Sector trends

Manufacturing outlook: Supply chains

In the second of our webinar series, manufacturing specialists share their insight and tips on navigating the changing landscape of global supply chains.

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The panel

Laura Capper, our Head of Manufacturing & Construction

Stephen Phipson CBE, Chief Executive Officer, Make UK

Rowan Austin, our Head of Trade Origination & Advisory

Richard Malpass, Chief Executive Officer, Millennium Mats

How the bigger picture is changing supply chains

In the last 30 years of globalisation, the UK manufacturing economy has transitioned into what you’d broadly term as an advanced manufacturing base, says Stephen Phipson at Make UK. The sector has seen growth in higher added-value production areas such as commercial aerospace manufacturing, medical device manufacturing, and very advanced automotive manufacturing.

The success of the UK manufacturing sector remains central to the government’s growth and sustainability plans.

The impact of the pandemic, Brexit, and geopolitical instability mean we have seen the end of several decades of supply chain security though.

Although globalisation is not in full-scale retreat, it’s changing, notes Rowan Austin. Manufacturers are likely seeing greater fragmentation driven by protectionism, a subsidy environment affecting the balance of trade, and persistent inflation dragging on economic growth and trade volumes internationally.

Some manufacturers are looking at how they might better plan for future friction, volatility, and increased costs. Here are some examples of the challenges discussed:

  • Unwinding joint ventures in Asia, in case there are future problems between Taiwan and China.
  • The war in Ukraine has created questions around the supply of critical materials such as nickel and titanium, as well as an energy crisis.
  • Non-tariff barriers are bringing friction into some supply chains after Brexit, with just-in-time manufacturing becoming more of a challenge to implement.
  • The pandemic changed or cut off many supply chain routes, creating volatility for some.
  • Input costs have increased by 17% for manufacturers since before Covid.

Make UK research says 79% of companies cite supply chain vulnerabilities as a strategic risk to their business over the next two years.

How manufacturing businesses are adapting supply chains

1. Diversification

We saw this during the pandemic when some manufacturers moved to source from more than one country.

2. Procurement

As well as cost, quality, and delivery, larger manufacturers are also basing procurement decisions on whether the supply source is resilient.

3. Monitoring

Technology, data, and AI could help manufacturers pick up any changes to the stability of the supply chain.

4. Nearshoring and onshoring

Countries including Turkey have benefitted from some manufacturers moving away from Asia, which is closer to the UK and within the customs union. Products and components that might have been made overseas could be manufactured in UK industrial parks or clusters.

How supply chain disruption impacts finance decisions

We’re seeing a shift from just-in-time and lowest-cost supply chains to more focus on inventory management and resilience, notes Rowan.

As businesses look to optimise their supply chains for resilience, diversity and efficiency, supply chain management has become a discipline. This combines investment in platforms and systems for more visible and timely data, and investment and support for people working in this area.

There is a financial risk to engaging with new suppliers and supply chains. Supply chain finance techniques could help with monitoring creditworthiness and risk of disruption.

Cost is an important consideration for manufacturers looking at the trade-off between local supply chains that might be more expensive and the lowest cost supplier. Increasing inventory levels also puts pressure on working capital – there’s an important balance to strike.

With sustainability targets in sharp focus for manufacturing businesses, adapting supply chains to a more regional or local focus could reduce carbon emissions. There are also interesting innovations emerging for sustainable supply chain finance. In brief, this is where a supplier receives a rating with the principle being the better the rating, the lower the cost of finance.

Some large retailers and manufacturers have already started to implement sustainable supply chain finance techniques. It’s early days but this methodology could have a deep impact on financing rates across the supply chain and driving emissions down.

How Millennium Mats is building supply chain resilience

Our customer Millennium Mats is a mat manufacturer employing 80 people, producing over 650,000 m2 mats a year. In 2022 CEO Richard Malpass made a huge decision when he decided to make the mats in the UK rather than be dependent on a single source supplier in the US.

Richard says the benefits of investing in a new manufacturing and distribution capacity also allowed for improved quality and product range to be achieved; more independence; reduced stock levels and working capital, and £2m on to operating profitability.

No longer facing risks and costs including import duty, transport costs, and the pound/dollar currency fluctuations, Richard says managing the supply chain can still be a challenge. Although the mats may look simple, they’re complex to produce and colour-match, and the yarn comes from suppliers in Turkey, India and the US.

The biggest challenge they face, says Richard, is the 18-week lead time for making a piece of carpet. Millennium Mats relies on customers using good forecasting for when they want the product.

They’ve invested in supply chain management systems to help employees work with customers to manage expectations and use technology to improve stock levels.

For more inspiration and practical tips to help your manufacturing and automotive business thrive, head to Manufacturing and Automotive

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