Tacto Mid-Market Survey on Raw Material Price Trends: The Situation Remains Tense!

• Munich-based procurement software company Tacto has conducted its first industry survey on the impact of raw material price developments on mid-size manufacturing businesses.

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• The survey of procurement leaders and procurement managers from leading industrial companies reveals that the situation has only partially eased for many mid-size companies — many expect a further deterioration over the next 6-8 months.

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• When it comes to responding to price increases, mid-size companies often have limited room to maneuver. Besides passing on price increases to customers, many companies try to limit the impact primarily through price adjustment clauses or index-based pricing.

Munich, October 4, 2022

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Munich-based procurement software company Tacto presented its first comprehensive mid-market survey in September of this year. Procurement leaders from the DACH region (Germany, Austria, Switzerland) were surveyed in August and September about their assessment of the current raw materials market situation. In addition to responses about how they are handling the situation, the survey focused primarily on expected future price developments.

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"Many of our customers and partners had been hoping for an easing of the situation by mid-year and an end to the price rally," says Johannes Groll, CEO of Tacto. "But especially with the growing energy crisis and the structural supply difficulties in the machinery and electronic components sectors, the situation remains challenging and could worsen further. This is usually felt very quickly and clearly in procurement departments."

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83% of respondents said they deal with material shortages and rising prices in their daily operations, with 30% even reporting that they have a raw material in their portfolio that is currently unavailable. The majority of surveyed procurement leaders came from the machinery and plant engineering sector as well as electronic components procurement.

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The survey also asked how mid-size procurement departments are dealing with elevated prices. The majority of respondents (77%) said that higher costs are mostly passed on to customers. 60% also rely on index-based pricing or price adjustment clauses that account for raw material prices. However, few consider using digital support: only 25% said they use digital tools to manage their procurement activities.

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"Mid-size companies find themselves in a persistently severe situation: On one hand, their negotiating leverage with suppliers is smaller than that of large industrial corporations when prices are rising, and on the other hand, it remains difficult for many procurement leaders to find qualified talent. There is often no time for a detailed breakdown of product cost structures by raw material content," says Johannes Groll. "That's why it's especially important now to fully leverage the possibilities of digitization, create space for strategic activities, and position yourself as well as possible for the ongoing difficult situation. The digital tools for automatic analysis and management of procurement activities are available. Now it's about integrating them into daily operations."

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Many procurement managers still don't expect a full improvement of the situation. 60% of respondents rate the outlook for the coming months as "rather poor" or even "very poor." This is mainly attributed to rising energy prices and the associated price increases and potential material shortages, which are perceived as business-critical factors across all industries. In general, however, procurement leaders from the machinery and electronics manufacturing sectors are somewhat more optimistic heading into the winter, as there are signs of easing in the procurement markets for primary materials such as steel, aluminum, and plastics.

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Procurement leaders share their assessment of current and future market developments