What are the current challenges and trends that UK SMEs are facing?

Supply chain accessibility

The supply chain is the lifeblood of businesses, connecting them to the resources, goods, and markets they need to thrive. In an ever-changing global economy, disruptions can ripple through industries, altering the way businesses operate and compete. Using insights from the Business Insights and Conditions Survey (BICs) data—waves 118 and 119— our first article in our supply chain series delves into the supply chain challenges faced by UK businesses in September 2024.

While the data paints an encouraging picture of resilience for many, with over half of businesses reporting no disruptions, a deeper look reveals a nuanced story. Accessibility to global supply chains remains more challenging than domestic ones, and sectors like wholesale and retail continue to feel the strain, albeit at reduced levels compared to previous years.

How accessible are the global and domestic supply chains?

Global and domestic supply chain accessibility for UK businesses (1-30 Sept 2024)

A positive picture for some

Over half of businesses who have not stopped permanently trading experienced no disruptions in both domestic and global supply chains during the period 1-30 September 2024. It is also clear that accessibility to the global supply chain is seemingly worse than the domestic one. While this in part is due to more businesses not accessing the global supply chain, there are a proportion of businesses who are unsure on whether they experienced any disruption.

What are the key challenges impacting accessibility?

There are several factors that can contribute to businesses not wanting to access the global supply chain. For example:

Skilled workforce shortage:

This is a critical issue for supply chains due to how labour-intensive they are. According to the latest figures from the ONS on job vacancies, in August-October of this year, there were 33,000 vacancies in the Travel & Transport sector. This is still 11% below pre-pandemic levels in January-March of 2022. Due to the now more common expectation of a higher work-life balance, particularly among the younger workforce, and the perception that the supply chain is not lucrative, companies are lacking the required skilled workers in the critical areas of supply chain management, logistics, and operations.

Changing consumer behaviour:

The pandemic saw the accelerated rise of next-day delivery services, due to offline stores having to close because of lockdowns. This led to the majority of present-day customers expecting fast delivery of their orders. In order to retain customer loyalty and satisfaction, businesses often feel obligated to manage the rising cost of delivery without passing it on. In addition, there is a rising demand for more sustainable packaging and for businesses to be more conscious of their environmental impact. This is compounded by consumer behaviour being unpredictable, with rapidly changing consumer preferences, making it even more challenging to map demand forecasts.

Transparency and traceability:

A common trend, that we have seen for many years, is regulators and consumers wanting full transparency when it comes to the origin of products, ensuring that they have been ethically sourced and that their environmental impact is traceable. In order to meet these requirements, businesses are forced to invest in technological solutions that allow for end-to-end visibility and real-time traceability within the supply chain.

Threats to cybersecurity:

2023 saw the increased digitisation of supply chains. The knock-on effect from this was that supply chains became more vulnerable to cyber threats, including data breaches and ransomware attacks, particularly in places where the supply chain operations were not yet prepared to handle the new technology. Cyber-attacks can cause significant losses, operational delays, delays in production and distribution, and can compromise sensitive information.

Political conflicts:

Delays, an increase in costs, and reduced access to resources can majorly disrupt supply chains. An example of this can be seen with the Russia-Ukraine conflict, as air freight transportation across Europe and Asia has been limited due to planes not being able to pass through Russia. It has also resulted in an increase in energy and fuel prices, due to Russia, one of the leading suppliers of gas and petroleum, being sanctioned by several other countries.

Climate change:

Climate change poses new, potentially unpredictable challenges to supply chains, due to extreme weather events such as rising sea levels and natural disasters, causing disruptions to transportation routes, damaging infrastructure, and impacting production facilities. This can all lead to delays and interruptions in the flow of goods.

What sector specific trends are we seeing?

Global supply chain disruptions faced by UK businesses by industry

A significant portion of businesses in these sectors are not experiencing global supply chain disruptions. This may be the result of a greater reliance on global supply chains in some subsectors or divergence in supply models, some larger businesses may have their own distribution networks and overseas factories that are not as readily impacted by external factors.

Compared to the other industries, wholesale and retail faced the greatest disruptions. However, the proportion of businesses experiencing these issues is much lower compared to 2022, an almost 58% decrease. This trend can be seen across the board, as the proportion of businesses experiencing global supply chain disruption in each industry has decreased (significantly, in some cases) from 2022

What is the reasons behind this?

It could be that the majority of industries have seen their proportion of businesses who did not access the global supply chain increase. There is a possibility that more businesses are finding ways to decrease their reliance on global supply chains in order to minimise disruptions, which can be caused by the reasons outlined previously, that can lead to delays and unexpected costs.

Closing thoughts

The current state of the supply chains offers both reassurance, and areas for concern. While many businesses are navigating domestic and global networks without major disruptions, challenges like skilled workforce shortages, changing consumer expectations, and global political issues persist.

These pressures highlight the need for businesses to adapt and continuously innovate, whether through reducing reliance on global supply chains or investing in technology to enhance efficiency.

By understanding these challenges and planning accordingly, businesses can better position themselves to remain resilient in a shifting landscape.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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