INVERTO: Why Proactively Procuring Raw Materials is Vital

A significant majority of companies are bracing themselves for higher commodity costs in the near future.

That's according to research from INVERTO, the specialist supply chain management arm of Boston Consulting Group, which has found almost two-thirds (65%) of firms anticipate increases – up from 48% last year. 

On the other hand, only 13% of businesses foresee a decrease in prices, down from 41% last year, indicating a stark shift in expectation and preparedness.

This shift in commodity price expectations is having a tangible impact, with 38% of respondents stating these changes significantly impact business outcomes.

Despite this, there is a noted lack of emphasis on managing raw materials effectively within procurement teams across industries, including manufacturing.

The research, which polled around 200 senior procurement and management leaders, primarily from France, German-speaking regions, Spain, and the UK, reveals insights across various sectors.

A majority of respondents represented industries like manufacturing, mechanical engineering and chemicals, while the service and retail sectors also had their say.

Notably, 82% of surveyed companies report procurement spending in excess of millions, underlining the scale and significance of these operations. 

Increased flexibility through new sourcing strategies

INVERTO's findings underscore the necessity for manufacturing companies to adapt their sourcing strategies to mitigate potential disruptions caused by fluctuating costs and unpredictable market conditions. 

There is a palpable concern among businesses about impending price rises, not least due to new tariffs potentially influencing key raw material costs.

In the face of these challenges, there is a critical need for procurement teams to adopt a proactive approach.

Staying ahead involves understanding market trends and anticipating possible scenarios that could affect material costs and availability.

Such foresight enables organisations to react swiftly and efficiently, securing necessary materials before potential shortages or price hikes.

Maximising transparency

Lina Tilley, Principal at INVERTO, says: "With raw material prices continuing to be volatile, there is a much bigger role for procurement teams to play in managing raw material costs. This isn't happening as regularly as it should, however."

Lina adds that procurement teams, particularly in industrial sectors, must emphasise managing down pricing of raw materials. However, this is not always seen as a core part of their work as they do not usually buy commodities directly, but parts, including commodities.

"We often find that finding and securing better prices for raw materials isn't seen as part of a procurement team's role," Lina continues. "Frequently, procurement teams lack the skills and resources to be able to do that effectively. Monitoring relevant price indices and responding to changes isn't something they are expected or empowered to do.

"Upskilling procurement teams and giving them the tools they need to really add value is increasingly important for industrial businesses. If a procurement function doesn't have the solutions and data sources it needs, it won't contribute to the bottom line in the way that it would be able to."

Lina, an expert in the field, suggests that one of the most effective ways to manage these challenges is through the implementation of digital technologies, including generative AI.

"Companies can achieve significant cost savings by gaining a comprehensive understanding of their supply chains," she says.

"Digital solutions and Gen AI in particular can make that process far quicker and more efficient. That will require investment on the right scale to make the right impact.

"Another lever procurement teams can pull is proactively engaging in the product development process at the early stages. This can ensure that any raw materials used in a new product have been considered from a market-price-volatility perspective."

These tools enhance the visibility of data and market trends, allowing companies to predict and prepare for changes more effectively. Automation in tracking market dynamics is a game-changer, providing businesses with the ability to act quickly to fluctuating conditions.

However, Lina also stresses the importance of investment in three key areas: data quality, system integration and workforce training.

These elements are imperative to harness the full potential of digital procurement solutions, ensuring that manufacturers not only respond to market changes but also do so in a way that aligns with their strategic business goals.

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