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The Big Squeeze: How the Cost-of-Living Crisis is Affecting UK Manufacturing Businesses

Anyone who has recently shopped at their local supermarket, or received an eye-watering bill from their utilities provider, will know that there is a growing cost of living crisis for UK consumers.

Up and down the country, UK households are already feeling the pressure and this is just the start.

All of the signs are that this is likely to worsen significantly in the coming months. There is an increase in National Insurance contributions planned in April. There is also the likelihood that Ofgem will shortly raise the price cap on energy bills, taking the average household’s annual bill to almost £2000.

Part of the underlying reason for this sharp increase in costs is the Covid pandemic. As we have written previously, this crisis has impacted far beyond public health. The pandemic hit global supply chains by creating shipping delays, stopping production in factories due to lockdowns, and leading to high levels of staff absence. At ENL Group we have experienced the impact of this ourselves, with the price of raw materials from overseas increasing substantially.

When this is added to rising food prices caused by supply chain disruption, and the increase in transportation costs that have resulted from rising fuel prices and wages for HGV drivers, it creates a perfect storm of rising costs. It is clear that 2022 is likely to be characterised by what some economists are already dubbing “the big squeeze”.

These rising costs affect businesses like ENL in several direct and indirect ways.

Direct Costs to Business

The most immediate impact is through our own rising costs, for raw materials, transportation, and particularly energy. Fortunately, some of our energy costs are fixed, – for a period at least. This has enabled us to avoid passing those costs on to our customers. However, with potential cost increases on the horizon, this is something that we will keep under review with our customers as we move forward into the new year.

It is a similar story regarding the raw materials that we use in our manufacturing process. We have taken steps to shorten our supply chains and increase our capacity to stockpile materials to try and mitigate the impact of the rising price of materials. However, it is clear, that the upward trend of the cost of raw materials will eventually affect our business.

Indirect Costs: Wage Inflation

The indirect impact of the cost-of-living crisis will largely be due to inflationary pressure on wages within the business. The National Living Wage (NLW) will rise to £9.50 from 1 April 2022. This represents an increase of 59 pence or 6.6 percent and will affect some members of our team.  

More widely, we also expect rising inflation could increase the number of staff seeking to move elsewhere in search of higher wages. The cost of replacing these staff is potentially much more significant than the cost of increasing wage levels to retain them. Furthermore, in addition to the financial costs of staff leaving the business, there is also the intangible cost of losing the skills, experience, and relationships that those staff have. It is clear that, as inflation bites, across the business, we will have to review pay levels to make sure that we retain the skills that we need to deliver for customers.

Strong Relationships

It would be dishonest to say that further down the line there definitely will not be cost increases in parts of our product range. The reality is that, taken together, rising materials, transportation, energy, and staffing costs will ultimately have an impact on the prices that we charge our customers for components. Indeed, in some cases, we have already had conversations with customers who have accepted that a proportion of increased material costs may sometimes need to be passed on.

However, what makes these potentially difficult conversations much easier are the strong and enduring relationships that we have in place with many of the customers who trust us to deliver the high-quality plastic components that they need. Developing these relationships is something that is based on many years of experience and delivery. It means that our customers have relationships with us that are resilient enough to allow sensible conversations to take place about the impact of rising costs and how to mitigate these – both for ourselves and them.

However, for ENL Group, passing on price increases to our customers will always be the very last resort rather than an easy option. Wherever possible we will always look for other routes to drive efficiency through our business instead of passing increased costs on to our customers. We know that, just as we are experiencing cost increases across the board, so are they. Therefore, we are also focusing on other ways to reduce costs and drive business efficiencies.

This is not simply a response to the pandemic. At ENL, we are always trying to find more efficient ways to operate, whilst never compromising on the quality for which we are widely known. However, the current cost rises have focused our minds on this important task.

We have already taken a number of steps. We have streamlined our staffing team to minimise and optimise our direct headcount. We have also reviewed the way that our production lines operate, running optimum batches of parts to demonstrate longer-term demand to our own suppliers.

Moving forward, we will be reviewing all of our product lines and assessing the costs and profitability of each individual component. This granular level of data is invaluable for ensuring that we are making clear decisions based on the best available information. It also means that when it comes to future price rises, we will be able to have discussions on a customer-by-customer basis rather than applying the blunt tool of an across-the-board increase.

As with many things in the business environment, there is little that we can do as a company to change wider macro-economic trends. Instead, we will focus on what we can do, – operate efficiently, communicate clearly, and work with our customers to find solutions that work for both us and them.

About ENL Group

ENL Group is based in Portsmouth, UK, and Veľké Kostoľany, Slovakia. Established in 1958, we have been servicing UK-based and European companies for decades. Working with a secure supply chain, ENL provides quality components for quality-driven customers – with full certification for all of our products and quality checking at every stage.

Operating 24/7, we design, manufacture, and deliver critical components for our customers across the UK and Europe.

Contact Us for more information about ENL and how we can help your business.