The manufacturing sector is bracing itself for ongoing challenges throughout the remainder of 2022.
Even as the impacts of the COVID-19 pandemic have eased, a raft of economic factors are creating volatile market conditions both domestically and globally.
Rising energy, fuel and commodity prices are further impacting the supply chains already heavily disrupted by lockdowns and Brexit. These are suppressing output for manufacturers, who have “swelling order books” to fulfil, according to Make UK.
And while demand for goods is strong for now, the worsening cost-of-living crisis is likely to slow consumer spending significantly, as well as have an impact on labour supply.
Just as consumers are facing high inflation, so too are manufacturers, with producer input price inflation hitting 13.6% between 2021 to 2022, compared to just 1.8% year-on-year pre-pandemic. In particular, spiralling energy costs are hitting manufacturers hard.
Industry experts are also warning that upcoming price rises for base metals and agricultural commodities could push input price inflation closer to 20%. This would have “serious consequences” for manufacturers, according to a survey between RSM and Make UK.
For some areas of the manufacturing sector, the problems are starker than others, too – the automotive sector continues to grapple with the global shortage of semiconductor chips, stalling its recovery, for example.
Overall, though, manufacturing trends have shown the sector’s resilience and agility. While the pandemic slowed activity, it also gave a sharp wake-up call to the UK’s reliance on global supply chains, highlighting the need to reshore manufacturing.
Where offshoring – which sprung up in the 1990s to cut costs and increase reach – supported business growth up to the mid-2010s, recent years have shown the frailty of this manufacturing trend.
In particular, mass lockdowns worldwide and the UK’s Brexit transition reduced the reliability but increased the costs of importing goods.
Then Russia’s invasion of Ukraine and ensuing global sanctions against Russia further deepened global supply chain challenges.
This came at the same time as further lockdowns in China, as a new wave of COVID-19 impacted the country, slowing its output. It had already halted some of its production early on in 2022 to reduce pollution ahead of the Winter Olympics.
All this has accelerated UK businesses’ resolve to reduce their reliance on imports, instead developing domestic supply chains.
The same is being seen in North America too, with around half of businesses saying they are pursuing reshoring of key suppliers to boost production for sub-sectors like electric batteries, solar and semiconductors.
Similarly, in Germany, vehicle manufacturers are reviewing their supply chains since the flow of parts has slowed due to the war in Ukraine.
Around the world many have turned setbacks into opportunities, adapting their operations by sourcing alternative material streams or suppliers in the face of shortages.
There has also been a big shift towards data and automation, updating machinery to increase levels of automation and investing in data capture and analysis.
The latter, allowing businesses to closely monitor their supply chain and materials, has been particularly important, with 45% of businesses saying they have increased their use of data to manage supply chains. And this further reinforces the value of reshoring UK manufacturing and production.
Businesses are now incorporating a mix of reshoring and nearshoring, using suppliers domestically or in nearby countries.
This shifting of manufacturing is anticipated to bolster productivity in the long term, boosting domestic manufacturing.
Output and exports of manufactured goods, machinery and transport totalled billions in 2021. The West Midlands and North West led this, with HMRC figures showing that manufacturing exports from each region rose by more than 62% in Q2 2021, compared to 2020 (as found by Manufacturing Technology Centre analysis). And this was while businesses were still falling behind pre-pandemic operating levels, no less.
The positive effects of these investments are already being felt, too. Manufacturing was behind the industrial sector seeing £1.1bn of planning approvals in June, for example, according to Barbour ABI’s latest Snap Analysis.
Of course, reshoring is not an overnight solution. It requires long-term investment by government and business alike, close collaboration and communication between sectors to understand the requirements and nuances of manufacturers, and patience as new supply chains are established and grown.
This shifting of manufacturing priorities – rethinking company goals to place agility and flexibility as highly as productivity and profitability – will position businesses to put the challenges of recent years behind them. Looking for UK suppliers in manufacturing has become a key task.