Major supply chain issues and recruitment challenges are suppressing the recovery of SME manufacturers in the UK, according to a new report .
The Manufacturing Barometer, which is run by SWMAS (South West Manufacturing Advisory Service) and supported by the Manufacturing Growth Programme (MGP), reveals that nearly all of the 260 respondents are struggling with price changes within their supply chain.
It comes as supply chain issues came to the fore with week as McDonalds admitted it had run out of milkshakes because of lorry driver shortages.
Firms believe that rising costs are being driven by lack of raw materials availability (94%), rising transport costs (82%), and reduced capacity in the market to meet demand (63%).
In addition, almost half of all companies are saying they are struggling to find staff as they attempt to scale back up following the pandemic.
Nick Golding, Managing Director of SWMAS, said: “The last quarter showed a considerable jump in confidence, from 44 per cent of respondents to 65 per cent expecting sales to grow in the next six months based on increasing demand.
“With 65 per cent highlighting potential future sales growth again this quarter, confidence appears to be levelling off. In addition, those expecting future profits to rise has dropped from 52 per cent last quarter to 46 per cent.
Whether it’s milkshakes, chicken or electronic chips, shortages and volatile supply chains can cause severe disruption and a knock-on effect
“It appears we are seeing the first signs of supply chain struggles starting to hinder the upturn. Freedom of movement is adding to recruitment pain, whilst problems securing raw materials seems to be partly due to logistics challenges of importing goods.
“To address this, companies are taking steps to increase and protect their own inventories, often paying extra to get what they need. Firms are having to compete for scarce resources, which is driving the significant price increases we are seeing.”
The Manufacturing Barometer is the only quarterly survey specifically aimed at SME manufacturers in the UK and covers trading activity in April, May, and June 2021, with responses collected in July.
Encouragingly, despite the challenges highlighted, this quarter’s report also reveals that 42 per cent of firms are trading at increased levels when compared to their pre-COVID-19 position, and this is mirrored with predictions of job creation (51%) and increased future investment (49%).
Martin Coats, Managing Director of MGP, said: “We have all been encouraged by the pace of our recovery, which just goes to show the strength and agility of our manufacturing SMEs.
“However, it is not without substantial challenges in the supply chain, most noticeably in the ability to get the staff and materials needed to produce parts. The latter is the biggest concern, which isn’t surprising when we’re hearing accounts of some lead times increasing from three-weeks to 12 months.”
Chris Laws, VP of Product and Strategy at Dun & Bradstreet said the McDonald’s shortage might surprise consumers, but is an example of how external market forces can impact business operations, and why it’s so critical to have full visibility of their supply chain.
“Whether it’s milkshakes, chicken or electronic chips, shortages and volatile supply chains can cause severe disruption and a knock-on effect.
“To help minimise the impact of external factors on operations, businesses need to ensure they have a holistic, clear overview of all their suppliers and their suppliers’ suppliers. By analysing their supply chain data, they will be able to lower reliance on specific vendors and expose any vulnerabilities in their procurement processes – improving their business continuity planning to ensure survival through these tumultuous times.”
The full report is available here
Why sustainability is a cornerstone reason for supply chain change