As industrial material prices continue to rise in 2024, small and mid-sized manufacturers are feeling the pressure. From steel and plastics to energy and logistics, the cost of keeping production running has never been higher.

This guide walks through how SMEs can rethink their procurement approach to stay competitive, reduce risks, and protect margins in today’s volatile industrial economy.

The Squeeze on Small Manufacturers

The numbers paint a clear picture. Between 2020 and 2025:

● Aluminum prices rose over 40%, according to the London Metal Exchange.

● Global resin prices surged 30–50% due to refinery bottlenecks.

● Freight and logistics costs remained above pre-2020 levels across Asia and North America.

Unlike large corporations, SMEs lack the scale to absorb these shocks. Many operate on lean inventory models and limited contracts, which worked during stable times — but now leave them exposed.

Adding to the strain, supply chains are less predictable than ever. Delays, port congestion, and geopolitical tensions (e.g., U.S.-China trade friction, Red Sea disruptions) have made sourcing consistency as important as pricing.

Why Traditional Procurement Models No Longer Work

For years, procurement at small manufacturers often followed a familiar pattern: get three quotes, pick the cheapest supplier, and stick with long-term contracts. But when input costs can swing 15–25% in a quarter, this model fails to respond quickly enough. Worse, it can lock companies into outdated prices or unreliable suppliers.

In today’s environment, procurement needs to shift from a cost-saving function to a strategic risk management role.

Four Strategic Shifts for Smarter Procurement

1. Build Flexibility into Contracts and Forecasts

Rigid annual contracts may feel safe, but they can cost you more in volatile markets. A growing number of SMEs are adopting index-linked contracts

Internally, forecasting also needs to shift from fixed 12-month plans to rolling demand planning, updated every quarter or even monthly. This ensures purchase volumes and budgets stay aligned with market trends.

2. Diversify Supply Sources and Geographies

Sole-sourcing is a high-stakes gamble today. SMEs should actively cultivate a secondary or even tertiary supplier — especially from different regions. For instance, sourcing from Southeast Asia as a counterbalance to Chinese dependency can offer supply assurance even if prices are slightly higher.

Some firms are also exploring “nearshoring” options to reduce lead times and logistics risks, even if the material itself isn’t cheaper.

3. Rethink Inventory: From Just-in-Time to Just-in-Case

Just-in-time (JIT) may have kept warehouses lean, but in a volatile world, it increases exposure to cost spikes and stockouts. For critical materials, especially those with volatile pricing or long lead times, a limited buffer inventory makes financial sense.

It’s not about overstocking everything — but about identifying the top 20% of inputs that drive 80% of production risk and securing a smarter buffer strategy for them.

4. Strengthen Supplier Relationships

Now more than ever, SMEs need their suppliers to be allies, not just vendors. This means:

Sharing demand forecasts

Engaging in regular price reviews

Exploring joint cost-saving initiatives (e.g., bulk logistics, shared storage)

Stronger collaboration builds trust — which can lead to better payment terms, priority allocation in shortages, and even early warnings of price changes.

Turning Cost Pressure into Competitive Opportunity

While it’s true that material inflation adds real stress, it’s also a forcing function for operational maturity. SMEs that update their procurement mindset — from reactive to strategic — can improve resilience, reduce waste, and even gain competitive advantage over slower-moving rivals.

In some regions, small manufacturers that implemented diversified sourcing and indexed contracts have reported 5–10% procurement cost improvements year-on-year — not by beating the market, but by managing risk better.

Conclusion

There’s no easy fix to rising material costs. But there is a smarter way forward. By building flexibility, diversifying risk, and collaborating more deeply with suppliers, small and mid-sized manufacturers can stay agile in a volatile world.

In the new procurement reality, those who adapt fastest will suffer least — and possibly gain the most.