Supply chain inflation affecting four out of five UK SMEs

Four out of five (79%) SMEs have faced increased prices from suppliers over the past 6 months as issues continue to plague the global logistics network.

Business challenges such as staff shortages, the slowdown of goods deliveries caused by the coronavirus pandemic, and a shortage of HGV truck drivers, have driven up the cost of raw materials.

Fintech business lender MarketFinance asked 1,000 SME owners across the UK about managing rising supplier prices, what measures they have put in place to combat the problem, and their long term outlook on the increasing costs of doing business.

Their findings showed that supply chain issues and increasing costs have impacted SMEs countrywide. Across the UK, a quarter of SMEs surveyed reported supplier prices have almost doubled over the past six months.

Increased cost of raw materials was the top ranked rationale for the surge in costs.

According to the results, the problem is being most keenly felt by businesses in the North West (85%).

How have SMEs been impacted by the crisis?

While the timing of the supply chain disruption leaves much to be desired – with most small businesses still recovering from the various lockdowns and safety restrictions implemented by the UK’s COVID-19 response – the majority of SMEs seem to be handling the issue with resilience.

Almost one third of SMEs (32%) have been able to absorb the increased costs without passing them on to customers, suggesting that these businesses have the necessary cash reserves to handle the impact.

Only a fifth (21%) are passing a portion of the increased fees onto customers.

Businesses in the South West, as well as Northern Ireland, are the least likely to absorb the new charges. This could also be indicative of both regions’ higher reliance on the fishing industry, which has been affected by a post-Brexit row between France and the UK.

According to the research, North West and Yorkshire-based small businesses are the most likely to be able to absorb higher supplier rates. Their customers are proving to be equally understanding of the wider supply chain situation with only 20% challenging distributors about the new payment terms.

What is the outlook for UK small businesses?

MarketFinance’s research shows that the majority of SMEs are grateful to be in business and generating revenue despite the increased costs.

Looking ahead to the festive season, SMEs feel they will be able to manage the situation but some could increase prices if the pressure gets too much. Two fifths reported they could increase their prices by as much as 10% in the run up to Christmas.

Longer term, 73% of SMEs are already preparing for the current higher prices to be the norm until at least the end of 2022.

To manage the added pressure on their cash flow until then, a substantial number of the respondents had turned to borrowing. More than a third of SMEs (34%) have taken out loans or are using other finance facilities to manage the increased cost of doing business.