‘Safety stock’ held by UK Manufacturers up by a third to counter supply chain disruptions

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The amount of stock held by UK SME manufacturers has shot up since the start of the pandemic, according to new research.

In what could be a shift from ‘just-in-time’ to ‘just-in-case’ stock models, analysis of 521 SME manufacturers found that the overall value of stock rose by 34 per cent between 2020 and 2022, while overall domestic demand* dropped 6.8 per cent and average product value** remained consistent.

The research by supply chain management platform Unleashed Software compared the stock value held across key UK sectors in 2022 against 2020, with just over 80 per cent of those sectors analysed showing a steady or steep rise in stock value.

The steep risers include ‘Agriculture, Forestry and Fishing’ at 117 per cent, ‘Beverages’ (alcoholic and nonalcoholic) 110 per cent and ‘Personal Care’ 91 per cent.

During the same period, demand for ‘Agriculture, Forestry and Fishing’ dropped 9 per cent, ‘Beverages’ fell 7 per cent and ‘Personal Care’ has seen a small rise at 2 per cent – still some way off the increase in stock being held by manufacturers in that sector. While product value in these sectors remained consistent.

With stock value rising and demand falling, the data suggests many SME manufacturers are now moving towards a ‘just in case’ model, as they look to manage shipping costs, boost resilience, improve flexibility and increase their financial buffers.

Ben Vear is general manager at Minor Figures, an Unleashed customer which produces coffee products. He believes start-up and scale up SMCG businesses in the UK won’t return to the ‘just in time’ model of stock management.

“A combination of labour constraints as an effect of the Covid-19 pandemic, on-going challenges from Brexit and pressure on packaging and raw material inputs has seen our business move from a shallow just-in-time stock holding, to instead holding a buffer of over four weeks of cover to allow for delays within our supply chain,” said Ben.

“We don’t see a return to the ‘just-in-time’ model in the dairy alternative category or more broadly for start-up and scale-up FMCG businesses in the UK. Our planning for 2023-25 sees us ensuring flexibility in our supply chain to scale up quickly and hold additional weeks of cover to compensate for demand peaks.”

Another Unleashed customer, Here We Flo, which manufactures personal care products, says the business has always tried to hold a buffer of stock, but is now increasing it as part of a strategy to mitigate stock shortages. Its head of operations and supply chain, Annabelle Hill said:

“We have always tried to hold a buffer of stock to account for fluctuations, and to take advantage of new opportunities. However, we’ve not been unaffected by supply chain challenges, and we’ve made the decision to increase this buffer to account for longer production lead times, raw material shortages and the astronomical cost of freight.

“Just buying more inventory is not a feasible long-term remedy. As a SME, managing cash-flow is essential, so we’re exploring other avenues to mitigate for unexpected stock shortages too.”

Stephen Jones, regional manager at Unleashed, said:

“For decades, the thinking has generally been to reduce stock value and therefore easing costs. But when the pandemic hit and supply chain disruption became widespread, many manufacturers were left without a back up plan and saw major delays to stock which impacted sales and margins.

“As demand for goods is becoming more and more difficult to predict, it’s clear that businesses need to be more flexible and agile to react to market conditions.”

Methodology

Sample: The analysis carried out by Unleashed Software analysed stock value and product value of 521 SME Manufacturers operating in the UK.

Domestic Demand: This has been calculated by adding imports to industry revenue, and then subtracting exports, where the whole data was directly extracted from IBISWorld’s UK industry report.

Product Value: This has been calculated by sector through dividing average stock value by product count

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Greg Roughan - Unleashed Software
Greg Roughan

Article by Greg Roughan in collaboration with our team of inventory management and business specialists. Greg has been writing, publishing and working with content for more than 20 years. His writing motto is 'don't be boring'. His outdoors motto is ''I wish I hadn't brought my headtorch', said nobody, ever'. He lives in Auckland, New Zealand, with his family.

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