With inflation at its highest rate in 30 years, costs are rising for businesses as well as households. Here, we ask Tim Squires, Commercial Director of Squires Gear & Engineering, a manufacturer of components for the automotive supply chain, how he is responding and how he thinks his customers will be impacted.
What is the history of your business, what does it do, and who are your main customers?
Squires, established in 1985, are CNC Machined Part manufacturers based in Coventry. Although we supply a broad range of sectors, our main area of concentration is that of automotive, trailers and commercial vehicles. Manufacturing in small and large volumes, our key customers are a mix of OEM, Tier 1 and 2 firms including names such as JCB, GKN, Ifor Williams and Meritor.
How would you describe the current environment?
The current environment is extremely challenging. The price of raw materials has rocketed following firms getting back into full production after Covid. Coupled with issues surrounding Brexit and now the conflict in Ukraine, the average cost per ton of steel that we purchase has more than doubled with availability extremely low.
With manufacturing businesses such as ours being high energy users, the increase in energy costs has also hit our sector massively. Thankfully as a company, we have secured fixed rate tariffs for the next 3 years, however, a number of firms in our supply chain haven’t. For heat treatment and coating suppliers, this has seen price increases being passed on like never before and in certain cases, additional surcharges. This in turn leaves us having to increase our part costs on a regular basis.
Achieving acceptance from customers is not always an easy straight forward process so it is having to be managed very carefully.
What are you doing as a business to minimise the impact of rising costs?
Competent purchasing is key in times such as this. Ensuring you have a good selection of suppliers to gather quotes from is essential to ensure you are buying at the lowest possible price. If and when possible, purchasing items in larger quantities than what you would normally is being deployed more regularly due to the consistent rise in prices. Steel quotations are currently being issued with prices held for no more than 2 days. In some cases, this can be as low as 4 hours.
Internally, as a company we have always looked for continuous improvement in the way we work to ensure we are manufacturing our products in the most efficient way. Only LED lighting is used throughout our facility and heating is channelled directly to where people are working, not being wasted in areas of no production.
And how is this impacting your staff and customers?
Our staff are fully aware of the current challenges facing our industry and the UK as a whole. Reduced profit margins impact on the ability to offer wage increases and invest in capital equipment against our targets. That being said, the majority of our customers have been very good in accepting price increases as and when they have been passed on.
Unfortunately, with the cost of manufacturing in the UK rising on a daily basis, it does give more incentive for the purchasing departments of our customers to look overseas to reduce their spend.
What support would you like to see from your suppliers?
Due to the highly competitive market, our supply chain appear to all be doing their best to reduce costs and supply their products at the most effective rate. As mentioned, a key issue due to the nature of our business is that of rising energy costs. The manufacturing industry as a whole would gladly welcome assistance in reducing energy bills.
Unlike a high proportion of other sectors, we have no options for staff to work remotely. To manufacture goods, gas and electricity are the key ingredient and then to transport heavy components, we are also reliant on diesel fueled vehicles, again something that is increasing costs and reducing the competitiveness of the UK manufacturing sector.
Do you see things improving in the next 12 months?
Unfortunately, no. There are currently no signs that steel, diesel, oil or gas will be reducing in price. The ongoing conflict in the Ukraine is still showing no signs of stopping either which is only adding fuel to the fire.
Referring back to the prior question, the government, working in conjunction with energy supplies, should really be looking to assist high energy users wherever they can. The sustainability of UK manufacturing is rapidly diminishing with the impact of what is currently being put upon us - so anything that can be done would be greatly welcomed.