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Fighting inflation (Kantar survey)

Companies are even cancelling orders

Kantar survey: Fighting inflation – 66 percent of companies in the manufacturing sector have raised prices across-the-board / especially smaller companies are cancelling orders

In response to the sharp price increases, 66 percent of German companies in the manufacturing sector have already implemented across-the-board price increases – and another five percent are planning to do so. Smaller companies with fewer than 1,000 employees in particular are hit hard by the price increases. Of these SMEs, 77 percent have indicated that they have raised their prices as a consequence. This is the result of a recent survey in the German manufacturing sector conducted by the market research institute Kantar Public on behalf of the management consultancy FTI-Andersch in June 2022.

  • Only every second (49 percent) smaller medium-sized company expects sales growth in 2022 (larger companies: 70 percent).
  • Active hedging is used as a professional measure by not more than 40 percent of respondents
  • If a larger number of smaller companies in the supply chain fail, there is a threat of economic conflagration

Among companies with more than 1,000 employees, more than one in two (55 percent) have raised prices. Another difference between smaller and larger companies: Nearly one in five smaller companies (17 percent) already had to refuse or cancel customer orders – and thus missed out on current or future sales. Seven percent of the smaller companies are currently planning cancellations. By comparison, only eight per cent of larger companies have cancelled orders so far and just three percent of the companies surveyed have specific plans to do so in the future.

"The reaction of smaller companies from the SME sector and family businesses shows how much they are struggling with the price increases," says Philipp Oemler, Director at FTI-Andersch, the consulting unit of FTI Consulting in Germany specializing in restructuring, business transformation and transactions. "Without passing on the increases, the margin quickly becomes negative; in many cases, a buffer is missing. This underlines the rejection of customer orders: The cancellations named here do not refer to material shortages, but to rising producer prices, which have thus made previous calculations obsolete."

This approach not only affects profitability, but also the companies' sales expectations: In June 2022, only just under half of the companies (49 per cent) with fewer than 1,000 employees in the manufacturing sector expect an increase in turnover (decrease: 17 per cent, stagnation: 26 per cent). Confidence is higher among companies with more than 1,000 employees: 70 percent expect turnover to grow in 2022, only eight percent expect it to decline (stagnation: 22 percent).

 

Smaller companies often lack professional liquidity-oriented measures – customers should initiate know-how transfer

Other measures against price increases named by the companies in Kantar Public's survey: 59 percent of the companies surveyed have shortened offer deadlines (in planning: one percent), 52 percent have enforced price escalation clauses (in planning: five percent), 40 percent are actively 'hedging'. Hedging is about securing a risk position by taking an opposite position in a related asset. Hedging instruments are typically used to protect against fluctuating market prices for energy and raw materials.

Again, there are differences between smaller and larger companies: Thus, 53 percent of large companies work with active hedging, but only 26 percent of small companies. "From our consulting practice, we know that smaller companies are often less professionally positioned than their larger competitors or customers, especially when it comes to financial management measures," says Philipp Oemler. "Since they very often focus on the production of their goods and services, they sometimes lack the necessary professionalization in other areas. This again puts them at a disadvantage in the current crisis. Larger customers and partners should recognize this and proactively offer to support their often smaller suppliers now."

The danger of a conflagration following the failure of so-called zombie companies is constantly increasing, as most companies are not sufficiently prepared for liquidity bottlenecks – this was recently shown by the FTI Resilience Barometer 2022*, a survey of more than 3,000 companies worldwide. "Those who are now deprived of room to maneuver due to price increases, material shortages and rising interest rates could enter pre-insolvency or insolvency proceedings from the second half of the year onwards without the active support of third parties," says Oemler. "This could result in the loss of further important suppliers in the complex supply chains. And then the assembly lines of the big players would quickly come to a standstill. We therefore recommend to carry out a ruthless analysis now, together with financiers and business partners, and implement both liquidity-oriented and operational measures to ensure supply security."

 

About Kantar Public's research:

On behalf of the management consultancy FTI-Andersch, the market research company Kantar Public conducted a telephone survey of 100 companies in Germany from the 'manufacturing industry' with a focus on 'mechanical and plant engineering' (50 companies) as part of the 'Supply Chain Barometer 2022' study on challenges and resulting measures in supply chains.

The turnover of the companies is at least 50 million euros. 30 (about one third) of the companies surveyed generate more than 500 million euros in turnover per year. The percentages were weighted according to their share of the manufacturing sector by sub-sector. The survey period is the second quarter of 2022 (May/June).

For a more detailed insight into the data, please contact FTI-Andersch directly.

 

* About the 'FTI Resilience Barometer®'

FTI Consulting surveyed 3,314 decision-makers from companies worldwide, the majority of which have an annual turnover of between 100 million and 3 billion US dollars, about current trends and risks to their own business.

The complete survey can be found here: https://ftiresiliencebarometer.com/

 

About FTI-Andersch

FTI-Andersch is a management consultancy that supports its clients in the development and implementation of viable future/performance and restructuring concepts. FTI-Andersch actively accompanies companies that have to deal with operational or financial challenges and change processes – or that want to align their business model, organization and processes for the future at an early stage.

Our clients include, in particular, medium-sized companies and corporate groups that operate internationally. FTI-Andersch is part of the international FTI Consulting Group (NYSE: FCN) with more than 6,900 employees.