The 2020’s thus far has proven to be a perfect storm for business owners.
Since the phased lifting of lockdown restrictions in the spring of 2021, the UK’s economic outlook has undoubtedly improved. The reopening of the hospitality industry increased high street footfall and millions returning to work from furlough contributed to GDP increasing by 5.5 per cent in the second quarter of 2021, a significant turnaround on the previous year.
However, despite this positive news, business owners in the United Kingdom are facing the highest rate of inflation for a decade, as Covid-19’s fallout drives up the cost of raw materials. Towards the end of 2021, significant supply chain disruptions were happening across the country and the rise in inflation is likely to see this continue well into 2022.
But other than a general 8% increase in price tags, how has the supply chain crisis affected the various sectors of industry so far, and what has it meant to business owners?
Logistics & Store Shelves
Staff shortages affected a wide range of industries, but nowhere are they more apparent than in the shortage of HGV drivers. Due to new rules for EU hauliers, poor working conditions, red tape and a backlog at driving test centers, the UK has faced an acute shortage of people qualified to drive delivery lorries. Consequently, several supermarkets, including Tesco and Asda, started hiding gaping holes in produce by placing pictures of asparagus, carrots, oranges and grapes.
The most noticeable outcome was chaos at petrol pumps. It was a self-fulfilling prophecy when panic-buying caused many forecourts to run dry for days at a time after BP warned there were not enough tanker drivers to deliver fuel to some forecourts in September. Although the crisis soon subsided, underlying supply chain problems remain a constant threat as the shortage of HGV drivers is still a constant.
The construction sector in the UK employs around 800,000 individuals either directly or indirectly in the planning, design, and construction of new homes.
The recent absence of workers was a concern for many construction firms. As a result of the labour shortages, wage inflation has been considerable, which smaller construction companies have been less able to absorb. Seventy-eight percent of housebuilders have also cited bricks, timber, and cement as huge problems to acquire, with prices rising astronomically, up from 20% from this time last year.
“In March we were paying £9 a sheet for 9mm oriented strand board, and up until recently we were paying £32 a sheet. Every single product has gone up,”
Revealed one firm that participated in the survey.
A main contributor to the acute problems in the manufacturing sector is that many businesses had underestimated demand for their products (and the materials necessary to create the products) after the start of the pandemic, creating bottlenecks in the supply chain that are almost impossible to trace. Key materials needed for the manufacturing of products have caused huge delays to most large manufacturing companies.
Of particular concern to the automotive industry was a major shortage of semiconductors caused by fragmentation in the supply chain. One company may design a semiconductor, another may manufacture the component, and yet another will embed it into a component (a steering wheel for example) before it is delivered to the automotive manufacturing assembly plant – The lack of HGV drivers, shipping container delays and general lack of material availability all contributing to the delays in manufacturers being able to produce products.
Ecommerce & Warehouses
A substantial number of major online retailers, most notably Amazon, tried to foresee the increased demand in activity for the festive season and introduced “Black Friday” seasonal-type deals for their most popular products – attempting to quell the increased demand once Christmas rolled around.
Like other Ecommerce companies, Amazon, have taken on warehousing to combat Brexit and the pandemic-induced disruption to the supply chain that has caused demand to boom. However, this has itself caused a major shortage of warehouse space, with property agent Cushman & Wakefield, reporting that there is fewer than 50 million sq. ft. available warehouse space in the UK, the lowest level since 2009.
The lack of warehouse space is being exacerbated by the recent shortage of available labour, in this instance warehouse workers, with firms competing to fill thousands of vacancies by offering staff pay rises of 30% or more, according to the Independent.
The rise in shipping costs for the smaller eCommerce retailer is bound to negatively impact already tight profit margins, with the cost of shipping increasing by as much as 480% in the last year. Most companies will now be forced to pass on fluctuating operational costs to their customers as they have been unable to absorb them in the past.
Further, delays in delivery are likely to disappoint eCommerce consumers in an industry where brands are only as good as their reputations. In response to customer demands for instant gratification, online businesses may experience lost sales and negative reviews in the immediate future due to no fault of their own.
As end-user prices increase and disappointed customers increase in an already highly competitive market, some online brands are likely to see their business fortunes decline
What does this mean?
As outlined throughout this article, since the pandemic, the demand for products has increased, but supply chain disruptions are making it difficult to keep up. Many SMEs are struggling because they have paid for their products up-front but are yet to receive them. This can cause cash flow problems and leave business owners out of pocket whilst they wait for their inventory to arrive.
And it’s not only one sector which is affected, but many, including the manufacturers, who create the products.
Many SMEs are facing difficulties balancing working capital and cashflow in the wake of all these supply chain bottlenecks; for example, the money that a manufacturing business would outlay to warehouse their materials as a hedge against supply chain problems cannot be used to pay employees bonuses or pay dividends to shareholders. Similarly, if they have already paid for the product or material, but it has yet to be delivered to the business, this can cause invoices to remain in limbo – leaving customers of the business waiting for their product and the business supplier waiting for the previous invoice to be paid for materials that the SME has yet to receive.
If your business has been affected by the supply chain disruption, then Capify may be able to help. Whether it is to improve cash flow, provide a cash injection to boost working capital or order new materials that are pivotal to the successful operation of your business, it only takes 60 seconds to discover if you are eligible by applying here.
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