The Procurement Beige Book: Summary Sheet Q3 2021
The Procurement Beige Book is a quarterly publication from Beroe that assesses and reports the level of favorability in sourcing a comprehensive set of commodities, materials, products, and services.
The Methodology
Category Softness
Beroe tracks the movement in price, input cost, supply–demand gap (or demand, in the case of categories where supply is largely elastic), and market competition, and identifies whether each of these parameters is favorable, unfavorable, or neutral, based on the direction (increase or decrease) and magnitude of change. The level of favorability of the four parameters is combined to provide a unique indicator called category softness. Higher category softness indicates a more favorable sourcing condition.
Roll Up
Each category that is tracked is part of a portfolio of similar categories, and a collection of related portfolios constitutes a cluster. The level of favorability across the four key parameters for each category in a portfolio is used to arrive at the level of favorability and overall softness at the portfolio level. The relative significance of each category in a portfolio is considered in this roll up. The process is repeated with related portfolios within a cluster to arrive at the level of favorability and overall softness at the cluster level.
Scale and Scope
The Procurement Beige Book covers softness data for 389 categories, 53 portfolios, and 19 clusters. Softness dashboards are available for 319 categories. Our analysts track a minimum of 30 to a maximum of 140 data points per category to provide softness data and dashboards.
Summary
On the whole, when all clusters are considered together, the category softness continues to be neutral in this quarter.
No cluster as a whole has been witnessing unfavorable sourcing conditions. However, close to unfavorable conditions in the energy and utilities as well as freight service clusters will have a negative impact across most industries.
Although conditions in the energy and utilities cluster are not expected to worsen further in October–December (Q4) 2021, conditions are expected to worsen for freight services in Q4 2021. The conditions in the oil exploration and production cluster remain stable and favorable for procurement in Q4 2021.
Other critical clusters such as chemicals, metals and minerals, agro, packaging, and industrial manufacturing are relatively stable and are likely to witness only marginal movements at the cluster level in Q4 2021.
Sourcing Conditions Snapshot
|
|
Improving |
Stable |
Worsening |
|
Categories |
95 |
233 |
61 |
|
Portfolios |
11 |
31 |
11 |
|
Clusters |
1 |
18 |
0 |
|
|
Favorable |
Neutral |
Unfavorable |
|
Categories |
54 |
322 |
13 |
|
Portfolios |
4 |
49 |
0 |
|
Clusters |
1 |
18 |
0 |
Chemicals
Conditions remain neutral in the chemicals cluster with conditions worsening in three portfolios, improving in three, and remaining stable in three. Although the cluster as a whole and all nine portfolios fall in the neutral band, prices and input costs have increased and are unfavorable across portfolios such as bulk chemicals, pigments, resins, surfactants, and silicones. The supply–demand situation is neutral to favorable across all portfolios except silicones, indicating potential softening in the near future.
Metals and Minerals
Conditions remain neutral at the metals and minerals cluster level and have witnessed a mild softening, as indicated previously. Conditions in the metals portfolio are likely to improve in Q4, whereas the minerals portfolio has been witnessing a slight worsening toward unfavorable sourcing conditions. Unfavorable price and input cost conditions that have been continuing in this cluster for the past few quarters appear to be easing in Q4 with the supply–demand situation improving in many categories.
Mining
The conditions are likely to improve from Q3 to Q4 2021 in the mining cluster. All portfolios are expected to witness a mild improvement, although the sourcing conditions are neutral. Price and input cost movements are unfavorable across equipment, consumables, and services portfolios but are likely to improve in Q4. However, the supply–demand situation and market competition are neutral or favorable across these portfolios.
Industrial Manufacturing
Category conditions at the industrial manufacturing cluster level are likely to improve marginally. Although the supply–demand scenario in the electronic components portfolio is expected to continue in the neutral to the unfavorable territory for at least the next three quarters, improvement is driven by considerable softening in the industrial processes and mechanical component portfolios. Although all portfolios fall in the neutral band, the input cost movement and supply–demand index are unfavorable across electronic components and contract manufacturing portfolios. A stable to favorable supply–demand index for critical inputs to electrical and mechanical components could drive improvement in subsequent periods.
Energy
Category conditions are likely to witness an improvement from near unfavorable to more neutral conditions at the energy cluster level during Q4 2021. Although all portfolios fall in the neutral band, price and input cost indices are unfavorable for natural gas, electricity, diesel, and renewable energy. Stable to marginally favorable supply–demand conditions in many of these categories indicate potential softening in early 2022.
