SUPPLY CHAIN

ONE IN 10 UK SMEs WOULD NOT SURVIVE DISRUPTION TO THEIR SUPPLY CHAIN

• Almost half of UK SMEs (49%) do not have contingency plans in place should their biggest supplier fail
• Over half of UK SMEs (51%) rely on the EU in their supply chain

SMEs are the backbone of the UK economy but are often one of the first to feel the impact of changes to the economic climate or supply chain disruptions. Research carried out by Aldermore, the specialist bank, on how prepared SMEs are when disruptions occur shows the delicate situation they find themselves in¹.

One in 10 SMEs believe they would not survive disruption to their supply chain and nearly half (49%) of SMEs do not have contingency plans in place should their biggest supplier fail.

SME supply chains are often complex, even one small change at a single supplier can have a knock on effect. Over 59% of SMEs don’t fully understand all the components in their supply chain and over a third (38%) have undertaken audits to better understand them. Just two fifths (41%) of SME decision makers say they know all of the business customers and suppliers in their supply chain, while nearly one in 10 (9%) SMEs say they have no knowledge of any of their business customers whatsoever.

Tim Boag, Group Managing Director, Business Finance at Aldermore, said: “Our research shows a lack of awareness amongst UK SMEs about their supply chains as well as a lack of preparation to mitigate any disruptions. When you consider how vital SMEs are to the national economy, and the impact this could have across every sector, as an industry we need to do more to ensure SMEs are aware of the importance of their supply chain.

“As a responsible lender to SMEs, we strongly advise they make business continuity plans in case situations arise that could quickly and significantly impact their business.”

The research also highlights that 51% of UK SMEs rely on the EU, whether it’s exporting, importing, or transporting goods and services. However, the research shows that many have not necessarily taken the steps to prepare for the eventualities of Brexit; less than a third (31%) have consulted the Government’s guidance for small businesses post-Brexit and just over a quarter (27%) have secured a GB EORI number². SMEs that import goods are more likely to have consulted advice from Government guides (42%) but have also not taken key steps such as setting up a duty deferment account (75%)³.

Scenarios that SME business leaders consider likely to have negative impacts on their supply chain in the future are:

• Rising fuel prices (29%)
• VAT changes (27%)
• Late payments from their customers (22%)

Tim Boag, Group Managing Director, Business Finance at Aldermore, added: “Businesses should undertake more contingency planning; especially those who may have close ties to Europe. However, preparation is being made more difficult for SMEs because of the ever-changing political and economic landscape.

“Aldermore continues to work closely with businesses to help them prepare as best they can for changes in economic circumstances and possible supply chain disruptions. As one of the first to sign the British Business Council’s SME Finance Charter, we have pledged to proactively support SMEs through whatever Brexit scenario plays out.”

Aldermore’s top tips for business to manage their supply chains:

1. Create a supply chain map: although your supply chain might seem simple, most networks can be complex, so it’s important to understand the full picture to help you manage risk. It can be a challenge finding out everyone in the network given that there can be various countries and environments involved. Ultimately, ask your suppliers to assist you with the exercise.
2. Consider potential changes: by creating a supply chain map, you will have a better understanding of how things currently are, but also how they might change or become different in the future. Spend time identifying stakeholders to negotiate with, in case you need to amend certain processes.
3. Build a relationship: building a relationship with your supply chain, both customers and suppliers, can be hugely valuable. Regular contact can help you understand what’s working and what isn’t, making it easier for you to identify and address.
4. Clear and consistent communication: given the large number of individuals often involved in a supply chain, it’s important to ensure communication with suppliers is clear and regular. Passing on relevant information at all stages can help nurture relationships and can also prove useful if anything goes wrong.