Supply chain costs threaten SMEs' pandemic recovery

31 August 2021

Supply chain costs and recruitment problems are threatening to hinder the recovery of SME manufacturers from the Covid-19 pandemic, according to research.

A survey of SME manufacturers in England and Wales found 96% were struggling with rising costs in their supply chain.

According to the latest Manufacturing Barometer by the South West Manufacturing Advisory Service (SWMAS), companies said the increase in costs was being driven by scarcity of raw materials (cited by 94%), which was causing an increase of up to 350% in the price of raw materials.

Factors affecting availability of materials included importing challenges, higher stockholding, longer lead times, rising transport costs, and reduced capacity in the market to meet demand. Packaging, labour and energy costs were also cited as factors contributing to increased supply chain prices.

Some firms said they were adding a price fluctuation clause to orders, or lowering the timescale of the validity of quotes, as well as sourcing more UK materials to reduce lead times.

Two-fifths (42%) of companies said they were trading at increased levels compared to before Covid-19, but trade still had not returned to pre-pandemic levels for 45%.

Two-thirds (65%) expected future sales to rise, though 43% said they were not looking to increase staff numbers or capital investments over the next six months.

Half of respondents (49%) said they were struggling to find staff as they tried to ramp up operations again in the wake of lockdown. Logistics and transport issues were also a big factor hindering growth, cited by 48%.

The report, created in partnership with the Manufacturing Growth Programme, said respondents were less optimistic.

“Alarmingly, almost all firms are citing supply chain issues, which has the potential to constrain present and future growth prospects for the UK manufacturing industry,” it said.

SWMAS said the report suggested SME manufacturers were under pressure from customers to maintain supplies and costs, while suppliers were looking to increase the price of goods.

“On top of this, there is a need for lead times to be extended to cope with the lack of availability. This is likely to be contributing to the reduction in confidence with regards to future profits,” the report said.

However, it said the situation presented an opportunity for collaboration between UK manufacturers, and that a significant number of respondents had said they were working closely with customers and suppliers to understand future demand and plan for the longer term.

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