Posted: Fri 16th Dec 2022

Supply chain issues see Welsh manufacturers with goods worth almost £1.4bn sitting in warehouses awaiting completion

News and Info from Deeside, Flintshire, North Wales
This article is old - Published: Friday, Dec 16th, 2022


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A new report released by Barclays Corporate Banking this week has revealed that goods with a total value of almost £1.4bn are awaiting completion in Welsh manufacturers’ warehouses because of supply chain delays.

The study – ‘Chain reaction’ – focuses on manufacturing businesses with over ten employees and looks at the impact of supply chain issues. Barclays’ research shows that over eight in ten Welsh businesses 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 £1.2m to each company impacted.

Products in the steel and metals sector are most severely affected, with £9bn worth of goods incomplete – equivalent to almost a fifth (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 six in ten Welsh firms say they are still facing supply issues.

This has been exacerbated by the invasion of Ukraine and the aftermath of the UK’s exit from the EU. Customer relationships are now being impacted: over half (of Welsh manufacturers say their customers are having to wait longer for products, with 13% describing the hold-ups as ‘significant’.

To offset rising costs such as energy and transportation, over half of the manufacturers are planning price increases for their own products, of 30% on average.

The industry is innovating to solve these challenges.

Most commonly, Welsh businesses are bringing elements of their supply chain in house to mitigate the fact raw materials are taking longer to source.

Meanwhile, the same proportion have “friend shored” to work with suppliers in countries that have a strong trading relationship with the UK. To spread their bets, 39% of manufacturers have increased the number of different suppliers they work with, while the same proportion have expanded their storage capacity due to longer lead times.

To maintain cashflow and liquidity, over half (51%) of Welsh manufacturing firms are optimising their working capital cycles and more than a third (38%) are seeking a cash injection from private equity. 35% are accessing additional bank funding, and nearly a third (33%) are selling off assets to raise funds.

Such measures are leaving the industry confident in the medium-term. Six in ten (60%) Welsh companies think supply chain challenges will improve over the next six months and 87% are confident about growth next year.

Businesses have also doubled down on their commitment to sustainability despite supply chain pressures. More than half (55%) of manufacturers say carbon reduction has become an even bigger priority in the past six months, despite nearly two thirds (64%) saying their environmental goals have become less attainable.

Amidst the business optimism, however, Barclays’ report also lays bare the threat that rising costs and supply chain disruption could pose long-term if circumstances do not improve. On average, Welsh manufacturers only expect to be able to sustain their operations for 17 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.”

 

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