What does the rest of 2023 hold for makers?
Manufacturing is seen as one of the bedrocks of a healthy economy and for good reason.
You can actually see, touch and hold the outputs that are created and you don’t need to be an economic analyst to understand the importance of the jobs created and maintained in the sector and the contribution manufacturing makes to the UK economy – 11% of GDP by current estimates.
The UK has always prided itself on its manufacturing base and is the ninth biggest manufacturer in the world but despite these impressive headlines, the challenges facing makers are already tough and are only increasing.
According to the official statistics released by the Insolvency Service, manufacturing saw the sixth highest number of insolvencies in the previous 12 months with only the construction; retail; hospitality; administrative and professional services sectors seeing more.
But these headline figures don’t tell the full story either as manufacturing is made up of so many diverse and different producers.
Selected manufacturing insolvency statistics – 2019 to 2023*
|Food & Drink
All main areas followed a similar trend – a reduction in 2020 and 2021 followed by a higher total in 2022 as all pandemic restrictions and government economic support were lifted.
The manufacturing area which saw the most insolvencies was metals which includes both basic manufacture and metal fabrications. Recorded media mainly covers the printing and reprographics industries which shows the impact of the move to digital.
The number of repair businesses is also quite high which is slightly surprising given the ongoing cost of living crisis as customers might be expected to make their appliances and devices last longer than purchasing brand new ones.
Ongoing challenges for manufacturers
- Soaring energy costs – with the cost of energy rising in recent months this is a significant strain on many manufacturing businesses. Several, especially in the chemical and metal areas use energy intensive processes and even with some support measures the high standing charges and unit costs have made it difficult for them to remain profitable.
- Supply chain disruption – The pandemic, subsequent lockdowns and the invasion of Ukraine has caused huge disruption to global supply chains making it more difficult to secure vital materials and components in a timely manner and at a reasonable price.
- Brexit – The UK’s withdrawal from the European Union has had a negative impact on the manufacturing industry. Now UK importers and exporters face tariffs and other barriers to trade within the EU which makes it more difficult and expensive to trade.
- Overseas competition – EU competitors don’t have these issues and as manufacturing becomes a more global enterprise this places UK businesses at a competitive disadvantage. Foreign companies can produce goods more cheaply and quicker than UK manufacturers which means more hurdles.
- Updating technology – investing in new technology and techniques is essential to make a manufacturing business competitive but usually means higher investment in new machinery and training early in the process before the savings and results can be seen.
- Skill gaps – Approximately 81% of UK manufacturers are reporting difficulty in recruiting skilled staff for positions that need filling immediately. Education and training is a timely and costly process and Brexit hasn’t helped in being able to recruit ready qualified staff from overseas.
- Late payments – bigger companies especially can suffer from the UK’s late payment culture which can result in a domino effect as suppliers and producers are caught in chains of waiting for payment and not being able to pay suppliers which can cause cash flow issues.
Chris Horner, insolvency director with BusinessRescueExpert, said: “While the UK is technically not in a recession, for many manufacturers it will acutely feel like one as they are seeing difficulties in every direction.
“It’s difficult to concentrate on your own strengths – producing quality products – when every factor involved in production appears to be squeezed from internal and increasingly external factors.
“Stubbornly high inflation, rising interest rates and expensive energy costs mean that even otherwise viable and profitable businesses might need to consider a plan B for what happens if things get worse – which experience tells us, they always can.
“And if they do, there is usually an appropriate solution too – from insolvency moratoriums and CVAs all the way through to voluntary liquidation. The more directors understand about their options, the better for them and their companies.”
Careful and considered planning is one trait most successful manufacturers share and getting impartial, professional advice before action has to be taken is always a smart move.
We offer a free, initial consultation for any director or business owner who wants to discuss their realistic choices with one of our advisors.
The earlier in a process they understand their options, the earlier they can implement the correct solutions that will provide the best chance of providing a positive outcome.