Fragile supply chains threaten manufacturing growth

Manufacturing businesses expect turnover to rise over the next 12 months; however, executives have expressed concerns regarding supply chain disruption.

World Trade Manufacturing Export Europe Supply Chain - image courtesy of Pixabay.
The latest SCFi has revealed a drop to 6.2, a sign that already fragile manufacturing supply chains have further weakened – image courtesy of Pixaby.

Recent reports have seen purchasing activity within UK manufacturing and orders growth both hit a three-year high. Welcome news, yet the success of the sector relies heavily on the strength of its supply chain.

Historically, measuring and understanding the health of a business’ supply chain has been problematic – relying mostly on anecdotal or ‘gut-feeling’ responses. A lack of quantifiable data has also contributed to the issue.

In October 2016, a new Supply Chain Funding Index was launched by URICA, in conjunction with YouGov and economic advisor, Dr John Ashcroft, to more clearly determine the state of our supply chains and the liquidity contained within.

The first edition of the Supply Chain Funding Index (SCFi) measured the health of supply chain funding and resilience at 6.6 on a scale of 10 – where 10 is the highest score.

The latest edition has revealed a drop to 6.2 – a sign that already fragile manufacturing supply chains have further weakened.

According to the findings, just over a third (34%) of manufacturers experienced a broken supply in the previous 12 months, with almost two-thirds (60%) of those businesses experiencing disruption to their operations because of the break.

The other 40% managed to avoid any disruption on this occasion, though may not get away with it next time. Such a finding explains why more than a third (35%) of manufacturers expect pressure on supply chains to increase during the next six months.

On a positive note, more than half of manufacturing businesses expect turnover to increase during the next 12 months. However, it’s an expectation founded on supply chains which are at risk of breaking.

Dr Ashcroft is understandably nervous. He commented: “If the SCFi continues heading downwards towards 5.5, I fear for manufacturing businesses. An increasingly brittle supply chain could turn expectations of growth into decline.”

In his recent review, Dr Ashcroft suggested a 10% improvement in the SCFi would result in a 3% increase in growth and productivity.

He explained: “Greater confidence in cash flow and liquidity levels would result in higher levels of investment, more employment and higher growth rates.

“Higher confidence in the supply chain would also result in greater investments in labour skills and the level of apprenticeships. There can be little doubt from comments within the survey: business productivity would improve as a result of improvement in supply chain liquidity.”