The NEVI PMI® shows that the record growth of Dutch manufacturing in December hardly changed. Although the PMI fell slightly from 62.4 in November, the December figure still remains well above the previous record set in February 2011.
Prof Arjan van Weele's (NEVI Professor of Procurement and suply management at TU/e) explanation was not out of place. The growth rate of Dutch manufacturing is unabated. The only sub-index that did show a record value was that of employment. This index scored an unprecedented value of 61.1. This indicates that companies are rapidly recruiting employees to meet the ongoing demand for their products. Both domestic and foreign order books continued to increase. Manufacturing companies cannot keep up with demand given further increasing delivery times. The sharp purchase price inflation is leading to a major hoarding frenzy: semi-finished products and raw materials are being purchased in large volumes to secure future productions and overcome future price increases. Naturally, this leads to ever faster rising prices, as suppliers cannot meet demand in equal measure.
And foreign countries are not left out either, with Germany's PMI coming in at 63.3 in December (November 62.5) and France's at 59.3 (November 57.7). Demand for raw materials, semi-finished products and technical components is also high from these countries. Suppliers and qualified employees seem to be the main bottleneck for further growth in our region at the moment. Those companies that have invested in good relationships with qualified suppliers in recent years are now reaping the benefits. 2017 was a fantastic year for our industry and for all sectors that were able to ride on its strength. Given the overflowing order books, 2018 is off to a good start."
SMEs barely growing
All the lights are on green yet SMEs do not seem to be able to benefit from the growth. SMEs are not growing if they do not know how to sufficiently exploit financial flows. This may be ignorance or unfamiliarity with the possibilities. Because growth can indeed be achieved without direct intervention of external capital. But then SMEs need to know how to extract value from the chain, from their own business. For that, it is important to read the economy better, to predict what will happen in the future.
Why it is that many SMEs are not growing much, if at all, is widely reported in the report by The Committee for Entrepreneurship and Finance. The organisation surveyed the economic position of SMEs for the second year in a row. Their findings were published in November in the edition State of SMEs.
Ignorance
Except for a small group of frontrunners, SMEs are at a standstill. The report tries to give several explanations for this and financing appears to play a crucial factor. In many cases, SMEs do not seem to find access to capital. Unfamiliarity with alternative forms of financing is one such cause. And, it is evident, own money is often too little to make bigger strides.
Classic approach
In many cases, when an SME wants to achieve growth, it will mainly try to increase turnover by paying more attention to the sales side. What the possibilities are on the purchasing side often remains underexposed. In many cases, the approach is still classical and 'buying as sharply as possible' is the main, if not only, focus. This is where SMEs miss out on opportunities.
Long-term
We see in the larger companies that the predictive power of our purchasing managers' index (NEVI PMI) weighs more often and more heavily in economic decisions on more and more aspects. This is also due to the fact that buyers in large companies are often specifically trained to add value to the entire business chain. They know how to make the interpretation shift from the (partial) indices to practice. In doing so, they realise value that is sometimes directly converted into euros in the bank (e.g. purchase prices of materials), but always promotes growth in the long term.
Higher plan
SME entrepreneurs and buyers would also benefit greatly by learning about, interpreting and more broadly anticipating the monthly PMI (Purchasing Managers Index). The implications could take their business interests to the next level in all sorts of ways. For example, discussions with suppliers can be approached very differently when you, as an SME, see supply problems coming in a timely manner.
Attractive conditions
One of our members, a manufacturing company with global sales, went through a development where they were converting capex into opex where possible. Among other things, they transformed the engineering department into a project management organisation. They now source the engineering work themselves in the market. This has logically made them more dependent on suppliers. This has made it even more important for them to know what is happening in the market so that they can respond to it at an early stage. If they see demand for certain technical services increasing and availability decreasing, they have to look for other partners to still maintain good coverage. They start procurement processes earlier, giving themselves time to make a good contract. Under attractive conditions, also thanks to the information from the monthly NEVI PMI report.
We see thanks to such great examples that SMEs can extract much more value from the chain. And thus, without direct intervention of external capital, can indeed achieve growth. So thoughtful procurement is really buying value.
Courtesy of Professor Arjan van Weele.
