New industry data has revealed that manufacturers are holding double the amount of stock compared to pre-pandemic levels as the world’s supply chain woes take on a new form.
A report from software firm Unleashed shows businesses have been forced to stockpile huge quantities of goods as they navigate delays and shortages, against a background of rising inflation.
The analysis of more than 4,500 SMEs paints a picture of manufacturer health by examining four main data points: the value of stock on hand, Gross Margin Return on Inventory (GMROI), fulfilment days, and the price paid for goods purchased.
Overall, stock on hand levels for manufacturers in the UK jumped by 99.7%, from an average of £365,736 in Q3 2019 to £730,681 in Q3 2022, while GMROI dropped from 2 to 0.9 in the same period, and fulfilment times fell from 20 days to around two weeks.
Meanwhile manufacturers are paying 10.24% more for their goods now compared to the start of 2022.
“What started as a supply chain crisis appears to have evolved into an inventory crisis at the individual business level,” said Unleashsed chief executive Gareth Berry. “Yes we've seen shipping times and prices ease, but that’s at the expense of firms who are forced to hold far more stock just to stay operational.
“It’s a tough situation for manufacturers that will present real cash flow pressures. Managing those stock levels down in the coming months will be a delicate task.”
Noah Warren, chief executive of UK bicycle manufacturer Temple Cycles, said the impact on his business has been considerable.
“One of the biggest problems we’ve had is lead times going exponentially crazy," he said. "So we’ve had to move away from a just in time stock model to just in case. The only way we could be in stock is to invest more money in it. But you can’t do that indefinitely.”
The highest percentage change in the average value of stock on hand between Q3 2019 and Q3 this year was the plastics and rubber sector – which saw an average increase of 180%. This was followed by energy and chemicals (up 174%), and the sports and entertainment sector which recorded an average increase of 123%.
Apart from the food sector, which lifted GMROI 93.69%, all sectors in the UK saw a decline in overall GMROI with clothing firms (down 81.8%), plastic and rubber products (down 81%) and energy and chemicals (down 62%) seeing the biggest declines.