A new report by Barclays Corporate Banking reveals that goods with a total value of £23.6bn are awaiting completion in UK manufacturers’ warehouses because of supply chain delays, with the food and drink sector the worst affected.
The study – ‘Chain reaction’ – shows that 72% of businesses are currently holding items in their warehouses awaiting completion because raw materials, ingredients or component parts have not yet been delivered from suppliers. On average, this ‘unfinished business’ is worth over £1m to each company impacted.
The most affected consumer goods sector is food and drink, with delays in sourcing ingredients causing a £3bn backlog. A high value of plastic products (£2.6bn) and electronics (£2bn) are also awaiting completion.
The trends are reflective of supply chain disruption that has challenged the manufacturing sector since the pandemic and 59% of firms say they are still facing supply issues. This has been exacerbated by the invasion of Ukraine and the aftermath of the UK’s exit from the EU.
The report notes that customer relationships are now being impacted: 65% of manufacturers say their customers are having to wait longer for products, with 15% describing the hold-ups as ‘significant’. To offset rising costs such as energy and transportation, 55% of manufacturers are planning price increases for their own products of 37% on average.
The industry was found to innovating to solve these challenges. Most commonly, businesses are increasing their storage capacity (39%) to prepare for the fact raw materials are taking longer to source. Meanwhile, 33% are “nearshoring” to move their supply chains closer to home and 32% have “friend shored” to work with suppliers in countries that have a strong trading relationship with the UK. To spread their bets, 37% of manufacturers have increased the number of different suppliers they work with.
To maintain cash flow and liquidity, 42% of manufacturing firms were found to be optimising their working capital cycles and the same amount are accessing additional bank funding. 38% are seeking a cash injection from private equity and a third (32%) are selling off assets to raise funds.
Such measures are leaving the industry confident in the medium-term. Two-thirds (66%) of companies think supply chain challenges will improve over the next six months and 86% are confident about growth next year.
However, amidst the business optimism, the Barclays report also highlights the threat that rising costs and supply chain disruption could pose long-term if circumstances do not improve. On average, UK manufacturers only expect to be able to sustain their operations for 15 further months if current conditions continue.
Lee Collinson, Head of Manufacturing, Transport and Logistics for Barclays Corporate Banking, said: “The British manufacturing sector has faced a perfect storm of challenges this year, with rising costs, the war in Ukraine, labour shortages and ongoing Covid lockdowns in China hitting supply chains hard. As a result, billions of pounds worth of goods are trapped in warehouses unfinished, and this may hit industry turnover in the early part of next year.
“However, 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.”
NAM Implications:
- Stockholding costs money.
- And with interest rates rising in step with inflation…
- …this will become an increasing burden on business…
- ..to say nothing re falling demand.
- Meaning that companies in extremis will discount heavily to stay afloat.
- Therefore look closely at rivals to assess their more threatening moves…
