SMEs in 2022 and the Supply Chain Crisis

The 2020s thus far has proven to be a perfect storm for business owners. The UK’s economic prospects have improved after the lockdown restrictions were gradually lifted in the spring of 2021. The reopening of the hospitality industry increased high street footfall, and millions of people returning to work after being on furlough contributed to a 5.5 per cent gain in GDP in the second quarter of 2021, a massive increase over the previous year.

Despite this good news, British business owners are experiencing the highest inflation rate in a decade, as the repercussions from Covid-19 drive up the cost of raw commodities. Significant supply chain disruptions were occurring across the country by the end of 2021, and this is projected to continue well into 2022 due to the spike in inflation.

But, aside from a general price hike of 8%, how has the supply chain crisis affected other industries, and what has it meant to business owners thus far?

Logistics & Store Shelves

The UK has seen a severe scarcity of personnel trained to drive delivery vehicles due to new EU legislation, bad working conditions, red tape, and a backlog at driving test centres. Staff shortages have impacted various businesses, but none is more visible than in the HGV driver shortfall. As a result, shops such as Tesco and Asda began using photographs of asparagus, carrots, oranges, and grapes to cover gaping holes in food.

Chaos at gas stations was the most visible result. After BP warned in September that there were not enough tanker drivers to deliver fuel to some forecourts, panic-buying led numerous forecourts to run dry for days at a time. Despite the crisis passing quickly, fundamental supply chain issues such as a scarcity of HGV drivers continue to be a continual concern.

Construction

Around 800,000 people work in the building industry in the UK, either directly or indirectly, in the planning, design, and construction of new homes. Many construction firms were concerned about the recent workforce shortage. Wage inflation has been significant as a result of the labour shortages, which smaller construction companies have had a hard time absorbing. Bricks, timber, and cement are also highlighted by 78% of housebuilders as significant challenges to obtain, with costs soaring by 20% year on year.

Manufacturing

After the outbreak, many firms miscalculated demand for their products (and the materials needed to make them), resulting in supply chain bottlenecks that are nearly difficult to track. Most large manufacturing organisations have experienced significant delays in receiving the necessary materials required for product manufacturing.

Severe scarcity of semiconductors induced by supply chain fragmentation was of particular concern to the automotive industry. Manufacturing delays are caused by a lack of HGV drivers, shipping container delays, and a general lack of material availability. Before it is supplied to the automotive manufacturing assembly plant, one company might develop a semiconductor, another might produce the component, and yet another might embed it into a component (say, a steering wheel).

Warehouses and E-commerce

A number of big online merchants, most notably Amazon, attempted to anticipate the heightened demand inactivity for the holiday season by introducing “Black Friday” seasonal-type bargains for their most popular products in the hopes of reducing demand once Christmas arrived. Like other e-commerce companies, Amazon has invested in warehousing to offset Brexit and the supply chain disruption created by the epidemic, which has resulted in increased demand. However, this has resulted in a severe shortage of warehouse space, with Cushman & Wakefield claiming less than 50 million square feet of available warehouse space in the UK, the lowest level since 2009.

According to the Independent, the recent shortage of available labour, specifically warehouse workers, exacerbates the lack of warehouse space. Companies compete to fill thousands of openings by giving 30% or more staff raises. With shipping costs rising by as much as 480 per cent in the last year, the cost of transportation for smaller e-commerce retailers is sure to have a severe impact on already slim profit margins. Because most businesses have been unable to tolerate variable operating costs, they will now be compelled to pass these on to their customers.

In addition, delivery delays are likely to frustrate e-commerce customers in a sector where brands are only as good as their reputations. Online firms may lose sales and receive negative evaluations in the near future as a result of client needs for fast gratification. Some internet firms are expected to see their business fortunes deteriorate as end-user prices rise and unsatisfied customers rise in an already highly competitive sector.

What does this make?

The demand for items has surged since the outbreak, but supply chain disruptions make it harder to keep up. Many SMEs are having trouble because they have already paid for their items but have yet to receive them. This can wreak havoc on cash flow and put business owners out of money while waiting for inventory to arrive. And it is not just one sector that is impacted, but many, including goods producers. In the wake of these supply chain constraints, many SMEs are having trouble reconciling working capital and cash flow; for example, money spent storing commodities as a hedge against supply chain problems cannot be utilised to pay bonuses to staff or dividends shareholders. Similarly, if they have already paid for a product or material but it has not yet been delivered to the business, invoices may remain in limbo, leaving customers waiting for their product and business suppliers waiting for payment on a previous invoice for materials that the SME has not yet received.

Funding11 may be able to assist you if the supply chain disruption has impacted your company. It simply takes 60 seconds to find out whether you are eligible by applying online on our website, whether it is to enhance cash flow, give a financial injection to raise working capital, or order new materials that are critical to your firm’s success.