Disruptions herald the “possible death” of just-in-time supply chain models as Brexit and inflation pressures hit businesses, according a report.
A survey by industry body Make UK, which involved 228 manufacturing businesses, found two-thirds felt leaving the EU had “moderately or significantly” hampered their business.
A further 56% feared further impact from customs delays due to changes to import checks.
To counter international supply chain disruptions, around a third of companies (35%) said they were planning to switch to British rather than international suppliers, while a similar proportion (31%) said they were planning to relocate some or more of their production to the UK.
The report described the trend as “the possible death of the just-in-time supply chain business model”, which it argued “may be a good thing for British manufacturers who are now developing ways to ensure they are more resilient and less exposed to unforeseen international risks in future”.
However, despite concerns respondents expressed optimism for the year ahead, with almost three-quarters (73%) believing conditions for the sector would improve in 2022.
Only 7% of firms expected a decline in conditions, and of those none said they expected that decline to be “significant”.
Stephen Phipson, Make UK chief executive, said: “It’s testament to the strength of manufacturers that they have emerged from the turbulence of the last couple of years in such a relatively strong position.
“While clouds remain on the horizon in the form of rapidly-escalating costs and access to key skills, the outlook is more positive for those that remain adaptable, agile and innovative.”
He called on government to set out a long-term vision for the economy and establish “how we are going to achieve consistent economic growth across the whole country”.
Cara Haffey, PwC’s UK industrial manufacturing and automotive leader, commented: “Despite facing an unprecedented combination of continued Covid pressures, cost inflation and supply chain issues, our manufacturers are responding with an impressive amount of agility and resilience, which will stand them in good stead for the year ahead.”
The report found manufacturers felt the biggest risk to business was shortages of domestic labour and skills.
Two-thirds of companies said upskilling or retaining existing staff was their main priority for the year ahead and almost half said they planned to invest in apprenticeships. The second biggest risk to companies was “significant upward pressure” on input costs.
A “perfect storm” of inflationary pressures for manufacturers and debt accrued during the pandemic had placed “severe pressure” on business models.
The report said: “Given there is increasing evidence that such pricing is now being built in, there seems little prospect of an easing of cost pressures anytime soon.”
Mark Fagan, leader of the manufacturing and distribution group at accountancy and advisory network Moore Global, warned CEOs cannot afford to be “complacent” about worker shortages, “particularly given that many [businesses] are still fighting fires on several fronts.”
He said: “We enter 2022 with global supply chains still stretched, creating a string of pressure points spanning sourcing, purchasing, manufacturing, fulfilment, distribution and customer service.
“The extent of Covid’s role in global supply chain disruption is unclear but the pandemic clearly demonstrated the inherent fragility of manufacturing and distribution models that require goods to be moved halfway across the world.”
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