Manufacturing survey finds UK SME companies hindered in recovery due to pandemic and recruitment issues

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A key industry study has found that major supply chain issues amid the coronavirus pandemic, as well as recruitment challenges are impacting on the recovery of SME manufacturers in the UK, including across the food and drink sector, writes Neill Barston.

The Manufacturing Barometer, operated by SWMAS (South West Manufacturing Advisory Service) and supported by the Manufacturing Growth Programme (MGP), reveals that nearly all of the 260 respondents (96%) are struggling with price changes within their supply chain.

According to the cross-sector study, companies believe that rising costs are being driven by lack of raw materials availability (94%), rising transport costs (82%), and reduced capacity in the market to meet demand (63%). Respondents had noted that since Brexit, costs had increased for sourcing key operational supplies – which include companies in the confectionery and bakery sectors facing increased costs for the import of ingredients, as well as facing higher administration fees and experiencing delays in logistics due to key shortages in delivery drivers.

In addition to these issues, the barometer study found that almost half of all firms (49%) are saying they are struggling to find staff as they attempt to scale back up as the worst of the pandemic appears to have peaked.

As previously reported by Confectionery Production, businesses across both confectionery and bakery manufacturing markets have experienced considerable pressure over the past 18 months, battling several key factors including ongoing trading uncertainties brought about by the impact of Brexit, and the continuing influence of the pandemic, which has resulted in further recruitment issues, and staff sickness as a heightened number of employees have faced having to isolate under coronavirus restrictions, which have only just begun to ease this month.

Feedback to the report from those within the study highlighted several key areas, including a desire for more UK government support required for funding apprentices, additional backing for investment into new machinery and technology in the form of interest free loans, and assistance for capital investments on a par with what had previously been possible when Britain was part of the EU.

Nick Golding, Managing Director of SWMAS, commented: “The last quarter showed a considerable jump in confidence, from 44% of respondents to 65% expecting sales to grow in the next six months based on increasing demand.

“With 65% highlighting potential future sales growth again this quarter, confidence appears to be levelling off. In addition, those expecting future profits to rise has dropped from 52% last quarter to 46%.

“It appears we are seeing the first signs of supply chain struggles starting to hinder the upturn. Freedom of movement is adding to recruitment pain, whilst problems securing raw materials seems to be partly due to logistics challenges of importing goods.”

He continued: “To address this, companies are taking steps to increase and protect their own inventories, often paying extra to get what they need. Firms are having to compete for scarce resources, which is driving the significant price increases we are seeing.”

He continued: “The challenges highlighted have been caused in part by government policies as a direct result of Brexit and the COVID-19 pandemic. It is a vital priority that SMEs in our sector receive guidance and support to help them address these issues and ensure the recovery is not impeded.”

The Manufacturing Barometer is the only quarterly survey specifically aimed at SME manufacturers in the UK and covers trading activity in April, May, and June 2021, with responses collected in July.

Encouragingly, despite the challenges highlighted, this quarter’s report also reveals that 42% of firms are trading at increased levels when compared to their pre-COVID-19 position, and this is mirrored with predictions of job creation (51%) and increased future investment (49%).

Martin Coats, Managing Director at MGP, went on to add: “We have all been encouraged by the pace of our recovery, which just goes to show the strength and agility of our manufacturing SMEs.

“However, it is not without substantial challenges in the supply chain, most noticeably in the ability to get the staff and materials needed to produce parts. The latter is the biggest concern, which isn’t surprising when we’re hearing accounts of some lead times increasing from three-weeks to 12 months.”

He continued: “Recruitment continues to be a significant worry which may ease once furlough decisions are taken, but there’s still a two-month wait for this to happen and we’re not sure manufacturers can wait that long.”

The team behind the Manufacturing Barometer believe there are some immediate measures government can introduce to ease some of these challenges and will be presenting the findings of the report to ministers in the hope it encourages them to act as soon as possible.

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