BDO: COVID-19 prompts rethink of manufacturing supply chains
Following a survey of 206 manufacturing businesses, conducted by Made UK and BDO, the two organisations revealed that almost 9 in 10 manufacturers have reviewed their supply chain in response to the pandemic.
“As supply chains become more complex, many manufacturers are recognising that they will need to invest more in technology which provides end-to-end visibility across the supply chain in real-time and which provides the information required under EU export Rules of Origin from 1st January 2022. For many this will be critical in managing supply chain risks, reducing the likelihood of production stoppages and ensuring potential trading tariffs are avoided,” commented Richard Austin, Head of Manufacturing, BDO.
“Our survey has found that many manufacturers are actively formulating strategies to diversify their supply chains and opting for dual or multiple sourcing for critical supplies.”
Key findings from BDO and Made UK’s survey
- Two thirds of UK manufacturing businesses have plans to introduce dual or multi-sourcing for key components to avoid the supply disruptions
- 59% of respondents stated they planned to diversify their supply chains, with 46% having plans to create a UK focused supply chain, however 27% said they were looking to diversify their supply chains across the EU, with the same looking outside the EU
- 33% commented that they would focus on reshoring goods manufacturing to the UK
In addition to the impact of the pandemic, BDO and Made UK comment that new rules which came into effect following its withdrawal from the EU has resulted in new trade frictions and further disruptions and reorganisations identified in the survey.
“The supply delays experienced by UK manufacturers at the start of the pandemic were a wake-up call, prompting many operators to confront the risks involved in over-relying on single suppliers for key components. This was particularly true in cases where suppliers were geographically very distant,” added Austin.
“The trade frictions created by the new post-Brexit trading arrangements have added a new layer of complexity which may prompt further supply chain adjustments and changes to logistics operations. Rethinking these arrangements is likely to be a priority for all manufacturing businesses over the coming year,” he concluded.
IHS Markit/CIPS: UK Manufacturing PMI near-record high
UK manufacturing trends
For the UK manufacturing sector, growth of output and new orders were both reported by IHS Markit and CIPS as among the best seen over the past seven years, which in turn has led to a strong increase in employment. Despite this, the sector continues to face supply chain delays and input shortages, which resulted in increased purchasing costs and record selling price inflation.
UK Manufacturing IHS Markit/CIPS Purchasing Managers’ Index® (PMI®)
Seasonally adjusted, IHS Markit/CIPS Purchasing Managers’ Index® (PMI®) rose to 60.9 in April, which was an increase compared to March (58.9) and above the estimated 60.7 for April.
Increasing for the eleventh consecutive month, the latest readings are the highest since July 1994 (61.0). The output growth for April has been attributed to the loosening of lockdown restrictions, improving demands and a rise in backlogged work.
“The manufacturing sector was flooded with optimism in April as the PMI rose to its highest level since July 1994, bolstered by strong levels of new orders and the end of lockdown restrictions opened the gates to business. It was primarily the home market that fuelled this upsurge in activity though more work from the US, Europe and China demonstrated there were also improvements in the global economy. This boom largely benefited corporates as output growth at small-scale producers continued to lag behind,” said Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply.
In addition to expanding production, total new orders rose for its third consecutive month, which was attributed to a revival of domestic market conditions, stronger client confidence, parts of the economy reopening and improving global market conditions.
While new exports rose in April, the rate was reported as weaker in comparison to new orders. “Companies reported improved new work intakes from several trading partners, including mainland Europe, the US, China and South-East Asia. Large-sized manufacturers saw a substantial expansion in new export order intakes, compared to only a marginal rise at small-sized firms,” said IHS Markit/CIPS.
UK Manufacturing’s outlook
Remaining positive at the start of the second quarter, 66% of companies forecast that output will be higher in a year's time, which is attributed to expectations for less disruption related to COVID-19 and Brexit, economic recovery, improved client confidence and new product launches.
“Further loosening of COVID-19 restrictions at home and abroad led to another marked growth spurt at UK factories. The headline PMI rose to a near 27-year high, as output and new orders expanded at increased rates. The outlook for the sector is also increasingly positive, with two-thirds of manufacturers expecting output to be higher in one year’s time. Export growth remains relatively subdued, however, as small manufacturers struggle to export,” said Rob Dobson, Director at IHS Markit.
Adding to comments from IHS Markit and CIPS, , Managing Director of Freight and Logistics at Accenture Global said: “While today’s figures are positive overall, the worsening supply situation is still a concern, with rates of both input costs and selling price inflation running far above anything previously seen. Shipping delays and material shortages are driving huge backlogs of uncompleted work and the surge in manufacturing orders is leading to many firms struggling to boost operating capacity to keep up with demand. With business expectations becoming even more optimistic as the economy rebounds, the big question will be whether firms will be able to cope with the surging inflows of new orders.
“As ongoing supply chain issues are still at large, companies with wide international footprints should look to reassess their logistics strategies by running supply chain stress tests and simulations in order to respond quickly to upswings and variability in demand. A flexible and resilient supply chain will be a key way for businesses to remain both competitive and stable as we emerge from the pandemic”