Manufacturers face uncertainty as report reveals drop in profitability
New analysis suggests that health, medical supplies and equipment manufacturers are struggling to maintain profitability on their inventory.
- Health manufacturers generated £2.13 for every pound invested in inventory in Q4 2023 – down from £2.29 in Q3 2023
- This compared to an industry average of £2.33 across 16 manufacturing categories
- Health sector profitability was down on Q4 2022 when it stood at £2.39
Health was one of the only manufacturing categories to see profitability on inventory drop in the latest Manufacturers’ Health Index – a report of mid-sized manufacturers’ performance, compiled quarterly by inventory management software brand Unleashed. Most other categories saw an uplift, while only two others saw a decline, and one stalled.
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.
Health manufacturers made an average of £2.13 for every pound invested in inventory, down from £2.29 the previous quarter. In Q4 2022 they achieved £2.39 GMROI – rising to £2.76 in the first quarter of 2023.
Jarrod Adam, head of product, at Unleashed, said: “This is disappointing news for healthcare manufacturers, who have seen profitability on inventory drop, both quarter-on-quarter, and year-on-year. It is towards the bottom of our table – 11 out of 16 – but it is still performing better than some of the other categories we analysed.
“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.”
Bigger picture: manufacturing sector returns to health
Unleashed’s report showed 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.
“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.”