Manufacturers caught out by surge in demand

MANUFACTURERS have been caught on the hop by the recent pick-up in demand and were constrained by supply chain and capacity shortfalls this summer, according to a senior industry figure.

Paul Nelson has taken on extra staff to cope with orders

Allied Vehicles managing director Paul Nelson admitted he had to take on dozens of workers and bring in a night shift to catch up on orders.

His comments follow Scottish Engineering’s latest survey, which shows that orders within the industry are at their highest level since the beginning of 2011, as well as a raft of other indicators hinting that the sector is expanding.

Nelson, who is a member of the boards of both the Scottish Motor Trade Association and Scottish Engineering, said orders for Allied’s vehicles had increased to more than 80 a week, from less than 70 a year ago.

But production took longer to get up to those levels.

He said: “Some manufacturers have had trouble supplying us. Everybody has gone lean as a consequence of the recession.”

In response to the growing order book, the firm increased its headcount from around 350 to 420 and introduced a night shift for the first time.

He said that demand for the group’s taxis was boosted by the fact banks are finally starting to make cash available to small businesses.

He estimated demand for cabs is now growing by ten to 15 per cent a year. Nelson said that the scramble to rebuild capacity in the face of the economic recovery at home and abroad is being seen throughout Scotland’s engineering and manufacturing sectors.

“These are good problems to have,” he said.

But he admitted that profit margins remain below pre-
recession levels.

Nelson’s observations from the frontline fly in the face of the assumptions being made by economists at the Bank of England and elsewhere. They have suggested that UK businesses have significant spare capacity, which means they will absorb initial increases in demand without having to hire more staff.

The argument is critical to the central bank’s case that the rising rate of economic growth will not cause upward pressure on wages, and that it can therefore keep interest rates low without risking an inflationary spiral.