Billions of unfinished goods stuck in warehouses as surveys reveal sector contraction
13 Dec 2022
UK manufacturers have nearly £24 billions-worth of goods in warehouses awaiting completion owing to supply chain problems, suggests a new study commissioned by Barclays Corporate Banking.
The Chain reaction report quizzed senior executives from 631 British firms with 10 or more employees in the period between 21-31 October.
Its poll revealed that £9 billions of steel and metal products, £3 billions food and drink, £2.6 billions plastic goods and £2 billion electronics were included within the overall amount affected by delays. Some 60% of manufacturers surveyed faced supply chain problems.
In all, nearly three quarters (72%) of respondents were holding items of delays receiving raw materials, ingredients or component parts. Barclays estimates this is worth more than £1 million to each company affected.
Pandemic, the Ukraine conflict and Brexit aftermath were all cited as factors, with two thirds (65%) of manufacturers saying customers are having to wait longer for products. More than half (55%) plan price increases for their products, with rises averaging 37%.
The problem has led to more businesses increasing storage capacity (39%) to offset sourcing delays for raw materials. One in three have opted for ‘near shoring’ – moving supply chains closer to home. A comparable number have ‘friend shored’, working with suppliers in countries that have a strong UK trading relationship. Still more (37%) have increased the number of suppliers with which they work.
While two thirds of firms think supply chain challenges will improve over the next six months and 86% are confident about growth in 2023, respondents said they could sustain their operations on average for just 15 months under current conditions. Yet, despite the economic pressures, nearly two thirds say carbon reduction has become an even bigger priority in the past six months.
Lee Collinson, head of manufacturing, transport and logistics for Barclays Corporate Banking, commented:
“Manufacturing firms have done what they do best and engineered new solutions to limit the impact of the issues they face. As a result, many businesses will enter the new year with a degree of cautious optimism and confidence.”
Meanwhile, the latest MakeUK/ BDO Manufacturing Outlook report for the fourth quarter of 2022 reveals that output is set to contract next year as the deteriorating economic conditions at home and abroad impact
The survey of 335 companies between 2 and 24 November suggests manufacturing will contract overall by -3.2% in 2023. This follows a forecast -4.4% drop this year, after a strong 2021 that reflected the growth of economic activity post-pandemic.
Make UK chief executive Stephen Phipson said: “The UK risks sleepwalking into an acceptance that little or no growth is the norm. Government needs to work with industry as a matter of urgency to deliver a long-term industrial strategy that has growth at national and regional levels at its heart.”
The authors responded to the report conclusions by calling for further Government action including:
- Countering labour shortages with temporary changes to the migration system
- A wider Training Investment Allowance to broaden tax exemption
- Business rates reliefs to be extended to manufacturing
- An R&D tax relief regime that did not deter small businesses investing in critical innovations
Richard Austin, BDO’s national head of manufacturing, added:
“The true impact of inflationary pressures and dwindling investment may not be immediately apparent in the sector, but they will be reflected in longer-term growth. For instance, with hiring being a challenge and energy prices rising, manufacturers may not have the funds to invest in automation and green initiatives, thus impacting the future competitiveness of the UK manufacturing sector.”