New analysis shows that building and construction manufacturers have rebounded from the supply chain challenges of 2022, with a jump in profitability.

Mid-sized firms in the sector have benefitted from demand for products and stabilising supply chains, according to the latest Manufacturers’ Health Index, compiled quarterly by inventory management software brand Unleashed.

The report reveals data on GMROI (gross margin return on inventory) – a measure of the profits made on inventory costs – across 16 manufacturing categories. Manufacturers were also surveyed to gain first-hand insights into the specific challenges and opportunities they face.

Building and construction made an average of £2.51 for every pound invested in inventory, up from £1.80 in the previous quarter. Like most of the manufacturing categories analysed, it achieved a higher GMROI compared to Q4 2022 when it stood at £1.76.

However, the index shows that the sector lagged behind industrial machinery, raw materials and equipment manufacturers, which generated £2.72 for every pound invested in inventory in Q4 2023. But this category only saw a marginal gain of 0.11p between Q3 and Q4.

Jarrod Adam, Head of Product, at Unleashed, said: “Manufacturers in the buildings and construction sector performed well in the final quarter of last year. Although this category appeared in the bottom half of our table – 10 out of 16 – the year-on-year, and quarter-on-quarter, improvements are a sign that firms are on a more stable footing for the year ahead.

“Overall, the businesses we surveyed across different manufacturing categories were optimistic about 2024, with almost three-quarters saying they expect demand to grow this year.”

The report also shows that the UK’s manufacturing sector has made a dramatic recovery – recording its best performance in more than two and a half years during the final quarter of 2023.

Firms made an average of £2.33 for every pound invested in inventory, up from £1.98 the previous quarter and £2.05 in the same period of 2022.

All but four of the manufacturing categories analysed saw an uplift in profitability during Q4, with clothing manufacturers and the energy chemicals sector storming ahead with £4.53 and £3.30 respectively.

At the other end of the scale, the most dramatic fall was in plastics and rubber, which saw its profits on inventory drop to £1.16 from £2.65. Health and medical manufacturers, and cosmetics and personal care were both down by 16p and 8p.

“The improvements in profitability show how well mid-sized manufacturers in the UK have rallied following the seemingly endless economic and supply chain uncertainty of the past few years,” said Adam.

“In navigating the supply chain and economic challenges they’ve faced, many firms have embraced technology to refine their inventory management processes, enabling them to achieve better margins on their inventory spend.”

Source: buildersmerchantsnews.co.uk