Third of companies hit by supply chain problems

Disruptions to the supply chain has affected the reputation of over a quarter of UK businesses as customers expressed dissatisfaction with services

More than a third (39%) of middle market business leaders have experienced disruptions with upstream supply chain, seeing an overall decline in customer satisfaction, while 28% said they have lost one or more key customers in the past year due to supply chain pressures, finds RSM’s ‘Real Economy’ report.

Simon Hart, lead international partner for RSM UK, said: ‘The closer a business is to the customer in the supply chain, the more likely it is to take some reputational hits. They are the ones who are going to be confronted about the delays or non-delivery, and that is when reputations become eroded and ultimately their business profitability declines.’

Supply chain disruptions since the pandemic have led to significantly weaker economic growth and higher inflation over the last year. Disruptions to the supply of raw materials, intermediate and consumer goods severely limited firms’ abilities to increase production and sales.

Over half (51%) of businesses experiencing supply chain issues have already changed their UK suppliers, with 40% having changed their suppliers outside the UK.

Manufacturing firms input costs rose by 22% year on year in May, in part due to the higher prices of goods as well as soaring energy and labour costs.

Middle market businesses have been fighting to overcome the current geopolitical challenges, taking steps to ensure their supply chains are more resilient.

Paul Dowell, consulting director at RSM UK, said: ‘We’re on the edge of something big, rather than at the full extent of it. As long as the Ukrainian situation and the lockdowns in China continue, businesses should be preparing for this to last for a long while. They should be thinking about transitioning their stock storing strategy where they can.’

Businesses have reduced their need to rely on suppliers, with over a quarter (28%) bringing production in house for items previously bought in, while 15% have acquired another company to bring production in house.

With fuel costs continuing to rise, more than a third (35%) have changed their transportation methods to reduce expenditure and a further 41% plan to do so in the next 12 months.

Hard added: ‘The pandemic dealt a huge blow to the well-established ‘just in time’ supply chain model, and many businesses are considering changes to their strategy to remain competitive, relevant, and operationally effective.

‘Building a more resilient supply chain is going to be essential to business survival, particularly in a high inflation recessionary business cycle and it will take active management, time and money.’

Meantime, accounting software provider Sage said that 84% of senior leaders in manufacturing and distribution are prioritising a future powered by the ‘circular economy’ and are focusing on eliminating waste, pollution and supporting environmental sustainability.

But two thirds still need to transform operations to make the transition, citing rising costs (72%), supply chain disruptions (71%) and changing customer demands (68%) as immediate challenges taking up valuable resources.

Rob Sinfield, head of business unit, Sage X3, said: ‘Sustainability is increasingly becoming a non-negotiable for modern manufacturers and distributors. While business goals remain front of mind, the industry equally recognises the importance of environmental drivers, with energy-efficiency and helping the environment as key motivations for pursuing a sustainability strategy.’

Manufacturers ranked cloud applications (74%), data analytics (68%), and automation (67%) as the most important technologies for running a business more sustainably.

Despite this, navigating a turbulent external market, with rising costs and supply chain disruptions, remains a significant barrier.

Accountancy Daily