Manufacturers are recovering well, but a cocktail of external supply chain pressures is strangling further growth

Major supply chain issues and recruitment challenges are supressing the recovery of SME manufacturers in the UK, according to a new report out today.

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 (96%) are struggling with price changes within their supply chain.

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 to these issues, almost half of all companies (49%) are saying they are struggling to find staff as they attempt to scale back up following the pandemic.

Nick Golding, Managing Director of SWMAS, commented: “The last quarter showed a considerable jump in confidence, from 44% of respondents to 65% expecting sales to grow in the next six months based on increasing demand.

“With 65% 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% last quarter to 46%.

“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.”

He continued: “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.”

He continued: “The challenges highlighted have been caused in part by government policies as a direct result of Brexit and the COVID-19 pandemic. It is a vital priority that SMEs in our sector receive guidance and support to help them address these issues and ensure the recovery is not impeded.”

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% 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 at MGP, went on to add: “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.”

He continued: “Recruitment continues to be a significant worry which may ease once furlough decisions are taken, but there’s still a two-month wait for this to happen and we’re not sure manufacturers can wait that long.”

The team behind the Manufacturing Barometer believe there are some immediate measures government can introduce to ease some of these challenges and will be presenting the findings of the report to ministers in the hope it encourages them to act as soon as possible.