Signs of easing in 'stretched' factory supply chains

Will Green is news editor of Supply Management
5 January 2022

Manufacturing supply chains remain “severely stretched” but there are signs the situation is stabilising, according to the latest PMI.

An easing in vendor lead times helped offset a substantial increase in average input prices, with higher costs reported for chemicals, electronics, energy, food products, metals, and timber, as well as freight and shipping.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index slipped to 57.9 in December, down on 58.1 in November and against the no-change 50 reading.

Rob Dobson, director at IHS Markit, said: “Although supply chains remain severely stretched, there are at least signs that the situation is stabilising, with vendor delivery times lengthening to the weakest extent for a year in December.

“This helped take some of the heat out of input price increases, but cost inflation remained sufficiently steep to necessitate the sharpest rise in factory gate selling prices on record.

“With restrictions and Omicron cases both rising, the growth and inflation backdrops could change again in the early part of 2022.”

Output increased across the consumer, intermediate and investment goods sectors, with the pace of overall expansion reaching a four-month high. This was underpinned by rising intakes of new business as domestic market conditions continued to strengthen.

The trend in new export business remained negative as inflows of new work from abroad dropped for the fourth month in a row, mainly reflecting a steep decrease at consumer goods producers. Export demand for UK capital goods however rose at the quickest pace since August.

Manufacturers indicated logistics issues, Brexit difficulties and the possibility of further Covid restrictions had hit export demand.

Duncan Brock, group director at CIPS, said: “Purchasing by supply chain managers was at a four-month high as businesses tried to beat another near-record inflation rate for raw materials and ordered ahead of time in the hope of defeating future setbacks.

“Delay fears remained as supplier deliveries remained under pressure albeit to the least severe extent since December 2020.

“On the plus side, optimism remained positive as manufacturers were buoyed up by the strongest pipelines of new work driven by UK customers and employment levels rose for the twelfth consecutive month to meet demand.”

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