The latest data from the Contract Manufacturing Index (CMI) has raised concerns, showing a significant decline in the number of companies seeking subcontract manufacturing business. The CMI, which has been tracking this sector since 2015, reported that the market for contract and subcontract manufacturing services experienced a 51% decrease in the third quarter of 2023 compared to the previous quarter.
One key factor contributing to this decline is the delay in new project orders, with companies continuously postponing their commitments due to ongoing market uncertainty. The situation slightly improved in September after two challenging months in July and August. The value and percentage of awarded contracts rose during this time, but the market was still 63% lower than in the same period in 2022.
The CMI is compiled by sourcing specialist Qimtek and represents the total purchasing budget for outsourced manufacturing among companies looking to place business each month. The data is based on a sample of over 4,000 companies with a combined purchasing budget exceeding £3.4 billion, along with a supplier base of over 7,000 companies that have a verified turnover exceeding £25 billion.
The baseline for the CMI is set at 100, representing the average size of the subcontract manufacturing market from 2014 to 2018. The CMI for the third quarter of 2023 was 38, compared to 77 in the previous quarter and 102 for the same period in 2022.
When examining the breakdown of work by processes, there were minimal changes in the percentage distribution, but the overall volume of work decreased significantly. Machining accounted for 50% of new business, slightly up from the previous quarter’s 49%, while fabrication increased from 40% to 42%. Other processes, including molding and electronic assembly, saw their share of the market drop from 10% to 7%.
In terms of sectors, the Industrial Machinery industry remained the largest, with only an 8% decline. Communication Equipment was the second largest, more than doubling from the previous quarter, albeit from a relatively low base. The Defense sector, which was not a significant player in the previous quarter, ranked as the third largest market. The Construction and Marine sectors experienced the most significant declines.
Karl Wigart, owner of Qimtek, commented on the figures, expressing disappointment over the results. He noted that business had been slow during July and August but showed some signs of improvement in September. However, companies have been continually postponing projects, leading to fewer projects this quarter compared to the same period last year. While cautious optimism is warranted, Wigart hopes that anticipated projects will start coming through in the remainder of the year, highlighting that the value and percentage of awarded projects have increased, which is a positive sign.