Weaker supply chains are hitting SMEs looking to recover from Covid-19

Posted on 26 Oct 2020 by Tom Lane

SME manufacturers already hit hard by Covid-19 are being squeezed between a huge drop in demand and weaker supply chains according to a new report.

64% of the 289 respondents, who are engaged with the Manufacturing Growth Programme (MGP), said orders had dropped due to the pandemic, with furniture, software and general engineering the worst affected.

There was a similar number (59%) experiencing issues with their suppliers. Nearly two thirds had seen delivery times lengthen, whilst 40% had seen an increase in costs including products, materials and services.

This, along with managing production levels with depleted workforces, has led to more than half of SME manufacturers taking additional loans since March to help them navigate their way through Covid-19 disruption.

Worryingly, only 11% of respondents felt that Brexit would offer a positive outcome for their businesses.

“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 Manufacturing Growth Programme (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.”

Supply chains report -Manufacturing Growth Programme
Picture provided by Manufacturing Growth Programme

MGP, which is ERDF funded and delivered by Oxford Innovation Services, is the UK’s leading and largest business support programme aimed specifically at manufacturing SMEs.

The programme has been tracking the impact of Covid-19 through its Manufacturing Barometer and this highlighted a number of supply chain issues that it wanted to explore in more depth. It responded by joining forces with leading policy experts SQW to produce a detailed report featuring nearly 300 companies.

The survey revealed some interesting statistics around international trade, with 57% of respondents undertaking some form of exporting. When compared with a BEIS paper in 2018 that found only 20% of all UK SMEs export, it proves that manufacturers are a lot more receptive to pursing overseas orders.

However, going global still remains a big challenge for micro businesses, with half of them not currently generating sales overseas.

Martin went on to add: “There were some positives in the findings about the resilience of our manufacturers. 21% of them have actually increased their order books during the pandemic and, of those, 62% had diversified into new markets and just over half had introduced new products.

“This shows the strength of our supply chain and the ability to innovate and this is what we need to encourage through specialist help, access to new technology and grant support to help them reach their potential.”

He concluded: “We will be encouraging policymakers to use these findings to inform the development of effective measures that will support the recovery and growth of UK manufacturing.”

For further information or to download the report, please visit www.manufacturinggrowthprogramme.co.uk or follow @mfggr