The UK is currently grappling with an unprecedented labour shortage, which is having a profound impact on various sectors, from manufacturing and construction to logistics and healthcare. As industries struggle to find and retain workers, the ripple effect of these shortages is being felt across supply chains, leading to rising costs, production delays, and disruptions in service delivery.
For procurement teams, the labour shortage presents a significant challenge that requires a shift in strategy. Businesses must rethink their approach to sourcing goods and services, managing suppliers, and maintaining operational efficiency in an environment where labour is scarce.
In this blog, we will explore the causes and effects of the UK’s labour shortage crisis in 2024 and how procurement professionals can adopt innovative strategies to mitigate the risks and maintain supply chain resilience.
The Causes Behind the UK’s Labour Shortage
The labour shortage in the UK is the result of several complex factors, many of which have emerged over the past few years. Understanding the root causes of this crisis is essential for procurement teams as they seek to navigate the challenges it creates:
1. Brexit and Reduced Access to Foreign Workers: Brexit has significantly reduced the flow of foreign workers into the UK, particularly from EU countries. Before Brexit, EU nationals made up a substantial portion of the UK’s workforce in sectors such as agriculture, hospitality, construction, and logistics. However, post-Brexit immigration restrictions have made it more difficult for UK businesses to hire workers from the EU, leading to labour shortages in key industries.
2. An Ageing Workforce: The UK’s workforce is ageing, and many industries are struggling to replace older workers as they retire. This is particularly true in sectors such as healthcare, construction, and manufacturing, where skilled labour is essential. The skills gap created by retiring workers is contributing to a long-term shortage of experienced personnel, further straining supply chains.
3. Changing Workforce Expectations: The COVID-19 pandemic has reshaped worker expectations, with many employees seeking better work-life balance, flexible working arrangements, and improved wages. Sectors that cannot meet these demands, particularly those requiring physical presence or shift work, are experiencing higher turnover rates and difficulties in attracting new talent.
4. The Impact of the COVID-19 Pandemic: The pandemic disrupted labour markets worldwide, and its effects are still being felt in 2024. Many workers left their industries during the pandemic, particularly in sectors like hospitality and retail, and have not returned. The pandemic also created long-term health issues for some workers, further reducing the available workforce.
5. Increased Demand for Skilled Workers: As industries like technology and renewable energy grow, the demand for skilled workers has increased. This shift is creating shortages in traditional sectors that have not kept pace with the changing labour market. Procurement professionals in these industries must now compete with high-tech sectors for talent, further driving up labour costs.
How the Labour Shortage Impacts Procurement
Labour shortages are not just a challenge for human resources teams; they also have a significant impact on procurement and supply chain management. Here are some of the key ways in which the labour shortage is affecting procurement in the UK:
1. Disrupted Supply Chains: Labour shortages in manufacturing, logistics, and transportation are causing supply chain disruptions across various industries. For example, a shortage of HGV drivers has led to delays in the delivery of goods, while a lack of workers in manufacturing plants has slowed down production. These disruptions can create bottlenecks that make it difficult for procurement teams to secure the goods and services they need in a timely manner.
2. Rising Costs: Labour shortages are driving up wages across multiple sectors, particularly in industries like construction, hospitality, and healthcare. For procurement professionals, this means higher costs when sourcing goods and services, as suppliers pass on their increased labour costs to their customers. Procurement teams are under pressure to manage these rising costs while maintaining profitability and ensuring value for money.
3. Quality Concerns: In some cases, labour shortages can lead to a decline in product or service quality, as suppliers struggle to meet demand with a reduced workforce. For example, manufacturing companies may face difficulties maintaining quality control with fewer workers on the production line, while service providers may be unable to offer the same level of customer service due to staffing shortages. Procurement teams must be vigilant in monitoring supplier performance to ensure that quality standards are upheld.
4. Increased Lead Times: With fewer workers available to produce, transport, and deliver goods, lead times are increasing across the supply chain. Procurement teams must adapt to these delays by planning further in advance and adjusting their order schedules to account for extended lead times. In some cases, procurement professionals may need to seek alternative suppliers or sourcing options to mitigate the impact of delays.
