Goods with a total value of almost £3.5bn are awaiting completion in Scottish manufacturers’ warehouses because of supply chain delays.
A new report by Barclays Corporate Banking, focused on manufacturing businesses with more than 10 employees, shows that 86% of such Scottish companies 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 £1.8m to each company impacted.
Censuswide surveyed senior executives at 631 UK-based manufacturing businesses at the end of October, finding that products in the steel and metals sector are most severely affected, with £9bn worth of goods incomplete – equivalent to 19% of the sub-sector’s annual turnover across the UK.
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 69% of Scottish firms say they are still facing supply issues.
This has been exacerbated by the invasion of Ukraine and the aftermath of Brexit.
Customer relationships are now being impacted, with 56% of Scottish manufacturers stating that their customers are having to wait longer for products, with 21% describing the hold-ups as ‘significant’.
To offset rising costs such as energy and transportation, 79% are planning price increases for their own products, of 38% on average.
The industry is also innovating to solve these challenges. Most commonly, Scottish businesses are spreading their bets by increasing the number of different suppliers they work with (42%).
To prepare for the fact raw materials are taking longer to source, 39% have upped their storage capacity. Meanwhile, 36% are 'near shoring' to move their supply chains closer to home and 33% have 'friend shored' to work with suppliers in countries that have a strong trading relationship with the UK.
To maintain cashflow and liquidity, 56% of Scottish manufacturing firms are accessing additional bank funding and over 42% are taking out shareholder loans. A further third are optimising their working capital cycles and 31% are selling off assets to raise funds.
Such measures are leaving the industry confident in the medium-term, with 69% of Scottish companies stating that supply chain challenges will improve over the next six months - and 92% are confident about growth next year.
Businesses have also doubled down on their commitment to sustainability, despite supply chain pressures, with 63% saying carbon reduction has become an even bigger priority in the past six months, although 85% reckon their environmental goals have become less attainable.
The report also laid bare the threat that rising costs and supply chain disruption could pose long-term if circumstances do not improve. On average, Scottish manufacturers only expect to be able to sustain their operations for 20 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.”
Other findings from the report include the fact that 64% of UK manufacturers have faced rising costs because of the recent weakness of the pound.
Trade barriers are a concern for almost one in three manufacturers across the UK, particularly for the electronics industry (43%) and the automobile industry (41%).
The top interventions that manufacturing firms would like to see from government are industrial energy transformation (37%) and a more aggressive energy price cap for the industry (32%).
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