Agro
Conditions are neutral in the agro commodities cluster, with five out of ten portfolios experiencing improved sourcing conditions and three remaining stable. All portfolios fall in the neutral band, and the unfavorable price index is likely to improve in Q4 2021 in portfolios such as brewing raw materials and cereals and grains. Although the supply–demand situation and market competition are neutral to favorable across nine out of ten portfolios, signifying a potential improvement if these conditions prevail, the oils and fats portfolio as a whole is expected to witness an unfavorable price index in Q4 2021.
Packaging
Category conditions are neutral at the packaging cluster level, with all three portfolios expected to be neutral and stable in Q4 2021. Although the three portfolios remain neutral, the price and input cost indices continue to be unfavorable in each of these portfolios. However, the supply–demand conditions have improved to neutral or favorable in these portfolios and could signal an improvement in sourcing conditions at the portfolio and cluster levels in succeeding periods.
Pharma R&D
Category conditions are neutral, although they are likely to marginally worsen at the pharma R&D cluster level. Contract research organizations, drug manufacturing services, pharma materials and formulations, and medical equipment and supplies portfolios remain neutral, with the price and input cost indices continuing to be neutral in each of these portfolios. Although the price index is unfavorable for the contract research portfolio, the input cost index, demand index, and market competition improved at the portfolio level. The input cost index is expected to stay unfavorable for the drug manufacturing portfolio in Q4 2021.
Exploration and Production
Conditions remain stable and favorable on the whole in the exploration and production cluster with the oil and gas services portfolio witnessing improved supply–demand index and market competition in Q4 2021 compared to Q3 2021. Price and input cost indices stabilized in both portfolios, while the supply–demand index has remained stable throughout 2021. Improving market competition and stability in price, input cost, and supply–demand indices across both portfolios indicate further softening of category conditions in the upcoming periods.
Indirects
Conditions are largely stable and neutral across indirect clusters and portfolios, with eight out of ten clusters remaining stable in the neutral band. However, freight services witnessed a considerable decline from favorable to neutral conditions vis-à-vis Q1 2021. This decline is likely to impact industries across the board because of the relatively broad applicability of these portfolios across industries.
Marketing Services
The conditions remain stable and neutral across the marketing services portfolio Demand continues to grow for key categories in the portfolio and the impact of inflation is likely to manifest in the ensuing quarters.
Corporate Services
The conditions are stable and neutral. Positive conditions are likely to continue in the subsequent periods.
Staffing Services
The conditions are stable and neutral. Demand is expected to continue to stabilize. Price impact is anticipated in late 2021 to early 2022.
Employee Benefit Services
The conditions continue to be neutral at a portfolio level.
Banking Services
The conditions are stable and neutral. Positive conditions are likely to continue in the subsequent periods.
Freight Services
Conditions will continue to be neutral, although bordering unfavorable. Adverse price and input cost movements are expected in air freight and ocean freight categories. Sluggish supply in ocean freight is likely to continue in Q4 2021.
IT – Software, Infrastructure, and Services
The conditions are stable and neutral. Positive conditions are likely to continue in the subsequent periods.
Facilities Management
The conditions remain stable and neutral. Positive conditions are likely to continue in the subsequent periods.
MRO
The conditions are stable and neutral. Positive conditions are likely to continue in the subsequent periods.
Engineering and Construction: The conditions remain stable and neutral. Positive conditions are likely to continue in the subsequent periods.
Category Highlights
Category conditions are expected to be unfavorable in aluminum, rare earth elements, almonds, glycerin, sulfuric acid, dimethicones, silicone, xylene, learning and development, point of sale materials, visual merchandising, fixtures and furnishings, and oil country tubular goods during Q4 2021.
Category conditions are expected to be favorable in material handling equipment, carbon steel, iron ore, analytical testing services, CMO formulation, injectors, corn, starch, cocoa, lactic acid, palm oil, sugar, ethanolamine, acetic acid, zinc oxide, HDPE, LDPE, LLDPE, polycarbonate, polypropylene, super absorbent polymers, acetone, benzene, industrial ethanol, isopropanol, propylene glycol, toluene, carton boards, corrugated boards, fluff pulp, paper, pulp, cementing, completion, drilling and stimulation chemicals, offshore labor, cheque processing services, investment management, lockbox services, catering services, 3PL services, commissioning services, engineering and design services, general/civil construction services, and storefront design and installation services.
Acrylic acid, epoxy resins, isopropanol, propylene glycol, industrial gases, insurance services, promotional items, and 3PL services are expected to witness the highest improvement in category softness.
Category softness is expected to worsen the most in aluminum, carrageenan, lard, rapeseed oil and meal, sulfuric acid, natural rubber, process automation, learning and development, and air freight services.
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