Latest PMI figures reveal the damage to the manufacturing sector of pandemic

Photo shows: Core Lighting's venue lighting expertise
Core Lighting, Gloucester

Small and medium-sized manufacturing companies across the South West are being hit hard by the Covid-19 pandemic, with 87 per cent of companies identifying a significant decrease in production volumes, according to the latest research from the South West Manufacturing Advisory Service.

The initial findings of the Manufacturing Barometer, which surveys firms across England, reveals a stark picture of how the virus is already affecting industrial confidence and future predictions around safeguarding jobs.

Conducted by South West Manufacturing Advisory Service (SWMAS) and the Manufacturing Growth Programme (MGP), the report shows that almost 9 out of 10 of respondents expect sales to drop over the next six months, while more than half predict the need to cut staff – despite the Government’s furloughing scheme being introduced to boost employee retention and preserve businesses.

Phil Ion is MD of Gloucester-based CORE Lighting, a specialist supplier to the entertainment sector. He is concerned about future orders now that pubs, clubs and restaurants have closed.

“The sectors we supply have all been asked to close as a result of COVID-19, so we are currently receiving no orders or income.

“Although we are trying to find a possible parallel market, this is not easy in these uncertain times and we will need to rely on government support to get us through until the lockdown is lifted and business returns to some level of normality.

“The problem facing many businesses is that they have no idea when things will return to ‘normal’. We are hopeful that financial support from the government will apply to us, though this hasn’t been 100 per cent clear to date.

“It’s also hard to plan when we have no idea what will happen at the end of this initial three-month period and if the crisis is still hugely affecting the entertainment sector.”

There also appears to be continued confusion over the business support available. Nearly three quarters of firms questioned either don’t think the assistance being offered is sufficient – or are unsure of the help they can access.

Unsurprisingly, almost 90 per cent said that financial support was needed most, followed by overcoming supply chain disruption and detailed business advice on how to cope with the pandemic.

Simon Howes, managing director of SWMAS, said: “COVID-19 is already having a significant impact on the majority of SME manufacturers surveyed and many of those who have yet to experience a change are expecting this global health and economic crisis to affect their business over the coming weeks and months.

“Unlike many sectors, our manufacturing industry cannot be carried out remotely as it relies on physical interaction with machinery and parts. Current restrictions and lockdown measures in the UK mean capacity is reduced, and this is reflected in four-fifths of companies seeing a reduction in staff attendance.

“Companies who may still be able to produce goods are still reliant on their supply chains and a massive 80 per cent of businesses questioned are either struggling to source materials or have seen reduced orders from customers since the COVID-19 crisis began.

“Just over half of respondents have said that restrictions on exporting and importing are having an impact on their operations, so whether they trade nationally or worldwide, many small and medium-sized UK manufacturers are uncertain of what the future holds.

“Some 86 per cent confirmed they will need financial assistance, yet there is a great deal of uncertainty over the eligibility criteria for business loans and how quickly these can be accessed, if at all.

“Many businesses are also concerned about how paying furloughed staff will affect their cash flow in the short term before government support becomes available. While the Government’s initial support package was widely welcomed by industry, there is a need to provide deeper advice and support for manufacturers to help them to adapt and to survive.”

The Manufacturing Barometer, the largest survey of its type in England, shows that finding routes to new markets is one way for manufacturers to keep their business ticking over when their existing customer base is limited.

The 13 per cent who said that their production levels have increased are supplying into the fields currently experiencing a higher than normal demand as a result of COVID-19, highlighting an opportunity for other manufacturers to support their supply chains at this difficult time.

Martin Coates, managing director of the Manufacturing Growth Programme, said: “One in five manufacturers have answered the Government’s urgent call for additional NHS equipment, but many of those questioned are still unsure whether or not their offer of help will be taken up.

“As the list of products necessary to help fight COVID-19 continues to grow, SMEs should be exploring this in further detail and to find other possible opportunities for their business.”

The SWMAS barometer is echoed by the latest Purchasing Managers Index (PMI) statistics. A substantial contraction of UK manufacturing production took place in March with output falling to its greatest extent since July 2012. A score of 47.8 really is a sign of just how hard manufacturers have been hit. Employment figures have also fallen for the 11th time in the last 12 months and this fall was the steepest since July 2009. Of course these job losses are all linked to the lower levels of production, new orders and the impact that the virus is having.

According to accountants RSM UK,only a month ago there seemed little prospect of the draconian sanctions seen in China being mirrored in the UK. However, the country is now fully mobilised in support of the NHS and most manufacturers are facing a combination of the following factors.

Demand fluctuation

The position that manufacturers find themselves in varies drastically based on end markets. Many food manufacturers are producing at record levels for this time of year – fortunately, due to Christmas, the sector is well used to gearing up for seasonal demand. At the other end of the spectrum, manufacturers dependent on larger items of discretionary spend such as automotive have seen a major fall and in many instances have chosen to close their facilities particularly following the announcement of the Government furlough scheme.

Fit and able workforce

For those who continue to operate, the workforce is typically reduced as staff diligently follow guidance on self-isolation. Whilst social distancing and basic measures such as hand washing are being reinforced, widescale illness represents a real issue to operations. Some businesses have sought to address this by splitting shifts to force separation, perhaps also responding to reduced demand.

Supply chain

Chinese supply chains have been strained from the turn of the year, however in March European suppliers have begun to creak. Italy continued manufacturing for much of the month such that restrictions have only recently been felt but businesses are now seeing more issues which in some cases is adding weight to the argument that operations should cease for a period of time. Latterly UK supply chains are also under strain, particularly where sourced from SMEs who have understandably decided that closing for a period of time might be sensible.

Perhaps the biggest uncertainty that we now face is how long the restrictions will last and when normal life will return. Whilst the government funding is largely welcomed and encouraging it is clear that the damage to the sector will be significant – we can only hope that many great UK manufacturing businesses will not be lost to this ‘once in a lifetime’ virus.