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With the cost of living crisis causing a dramatic decline in sales across many industry sectors, and consumers adjusting their spending habits to the climate, a large proportion of businesses are slipping into decline. The increasing costs of goods, transport and staff are only causing the situation to worsen, and one thing that is thought to have triggered this entire appalling chain of events is also far from resolved.
Energy costs continue to spiral to new heights, with individuals and businesses alike left out in the cold as a result. But how is the energy crisis impacting the other end of the supply chain? Read on to discover how manufacturing businesses are faring in light of rapidly rising energy costs.
Production prices are rising
The price of energy isn’t the only cost that’s experiencing an upward trend. According to the National Statistics Institute, the manufacturing industry experienced its highest rise in production prices since 1985, with manufactured products a whopping 10% more expensive than they have been in previous years.
The cause? The pressure of rising energy costs, of course, with the manufacturing sector’s biggest consumers responsible for the most dramatic production price increases.
A multifaceted issue
The energy crisis hasn’t just caused higher energy bills. While seen as just one inflated cost that manufacturers have to absorb, the rising cost of energy has impacted every part of how manufacturers do business.
Near-term and long-term effects have influenced every organisation’s strategy, materials costs, production lines, profit margins, supply chain, transportation, and even their environmental, social and governance (ESG) considerations. The result of this has meant increased total production costs for almost every manufacturer, regardless of their size or niche.
Insolvencies are up
According to research, the manufacturing sector has been hit particularly hard by the energy crisis, with insolvencies increasing by a staggering 63% since last year. With rising energy bills and interest rates not helping the situation, many more manufacturing businesses will likely close their doors this year.
Some manufacturing businesses saw their energy bills rise to 400% last year. With no funds to access due to limited finance and decreasing orders, bankruptcy became the only way back from a financial cliff edge.
The energy crisis isn’t the only factor that is thought to have caused more insolvencies within the manufacturing industry. The long-running effect of the Covid-19 pandemic, staff and skills shortages, Brexit restrictions, and rising staffing costs have all contributed to the poor state of the UK manufacturing sector.
The future of manufacturing
Whilst the current state of the economy and the continually rising energy costs are significant causes for concern for manufacturing businesses everywhere, some organisations are taking their fate into their own hands to ensure their survival against the odds.
Modernising for long-term viability, strengthening supply chains and taking steps to transition to net-zero emissions with the use of renewables have become missions for many in response. For more information and support relating to energy efficiency measures and business energy procurement, it’s well worth seeking help from an expert.
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