MGP: UK Manufacturing Suffers From Supply Chain Hindrances
In a recent study titled SME Manufacturers and the COVID Crisis, conducted by Manufacturing Growth Programme (MGP) and Oxford Innovation, the strain on UK manufacturers wallets’ has been revealed. Since March, disrupted supply chains, along with the strain of managing production levels with minimal workforces, has resulted in more than half of small and medium-sized enterprise (SME) manufacturers taking out additional loans to keep the cogs turning.
Of the 289 respondents to MGP’s study, 64 percent stated that their orders had dropped as a result of the pandemic, with furniture, software, and general engineering taking the brunt of the blow. Similarly, 59 percent claim to have experienced, or be experiencing issues with their suppliers; nearly two-thirds of the contributors had seen elongated delivery times, whilst 40 percent had seen an increase in costs including products, materials, and services.
All these changes and the tumultuous waters that manufacturers have had to navigate throughout the COVID-19 period, plus the coming changes as a result of the potential outcomes of Brexit trade negotiations, have been the contributing factors to the new and unfortunate trend of acquiring additional capital to stay afloat.
“The results raise important questions about resilience, both up and downstream for small manufacturers, particularly given the uncertainties in the economy,” explained Martin Coats, managing director at the MGP. “Everyone was aware of the drop in orders due to the national lockdown and global issues, but what hasn’t been so well documented is the production problems some companies are facing and how disruption is causing major issues with pricing, costs and delivery performance.”
He continued: “What this tells us is that the Government urgently needs to look at more targeted support for the supply chain if we are going to see a sustained recovery in manufacturing.
“Brexit is also adding to the uncertainty, with nearly a quarter feeling it will have a negative impact on their operations. 35% were not sure one way or another, reflecting a general malaise when it comes to discussing negotiations on the UK leaving.
Only 10% of total sales amongst our 289 respondents was exported to the EU, posing the question of whether it is as big a market for SMEs as we first thought.”
The Manufacturing Growth Programme, which is funded by the European Regional Development Fund (ERDF) and delivered by Oxford Innovation Services, is currently classed as “the UK’s leading and largest business support programme, aimed specifically at manufacturing SMEs.”
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”