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  • Writer's pictureCommercial Awareness

Supply Chain Challenges during the Winter season could cause SME Disruptions

By Amy Li

Supply chains are involved in the production and delivery of products and services. It includes sourcing for raw materials, movement into production and transportation to stores to be delivered to the consumer. Issues with supply chains will then have knock-on effects within a business, particularly small and medium-sized enterprises (SMEs) which represent around 90% of companies and over 50% of employment worldwide. Issues due to war, raw material shortages, climate change, stricter regulations and policy changes, etc., have all contributed to disruptions in the shipping and storage of products, thereby affecting nearly all small businesses, leading to a lack of product availability, reduced revenues and rising costs.

Impact of SMEs on the UK economy

SMEs that employ 1 to 249 employees contribute over £2 trillion in turnover and are responsible for the employment of 44% of the British workforce. In 2021, a study made by the School of Marketing illustrated that the hospitality industry is comprised of roughly 69.8% of SMEs, rendering it the industry with the highest proportion of SMEs.Within the UK, Northern Ireland was found to have the highest proportion of SMEs. Out of 123,705 businesses, 36,369 of those were SMEs, which is roughly 29.4% of all companies. Undoubtedly, this study highlighted the significance of SMEs in the UK economy, therefore disruptions in the supply chain inevitably mean a significant loss in revenue, seeing as supply chain troubles are already costing the UK economy over £12 billion loss in revenue annually. In early 2023, TMX Global predicted that more money will be on the line if no actions are taken.

Are retailers prepared for supply chain disruptions?

A Coupa survey on 300 supply chain leaders in retailers in the US and UK and over 2000 consumers found that "nine out of ten UK retailers (86%) are concerned about hitting their holiday sales forecasts this year, with 75% expecting to lose between 5 and 30% of their revenue". As these businesses prepared for the last few months of 2023, 78% of SMEs predicted shortages in food, decorations and toys. These retailers are in a race against time to meet demand whilst keeping the price down.

In a BDO poll consisting of 500 medium-sized business leaders, nearly 25% fear that supply chain issues could hinder the achievement of revenue targets this year. A further 57% were concerned about the increasing expenses which would make it difficult to afford the materials needed or access labour markets in the UK or overseas. An additional one-third of businesses worry about being able to fulfil agreed contracts. Richard Austin, a partner at BDO has said that “these are significant challenges in the run-up to winter – traditionally [being] the busiest period of the year and a “golden quarter” for some of the sectors at the heart of the UK economy.” These businesses want to see actions and policies that help them through this time but more importantly, provide aid for the growth of the business which ultimately benefits the recovery of the UK economy from the challenges of inflation and the cost of living crisis, as nearly a quarter of firms fear that customers would spend less due to inflation, especially during the Christmas trading period.

Can the Government support help SMEs?

The UK Government’s plan to introduce price caps on essential food items could reduce revenue risks for UK retailers and stop the influx of prices ahead of Christmas.

Price limits on essential foods aim to prevent unfair price increases, making the food affordable and accessible to the general public, thus protecting consumers from exploitation. 78% of consumers support putting price limits on these food items to alleviate the cost of living pressures and 72% of UK retailers are in support of this plan by voluntarily limiting their prices. However, 50% are still unsure about putting price limits on these essential items. This is because retailers are worried they will have to address the price differences and will need to minimise the impacts this plan would have on their revenue through alternative methods. Additionally, many businesses are concerned that price caps, along with supply chain disruptions, may pit businesses against one another in competition to offer the lowest prices, with 43% of retailers sharing that they are already experiencing a lack of stock on key holiday items this year.

Although introducing price caps can relieve the disruption temporarily, it is merely a short-term solution to a bigger problem and retailers are advised that they will need to find ways to face future risks and supply chain challenges in advance to ensure their revenue is not at stake, especially amidst post-Brexit challenges and economic disruptions.

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