Nowaco Web article April, 19th
The 7 advantages of outsourcing European pork procurement
Producers of pork products need to be good at a lot of things, including selecting the best ingredients to match their recipes and quality demands. But that doesn’t mean they must find all raw materials on their own.
In fact, outsourcing procurement to a professional trading company can have at least seven distinct advantages, especially for small and medium-sized pork product producers who often must purchase through wholesalers and agents who must also make a profit on every transaction. But even big players can reap the benefits.
1. Economies of scale lower costs
Who do you think gets the better price, the company that buys a ton a week or the one that buys half a ton a year?
Big purchasers get lower prices than smaller purchasers because they buy more product, create less friction and risk, provide more predictability, and wield more negotiating leverage.
By pooling the purchases of many smaller firms into larger orders, trading companies can pass on these advantages of scale to multiple smaller customers in the form of lower prices.
2. Bundling orders gives cheaper, more flexible logistics
Transport adds cost to all products, and shipping refrigerated perishables like pork is no exception. This is true for both domestic and international shipments. In our experience, transportation typically represents 12 to 15% of the total purchase cost, but this can vary and may increase when fuel costs spike.
Here again, scale matters. By bundling shipments from different suppliers and to different customers, trading companies not only reduce transportation costs but also enable smaller, regular orders instead of less frequent larger orders, thus saving customers cold storage space and improving cash flow.
3. Longer track records enable better terms and conditions
Buyers who have proven their trustworthiness through favorable credit ratings and payment histories get better T&C than unproven, new buyers – and are able to pass these advantages on to their own customers.
In addition, trading companies can in some cases work with their credit insurers to provide customers with higher credit limits than most slaughterhouses can offer.
4. Bigger supply networks provide more choices
The bigger your range of possible suppliers, the more options you have.
As many European pork buyers experienced when African Swine Fever hit China, these options matter. Especially small and medium-sized buyers were surprised when suppliers of many years stopped selling to them because they could sell practically everything they produced to China at considerably higher prices than they could get domestically.
Buyers with broad European supplier networks can even out these fluctuations.
5. Cross-border purchasing expertise improves with practice
Beyond the obvious language differences, pork buyers not used to international procurement face a steep learning curve.
For one thing, sourcing the right product at the right price requires intimate knowledge of suppliers large and small and what they specialize in. For another, even within the EU quality specifications and veterinary regulations vary considerably. Then come the challenges of arranging timely and cost-efficient international transportation.
As we all know, the market for pork products is highly dynamic and changes fast – sometimes day by day. Traders with international footprints are better able to navigate the European market’s many national differences and fluctuations to keep their customers supplied.
6. Personal relationships are, well, personal
Even in an era of EDI and automated credit checks, personal relationships still matter in the real world of pork procurement. People deal with people. People who know each other and have developed trust through successful track records naturally find it easier to make a deal.
Of course, personal relationships will only take you so far. Ultimately, sellers want to sell at the highest prices they can, and buyers want to buy at the lowest prices possible. But even as individuals move from one role to another or to different companies, personal relationships can make the difference between whose email gets answered first.
7. Better procurement capabilities build greater resilience in times of volatility and change
Pork prices have always been volatile, and economists often use the pork market to exemplify the mechanisms of supply and demand.
These days, however, volatility is greater than ever. The combined effects of global trade integration, the COVID-19 pandemic, African Swine Fever, rapidly increasing inflation, and now the war in Ukraine make the European pork market as unpredictable as anyone can remember.
Procurement based on broader supplier networks facilitated by experienced international traders will not remove this volatility. However, it can help many small and medium-sized buyers achieve better resilience against these many changes.