It’s great to see another increase in the latest CIPS Manufacturing PMI to a record high of 65.6 from 60.9; and reinforces the important role that UK manufacturing will play in the economic recovery this year.
It also demonstrates the resilience of manufacturers in a chaotic market; but supply chain disruption is really starting to bite now. Not only is there a shortage of certain components which is stalling production and driving up costs, but the cost of shipping certain products or materials is through the roof. This extra expense is the last thing manufacturers need as they try to trade out of unprecedented times.
Stock levels dwindle but optimism remains
Brexit stockpiling has cushioned the blow for many manufacturers at the start of the year; but as stocks dwindle and supply chain disruption remains, we could see further pressure on input costs and production – pushing prices up even further. The average time taken to deliver inputs to manufacturers has lengthened to levels that the PMI survey has seldom seen before! Of course, on a more positive note, what this all means is that demand is high and pleasingly, this includes demand from overseas. Crucially, jobs are being created in an industry that Government has frequently mentioned will lead us out of this crisis.
Which subsectors are feeling the most pressure?
Specific input shortages seen across the industry include electronics - particularly microchips, plastics and metals. Many parts of the manufacturing industry will be being impacted in some way but across our clients we have seen manufacturers of construction materials being put under particular pressure as key materials such as steel and timber remain in short supply.
Meanwhile in the automotive industry, the lack of microchips has resulted in Mini and Jaguar Land Rover having to temporarily reduce production while others rationalise portfolios to focus on their more profitable models. These are just a couple of examples where demand far outweighs the materials and components currently available.
It's such a shame that post-Brexit and pandemic, supply chain disruption could curb economic growth at a time when manufacturers are looking to maximise the opportunity of pent up consumer spend.
The price peak is yet to come
With little sign of these supply chain problems easing in the short term, manufacturers will continue to try to minimise the impact and guard against further price rises by building up safety stocks. Further price increases are inevitable in the next few weeks.
For further information, please contact Mike Thornton.