Strategic Procurement Solutions for Navigating the Labour Shortage
While the labour shortage presents significant challenges, procurement teams can adopt several strategies to minimise its impact and maintain supply chain resilience. Here are some key approaches that procurement professionals can consider:
1. Supplier Diversification: One of the most effective ways to mitigate the impact of labour shortages is to diversify the supplier base. Relying on a single supplier or region can increase the risk of supply chain disruptions, particularly if that supplier is experiencing labour shortages. By diversifying suppliers, procurement teams can spread their risk and ensure a more reliable flow of goods and services. For example, businesses may consider sourcing goods from suppliers in regions that are less affected by labour shortages or have access to a more stable workforce. Alternatively, they may work with multiple suppliers to ensure that they have backup options in case of delays or disruptions.
2. Investing in Automation and Technology: As labour shortages continue to affect key industries, many businesses are turning to automation and technology to reduce their reliance on human labour. For procurement teams, this means sourcing equipment, technology, and services that can help automate processes and improve efficiency. For example, manufacturers are increasingly investing in robotics and automated production lines to reduce their dependence on manual labour. Similarly, logistics companies are adopting technologies such as warehouse management systems and autonomous vehicles to streamline operations and reduce the impact of labour shortages. By working with suppliers that are investing in automation, procurement teams can reduce the risk of labour-related disruptions and improve supply chain efficiency.
3. Collaborating with Suppliers on Workforce Solutions: Supplier collaboration is key to overcoming the challenges posed by labour shortages. Procurement teams should work closely with their suppliers to understand their labour challenges and explore joint solutions. This may include offering support in areas such as workforce training, recruitment, and employee retention. For example, businesses could collaborate with suppliers to offer joint training programs for workers, helping to address the skills gap and improve workforce availability. Additionally, procurement teams can work with suppliers to identify opportunities for flexible working arrangements, which may attract more workers in sectors struggling with recruitment.
4. Long-Term Contracts with Key Suppliers: In times of uncertainty, long-term contracts with key suppliers can provide stability and reduce the risk of supply chain disruptions. By entering into long-term agreements, procurement teams can secure more favourable terms, such as fixed pricing and guaranteed lead times, while also providing suppliers with the financial stability they need to invest in their workforce. Long-term contracts can also incentivise suppliers to prioritise their relationship with the buyer, ensuring that they allocate sufficient resources to meet the buyer’s needs, even during times of labour shortages.
5. Building a Flexible and Resilient Supply Chain: Flexibility is crucial when navigating labour shortages. Procurement teams should focus on building a more agile and resilient supply chain that can adapt to changing conditions. This may involve developing contingency plans, increasing inventory levels, or identifying alternative sourcing options to mitigate the risk of labour-related disruptions. For example, businesses can build redundancy into their supply chains by sourcing goods from multiple regions or suppliers. This ensures that if one supplier is affected by labour shortages, the business can still access the goods and services it needs from alternative sources.
Case Study: A UK Retailer’s Response to Labour Shortages
A leading UK retailer faced significant labour shortages in its distribution centres in 2023, leading to delays in order fulfilment and rising operational costs. To address these challenges, the company’s procurement team adopted several key strategies to mitigate the impact of the labour shortage:
1. Supplier Diversification: The retailer diversified its supplier base by working with multiple distribution partners across the UK. This allowed them to spread the risk of labour shortages and ensure that they had backup options in case of delays.
2. Automation Investments: The retailer invested in warehouse automation, including robotic picking systems and automated sorting technology. These investments helped reduce the retailer’s reliance on human labour, improving efficiency and reducing order fulfilment times.
3. Supplier Collaboration: The retailer collaborated closely with its logistics partners to develop joint workforce training programs. By offering training and career development opportunities, the retailer and its partners were able to attract and retain more workers. As a result of these efforts, the retailer was able to maintain service levels, reduce costs, and improve supply chain resilience despite the ongoing labour shortage.
Conclusion
The UK’s labour shortage crisis in 2024 presents significant challenges for businesses across all sectors, with procurement teams at the forefront of managing the impact on supply chains. From rising costs to increased lead times and quality concerns, the effects of the labour shortage are far-reaching. However, by adopting strategic procurement solutions such as supplier diversification, investment in automation, supplier collaboration, and long-term contracts, businesses can mitigate the risks associated with labour shortages and build more resilient supply chains.
Procurement teams that take a proactive approach to addressing the labour shortage will be better positioned to navigate the challenges ahead, ensuring that their businesses continue to operate efficiently and effectively in an increasingly competitive and constrained labour market.
