Creating an efficient and streamlined supply chain is a priority for small and big companies. However, the consequences of supply chain problems can be more serious for small businesses, who have fewer resources to overcome these issues.
According to a recent survey, 2020 saw the highest level of supply chain disruption. According to the BCI, more than a quarter of businesses (27.8%) saw 10 or more supply chain disruptions due to COVID-19 . The cost of these disruptions is hard to calculate, but some estimates suggest global markets could forfeit as much as $5 trillion in economic losses if they do not adapt their supply chains in the wake of major global events of the past year .
Potential impact of supply chain problems
Around six out of 10 companies surveyed by the Business Continuity Institute (BCI) said that supply chain problems had a financial impact on their business. That might be through lost business, but potentially also through higher costs for transport, distribution, or materials.
"These losses are likely to be particularly acute for SMEs, because they tend to have less cash and human resources to absorb supply chain inefficiencies," says Martin Coats, managing director at MGP, an organisation that supports SME manufacturing companies.
During the pandemic, while many businesses experienced falling orders, delayed shipments, and increased costs, these were felt most acutely by SMEs. “They have been squeezed between weak demand and poor supplier performance, with the result being that 50% of manufacturers have taken on additional debt ,” says Coats.
Most common supply chain issues
While the pandemic caused major disruption to supply chains in 2020, it’s by no means the only potential supply chain issue that business owners need to monitor. Here are some of the most common supply chain issues for SMEs to be aware of:
In the last year, 40% of UK businesses reported that their operating and/or production costs had increased . This is partly related to transport and distribution costs, which have increased exponentially during the past year. At other times, shortages in raw materials might drive up prices, for example, if crop yields change from year to year or suppliers go out of business.
Adverse weather events
During 2020, around 42% of businesses reported that the weather had disrupted their supply chain . Flooding in a key supplier site, a reduction in crop yields due to drought, or a distribution route that becomes inaccessible due to storms can all disrupt supply chains and lead to problems for your business.
The number of online scams and cyber-attacks increased enormously in the last two years, as more people stayed home and worked online. Away from our offices and IT security systems, many people were more vulnerable to scams, viruses, and other attacks. The BCI reported that around one-third of companies experienced disruptions to their supply chain because of cyber-attacks.
Legislation changes and Brexit
Changing rules and regulations are always a potential risk for supply chains and Brexit is no exception, with many food manufacturers experiencing shipping delays due to new food health checks and customs regulations and requirements. Meanwhile, many SME owners have found themselves subject to post-Brexit currency volatility when making international payments.
For example, British companies buying products from Asia to sell into the EU face extra tariffs – UK clothing brand Rivet & Hide recently reported that selling a single pair of jeans into the EU would cost the company £88 in duties and tariffs .
How to build supply chain resilience
While the impact of global issues can be unavoidable, businesses have a responsibility to build supply chain resilience into their supply chain strategy. This means taking proactive steps to identify potential risks to your supply chain and then mitigate those risks, says Brooke Cooper, a specialist in third-party risk management at Fuzion Risk Management. Here are some steps small business owners can take.
Step 1: Map your supply chain
There are software tools available to help you identify all the suppliers and subcontractors involved in getting your product from the raw materials to your customers’ doorstep. For some SMEs, it may be something you can produce manually.
By mapping your supply chain your goal is to understand the journey and identify where supply chain issues like the ones outlined in this article might derail your product. What happens if a supplier goes out of business? What happens if a key factory is flooded, or a raw material can’t be sourced from the usual provider? Are there any places where your supply chain could be more efficient?
Step 2: Where can you minimise risks?
For each obstacle or risk that you identify in your supply chain, think about how this would impact you, your business and your customers. Which risks are the most serious and should be addressed first? Which areas do you have control over, and which are outside your control but can be mitigated by contingency planning?
Step 3: Make supply chain resilience part of your strategy
This information must be shared with your own supply management team, but also with your company’s suppliers, to ensure that critical points in the supply chain are protected. It is advisable to make supplier resilience a central part of any contract with a supplier – and it is expected to ask suppliers about the agreements they have with providers further down the supply chain.
According to BCI, 75% of businesses now expect to check business continuity and supply chain resilience as part of their negotiations with any new supplier.
A fresh take on supply chain resilience
For pet shop owner Deborah Burrows, the first sign of trouble was a shortage of dog life vests. In late spring 2020, the UK was heading into warmer weather and as people took up paddleboarding in their thousands, people wanted to buy life jackets – for their dogs.
After searching for several weeks, it became clear to Burrows that the factories in China that manufactured most of the world’s life vests had shut down. And that was just the beginning. With restaurants closed, suppliers stopped breeding ducks, leading to a shortage of duck meat for pet food.
The Healthy Pet Store is one of the UK’s largest providers of fresh and frozen dog food, and a shortage of meat was a real problem, says Burrows. “As a small business, we don’t have the cash reserves to be able to buy in bulk, because we can’t afford to have so much cash tied up in stock. We were at the whim of our supply chain.”
Her business weathered the past year by making use of frozen stock stored in its large warehouse and the company was able to sell directly to consumers because it was considered an essential service to the community. “We were lucky to have a lot of space, so we could buy frozen food in pallets,” says Burrows.
One lesson the business has learned during the pandemic is the importance of close relationships with its 55 suppliers. “We’ve just created an in-house purchasing team to look after all our suppliers, and can hold their hands, if necessary, as they grow,” says Burrows. “It’s very much about knowing we can only succeed if they succeed.”
The key to a successful supply chain strategy is visibility. The more of your supply chain you can ‘map’, then the easier it becomes to understand and mitigate the risk of challenges. This type of supply chain optimisation will make your SME more resilient, and enable you to meet customer expectations even when the unexpected happens.