Lengthening lead times and price inflation are set to continue in the medium-term, experts say, meaning SMEs must carefully consider options to increase supply chain resilience.
Manufacturers across the board - but particularly those in automotive, metals, food and drink and electronics - are currently in the midst of a ‘perfect storm’ of delays and material shortages.
Supplier lead times are now almost as long as those seen at the height of the first COVID-19 lockdown in 2020, according to the latest UK Manufacturing Purchasing Managers’ Index (PMI).
A wide range of supply chain factors are understood to be contributing to the problem, including worker shortages in the logistics industry, port capacity issues, international shipping delays, the re-imposition of COVID restrictions at key points in global supply networks, and ongoing issues related to EU Exit.
In food and drink, for example, many retailers have been unable to source regular products due to staffing shortages in warehousing and delivery. Meanwhile, the automotive and electronics industries have been hit by a severe global shortage of semiconductors resulting from factory closures during the pandemic. Some industries are also exposed to rising supply chain costs through oil prices.
The result is price inflation that shows little sign of stopping in the near-term, explained Rupert Greenhalgh, Head of Business Intelligence at The Growth Company:
“Our latest Greater Manchester business survey shows that nearly a fifth of businesses are facing acute material shortages, the highest level we’ve seen to date. Until recently, it was generally assumed that price inflation would soon fall back to pre-pandemic levels, but that is now looking less likely – at least in the short term.
“The supply chain risks that have fed through into input prices may be here for some time – particularly in international shipping, where carriers are up to 90 per cent utilisation and containers are, in some cases, costing almost ten times what they were two years ago. This could ease as consumer demand falls back, and new global infrastructure comes on-line, but again could take some time.”
There is also a real risk that COVID-19 lockdowns will return, said Dr Jonathan Owens, logistics expert at the University of Salford:
“Ningbo [the world’s third largest global container port] has been partially closed to shipping traffic due to a COVID outbreak. As evinced from previous lockdowns of this and other Chinese ports, because of the zero tolerance to COVID, there [are] no guarantees the Delta virus won’t enter one of these ports again and force another shutdown, and further disruption.”
With difficulties set to remain over the medium-term, SME manufacturers need to consider how they can improve supply chain resilience, said Geoff Crossley, Senior Manufacturing Advisor at the Hub:
“The first thing all manufacturers should do is to manage your inventory based on what is mission critical. What materials do you need to continue fulfilling the most profitable contracts you’ve got? Build a priority list and allocate stock for high value products and critical clients first.
“You can also manage orders more efficiently by tracking ‘risk of run out’ via a spreadsheet, basing forecasts on current market trends and/or previous sales periods similar to your current situation, and remembering to check and correct lead times in MRP (Material Requirement Planning) systems.
“Another consideration in the short-term is to collaborate with other businesses you have a good relationship with to share logistics capacity, making sure that containers and trucks are filled between you, and explore widening your supply network.
“In the longer-term, it becomes a question of business resilience. If there are materials you can’t source or you think will run out, can you redesign your product with less of it, or substitute another material in its place? This may result in a higher sale price but could significantly reduce risk in the supply chain.
Greater Manchester manufacturers suffering supply chain problems are encouraged to contact our specialist Manufacturing Service for fully-funded advice and guidance.