The UK labour market is experiencing significant shifts in 2024, with far-reaching effects on various sectors, including procurement and supply chains. Labour shortages, changes in workforce expectations, and rising costs are creating new challenges for businesses that rely on efficient and cost-effective procurement practices.
In this blog, we will examine the current state of the UK labour market, the key challenges facing procurement and supply chain management, and how businesses can adapt to these changes to remain competitive and resilient.
The State of the UK Labour Market in 2024
The UK labour market has undergone a series of changes over the past few years, influenced by several key factors:
1. Brexit and the End of Free Movement: Brexit has had a profound impact on the UK labour market, particularly in sectors that rely on migrant workers. The end of free movement between the UK and the European Union has led to a reduction in the availability of workers, especially in industries such as logistics, manufacturing, and agriculture. This has resulted in labour shortages, increased competition for workers, and upward pressure on wages.
2. Pandemic Aftershocks: The COVID-19 pandemic disrupted the labour market in ways that are still being felt in 2024. Many workers reassessed their career priorities, leading to a shift in workforce expectations. Remote work, flexible hours, and a greater emphasis on work-life balance have become key demands from employees. Businesses are under pressure to offer more attractive working conditions to attract and retain talent, particularly in sectors where workers can easily switch jobs.
3. Ageing Workforce and Skill Gaps: The UK’s ageing population is contributing to skill gaps across various industries, including procurement and supply chains. As experienced workers retire, businesses are struggling to find younger employees with the necessary skills and experience to fill these roles. Additionally, there is a growing demand for digital and technical skills in procurement, further exacerbating the skill shortages.
4. Rising Wage Inflation: With fewer workers available and competition for talent intensifying, wage inflation has become a major issue for businesses. In 2024, wages are rising faster than in previous years, putting additional financial pressure on businesses that are already facing higher costs due to inflation, energy prices, and supply chain disruptions. This has made it more difficult for companies to maintain profitability while managing procurement and supply chain operations.
Labour Market Challenges for Procurement and Supply Chains
The labour market challenges outlined above are having a significant impact on procurement and supply chain management. Here are the key ways in which the UK’s labour market challenges are affecting businesses in 2024:
1. Labour Shortages in Key Supply Chain Roles: The UK is experiencing a shortage of workers in key supply chain roles, such as warehouse staff, drivers, and logistics coordinators. The shortage of HGV (heavy goods vehicle) drivers, which was already a critical issue in 2021, has persisted into 2024, causing significant disruptions in the movement of goods across the country. Labour shortages are leading to delays, increased lead times, and higher costs, as businesses struggle to maintain normal operations with fewer workers. This has created a bottleneck in supply chain processes, affecting the availability of goods and materials for procurement teams.
2. Increased Procurement Costs: With rising wage inflation and higher competition for talent, the cost of procuring goods and services has increased. Suppliers are passing on the higher labour costs to their customers, leading to higher prices for raw materials, components, and finished goods. Additionally, businesses are facing higher costs for logistics and transportation, as labour shortages in these sectors drive up prices. Procurement teams are under pressure to balance these rising costs with the need to maintain profitability, while ensuring that they can still source the goods and services their businesses need to operate effectively.
3. Supply Chain Delays and Disruptions: Labour shortages in the supply chain are causing significant delays and disruptions. For example, a lack of warehouse staff and drivers means that goods are not being moved as efficiently as they were before, leading to delays in deliveries and stock shortages. These disruptions are having a knock-on effect on procurement processes. Businesses are struggling to maintain the right level of stock, and procurement teams are finding it harder to source materials in a timely manner. This has forced many companies to adopt more flexible and agile procurement strategies to cope with the uncertainties in the supply chain.
4. Pressure to Meet ESG Goals: As businesses face growing pressure to meet environmental, social, and governance (ESG) goals, labour shortages are making it more difficult to ensure that supply chains remain sustainable and ethical. For instance, labour shortages in sourcing regions can lead to the exploitation of workers, forced labour, or poor working conditions, all of which can have negative repercussions for businesses that are trying to uphold their ESG commitments. Procurement teams need to ensure that their supply chains remain compliant with ESG standards, while also dealing with the practical challenges of managing suppliers and workers in regions affected by labour shortages.
How UK Businesses Can Adapt
Despite the challenges posed by the current labour market, there are several strategies that UK businesses can adopt to mitigate these impacts on procurement and supply chains:
1. Automate and Digitise Supply Chain Processes: One of the most effective ways to address labour shortages is to automate and digitise supply chain processes. Technologies such as robotics, AI-driven warehouse management systems, and automated inventory tracking can reduce the reliance on manual labour, allowing businesses to operate more efficiently with fewer workers. Procurement teams can also benefit from digital tools that streamline sourcing, contract management, and supplier communication, reducing the administrative burden on procurement professionals and enabling them to focus on strategic decision-making.
2. Strengthen Supplier Relationships: Building stronger relationships with suppliers can help businesses manage the challenges posed by labour shortages. By working closely with suppliers, procurement teams can negotiate better terms, secure more reliable delivery schedules, and collaborate on finding innovative solutions to labour-related issues. Additionally, businesses should consider diversifying their supplier base to reduce their reliance on a single source, which can help mitigate the impact of labour shortages in specific regions or industries.
3. Invest in Workforce Training and Development: To address skill gaps and retain talent, businesses should invest in workforce training and development programs. By upskilling existing employees and providing opportunities for career progression, companies can reduce the need to constantly hire new workers and improve employee retention. Procurement teams can benefit from training in digital procurement tools, data analytics, and ESG compliance, which will help them adapt to the evolving demands of the industry.
4. Adopt Flexible Working Models: Given the shift in workforce expectations, offering flexible working models can help businesses attract and retain talent. Remote work, hybrid working, and flexible hours are now seen as essential perks for employees in many sectors, including procurement and supply chains. By providing more flexible working arrangements, businesses can tap into a broader pool of talent and reduce the risk of losing key employees to competitors offering better work-life balance.
5. Rethink Procurement Strategies: In response to rising costs and labour shortages, procurement teams should rethink their strategies to become more agile and resilient. This could involve adopting just-in-case inventory strategies, where businesses maintain higher stock levels to account for potential delays in the supply chain. Additionally, procurement teams should explore alternative sourcing options, such as nearshoring or reshoring, which can help reduce reliance on overseas suppliers that may be affected by labour shortages or other disruptions.
Conclusion
The UK’s labour market challenges in 2024 are creating significant pressures on procurement and supply chains. Labour shortages, rising costs, and changing workforce expectations are disrupting supply chains and increasing procurement costs, making it harder for businesses to maintain efficiency and profitability.
However, by adopting strategies such as automation, supplier collaboration, workforce training, flexible working models, and agile procurement practices, UK businesses can adapt to the changing labour market and build more resilient supply chains.
As the labour market continues to evolve, businesses that take proactive steps to address these challenges will be better positioned to navigate the uncertainties and thrive in an increasingly complex and competitive environment.
