The study — ‘Chain reaction’ by Barclays Corporate Banking — focuses on manufacturing businesses with over ten employees and looks at the impact of supply chain issues.

Barclays’ research shows that nearly nine in ten (86%) Scottish businesses are currently holding items in their warehouses awaiting completion because raw materials, ingredients or component parts have not yet been delivered from suppliers. On average, this ‘unfinished business’ is worth over £1.8 million to each company impacted.

Products in the steel and metals sector are most severely affected, with £9bn worth of goods incomplete – equivalent to almost a fifth (19%) of the sub-sector’s annual turnover across the UK. The most affected consumer goods sector is food and drink, with delays in sourcing ingredients causing a £3bn backlog. A high value of plastic products (£2.6bn) and electronics (£2bn) are also awaiting completion.

The trends are reflective of supply chain disruption that has challenged the manufacturing sector since the pandemic and nearly seven in ten (69%) Scottish firms say they are still facing supply issues. This has been exacerbated by the invasion of Ukraine and the aftermath of the UK’s exit from the EU.

Customer relationships are now being impacted: over half (56%) of Scottish manufacturers say their customers are having to wait longer for products, with 21% describing the hold-ups as ‘significant’. To offset rising costs such as energy and transportation, almost eight in ten (79%) manufacturers are planning price increases for their own products, of 38% on average.

The industry is innovating to solve these challenges. Most commonly, Scottish businesses are spreading their bets by increasing the number of different suppliers they work with (42%). To prepare for the fact raw materials are taking longer to source, nearly four in ten (39%) have upped their storage capacity. Meanwhile, over a third (36%) are “near shoring” to move their supply chains closer to home and 33% have “friend shored” to work with suppliers in countries that have a strong trading relationship with the UK.

To maintain cashflow and liquidity, more than half (56%) of Scottish manufacturing firms are accessing additional bank funding and over four in ten (42%) are taking out shareholder loans. 33% are optimising their working capital cycles and nearly a third (31%) selling off assets to raise funds.

Such measures are leaving the industry confident in the medium-term. Over two thirds (69%) of Scottish companies think supply chain challenges will improve over the next six months and 92% are confident about growth next year.

Businesses have also doubled down on their commitment to sustainability despite supply chain pressures. Nearly two thirds (63%) of manufacturers say carbon reduction has become an even bigger priority in the past six months, despite more than eight in ten (85%) saying their environmental goals have become less attainable.

Amidst the business optimism, however, Barclays’ report also lays bare the threat that rising costs and supply chain disruption could pose long-term if circumstances do not improve. On average, Scottish manufacturers only expect to be able to sustain their operations for 20 further months if current conditions continue.

Lee Collinson, head of manufacturing, transport and logistics for Barclays Corporate Banking, said: “The British manufacturing sector has faced a perfect storm of challenges this year, with rising costs, the war in Ukraine, labour shortages and ongoing Covid lockdowns in China hitting supply chains hard.

“As a result, billions of pounds worth of goods are trapped in warehouses unfinished, and this may hit industry turnover in the early part of next year.

“However, manufacturing firms have done what they do best and engineered new solutions to limit the impact of the issues they face. As a result, many businesses will enter the new year with a degree of cautious optimism and confidence.”

Other findings from the ‘Chain Reaction’ report include:

• 64% of UK manufacturers have faced rising costs because of the recent weakness of the pound
• Trade barriers are a concern for almost one in three manufacturers across the UK. They are a particular issue for the electronics industry (43%) and the automobile industry (41%)
• The top interventions that manufacturing firms would like to see from government are industrial energy transformation (37%) and a more aggressive energy price cap for the industry (32%)