Supply chain issues, recruitment challenges threaten SME manufacturing recovery warns latest Barometer

Posted on 19 Aug 2021 by James Devonshire

A lack of raw materials, rising transport costs and recruitment challenges are set to stall SME manufacturers' recovery, 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 96% of UK SME manufacturers are struggling with price changes within their supply chain.

Firms believe that said price changes are being driven by a lack of available raw materials (94%), rising transport costs (82%), and reduced capacity in the market to meet demand (63%). The report shows that the cost of raw materials, for example, has increased by up to 350% in some instances.

Manufacturing barometerQ1-2021. Image courtesy of SWMAS

Image taken from the Q1 2021/22 Manufacturing Barometer, courtesy of SWMAS

Meanwhile, half of UK SME manufacturers are also seeing their growth hamstrung by recruitment challenges. Indeed, 49% of respondents said recruitment challenges were their biggest barrier to growth. This reality is being experienced by a diverse range of businesses, regardless of their current situation or future growth aspirations.

One respondent said that there is a “massive skills gap in the market” now that “time served apprentices from years ago have retired”. Another urged the government to address the driver shortage “as a matter of extreme urgency”.

Nevertheless, there is better news for SME manufacturers. Encouragingly, despite the challenges highlighted in the report, 42% of firms are trading at increased levels compared to their pre-COVID-19 position. This is mirrored with predictions of job creation (51%) and increased future investment (49%).

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.”

“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.

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.

Download the full Manufacturing Barometer for Q1 2021/22 here