register. The procurement professional then receives an automated price comparison – without tedious data entry into Excel from various emails, spreadsheets, and PDF documents.

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Our supplier portal & management gives procurement professionals a clear overview of all important supplier data and metrics even in chaotic times. For this purpose, all documents such as NDAs and ISO certifications are stored in one place. The procurement professional instantly knows which suppliers are qualified, which qualifications and certificates are still pending, and which are about to expire.

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Tacto is the digital solution for mid-market procurement that enables procurement professionals, especially in times of crisis, to keep a cool head and make strategically sound decisions. Together for future-proof procurement.

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References

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Spiegel

Handelsblatt 1

Handelsblatt 2

The situation in procurement markets in the industrial mid-market is tense. How can you future-proof your procurement?