How manufacturing SMBs can navigate the cost of living crisis and rising energy costs

21 Oct 2022

The UK’s current cost of living crisis affects everyone, especially manufacturing SMBs. Plus, the energy crisis continues to be a significant concern for many factories across the United Kingdom.

Consumer prices in July 2022 were 10.1% higher than the previous year, according to the CPI. The Bank of England predicted 3.1% inflation for the fourth quarter of 2022. Russia’s sharp increase in gas prices since May and Ofgem’s price ceiling changes account for the significant increase from its May prediction.

Rising costs will undoubtedly impact small UK manufacturers, so let’s look at how they might feel the squeeze and what they can do to help lessen the blow.

Cost of living crisis challenges facing manufacturing SMBs and how to cope

The rising cost of office space/warehouse space

The rising cost of office space/warehouse space is a severe challenge to SMBs in manufacturing. In the first quarter, prime rents in the industrial sector rose by 4.3%. London’s best industrial rents increased by 6.9% quarter-over-quarter, fueling the city’s overall economic expansion. 

This growing concern is even more critical when you consider that SMBs across the UK are struggling with cash flow and liquidity issues, which makes it difficult for them to keep up with their long-term lease obligations. Many companies are locked into expensive leases as they struggle with cash flow problems.

Some remedies to the rising office space costs include:

Rising energy costs

Manufacturing SMBs are not immune to rising energy costs because they use many different types of equipment for production purposes, including heaters, coolers, fans, and conveyor belts.

Here are some ways that manufacturing SMBs can cope with rising energy costs:

  • Reduce energy consumption by using LED lighting, which uses less power and lasts longer than traditional bulbs.
  • Use paper or cardboard packaging instead of plastic. Plastic takes ages to decompose, which is terrible news for the environment. Paper and cardboard are biodegradable and can be easily recycled.
  • Go green by switching off unnecessary lights when not in use
  • Make sure your equipment is operating as it should
  • Turn off equipment when you can rather than putting it on standby
  • Shop around for the best possible utilities and energy supplier deals (even if they’re all high, some suppliers might have better offerings for your needs.)

Rising raw materials costs

The rise in raw materials costs has become a major issue for large and small manufacturers alike. And as raw materials costs rise, SMBs are needing to make tough decisions about pricing, staff reduction, and changing production volumes. 

However, there are some ways to combat rising materials prices:

  • Optimise your supply chain by doing an audit of your current suppliers
  • Get in touch with your suppliers — they know everyone is feeling the squeeze right now and will likely work with you to maintain your relationship.
  • Switching suppliers where necessary.

Lower sales numbers

SMBs are likely to see lower sales right now as people cut down on spending. While increasing your prices is an option, it’s not always the best one. It might be counterproductive and can lead to reduced profits.

Instead, focus on cost-cutting first and raising prices as a last resort. Make sure you stay on top of invoices and follow up with any clients who have been slow to pay. 

You can also spend some time improving your brand messaging, letting your customers know that even though things are hard right now, you’re still here, offering them the same level of service you always have. 

General top tips to help your SMB save money

Automate processes

Automation can save you time and money by eliminating the need for manual work. When you automate a process, it’s more efficient and reduces the chance of human error.

Use forecasting and analytics to make better predictions

Forecasting is a great way to predict what’s coming based on your company’s past performance. You can forecast demand, create products or services to match expected market demand, and plan your production accordingly. Analytics help you make better predictions by identifying patterns and finding correlations in your data.

Keep a close eye on your orders and inventory management

Keeping an eye on your inventory levels is essential during tough financial times. Too much inventory will cost you more in storage fees. And too little inventory could leave you struggling to meet sales demands in the face of new supply chain disruptions. 

If you have too much stock on hand, try lean inventory management. Lean inventory management tries to reduce manufacturing waste and eliminate extra costs. This lets you produce just what you need and keep costs down. 

Use technology to your advantage

Now is the time to turn to technology to help you manage your inventory and orders. The more insight you have into your business, the better you can navigate any challenges that come your way. 

Many order and inventory management systems are aimed at bigger, enterprise-level businesses, making them expensive and overwhelming for many SMBs. At Workhorse, we aim to give you everything your business needs to thrive and none of the extra features you don’t need. 

Get in touch with us today to book a demo and see how we can help!

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