SME manufacturers are continuing to bounce back from the pandemic, despite experiencing significant supply chain and recruitment struggles, a new report says.
The latest Manufacturing Barometer, which surveyed more than 400 SMEs across the UK, shows 64% of companies are expecting to grow over the next six months and 52% plan to invest in capital equipment and manufacturing.
For the first time in over a year, the report also revealed that more firms are trading at increased levels than they were before COVID-19, highlighting the resurgence in fortunes since lockdown eased.
This encouraging data was set against a backdrop of disruption, with 60% of respondents stating that staff are having to spend additional time liaising with suppliers and, despite growing sales, just over half are being forced to increase product prices to recover some of their additional costs.
Organised by the South West Manufacturing Advisory Services (SWMAS) and the Manufacturing Growth Programme (MGP), the survey painted a concerning picture around staff retention and recruitment.
Over 60% of SME manufacturers have lost skilled staff since the beginning of the Covid-19 pandemic and, worryingly, almost three quarters said they have been unable to replace these employees – pointing to a widening skills gap that could drastically impact the recovery over the next year.
“Throughout the past 18 months, manufacturing has exceeded expectations in its ability to innovate and adapt to current conditions, but external factors are still presenting problems,” explained Nick Golding, managing director of SWMAS. “Lead times are being extended, logistics costs are going through the roof, and energy/material prices are extremely volatile. This all results in complex challenges for manufacturers across the UK.”
He continued: “The improved confidence in future sales is not translating into increasing confidence for future profits. The ongoing supply chain challenges mean many businesses have had to reallocate and add additional resources to address these issues.
“In fact, respondents are currently having to commit an average of two full time employees to manage suppliers and customers, a number that often equates to between 5-10% of a SME manufacturer’s workforce.”
Despite respondents citing skills and staff shortages as the key triggers of current recruitment challenges, almost half think that high salary expectations are a contributing factor.
46% believe there is a lack of available people to fill current positions, and 59% feel the need to increase wages to compete with other employers looking to recruit from the same pool of potential staff.
Two fifths of those questioned cite reduced European labour since Brexit as a key driver in this trend. Companies said they are responding to staffing issues by increasing wages, offering new development programmes and providing flexible working options in line with employee needs.
Dean Barnes, regional director at the Manufacturing Growth Programme, added: “Our sector is doing well, but life is not without significant challenges, and many management teams were listening to the budget last week to see how the Government was going to help maintain the economic recovery.
“58% of manufacturers questioned called for tax incentives for investment, and this was reflected in the extension of the investment allowance for another year. However, a similar number would have liked to have seen more support for product development costs, as well as long term financing for new equipment.
“Interestingly, half of firms would like a Government-led ‘Buy British’ campaign to tap into an increase in demand for more local sourcing. It is clear more could be done to help the manufacturing sector at such a crucial time.”
The latest Manufacturing Barometer covers trading activity in July, August, and September 2021, with responses collected from 4-15 October.
Manufacturing Growth Programme (MGP)