Supply Chain Issues In Small Businesses

Small businesses contribute significantly to the Australian economy. They constitute the great bulk of the country’s active private businesses and contribute significantly to employment and value-added. Small businesses, on the other hand, confront several operational obstacles and, as a result, often fail at a higher rate than bigger businesses.

For the last three years, the pandemic has had a significant impact on global supply chains, which has been exacerbated by factory closures, rising freight charges, and the war in Ukraine.

1. Supply chain Issues

According to the National Australia Bank (NAB), businesses with up to 200 employees were mostly recovering from the upheaval caused by the pandemic, although acquiring appropriate stock supplies remained a difficulty for one in every four businesses.

The situation is especially grave for wholesalers, with nearly half of those polled reporting persistent issues meeting their clients’ delivery expectations or managing their outgoing expenditures.

Manufacturing (44%) is again the most-hit SME sector, followed by retail (37%), and construction (37%). (30 per cent).

Retailers reported a sevenfold increase in supply chain expenses and doubled or tripled ordering delays from overseas.

The other cash flow consequence is retailers needing to order and pay for products much sooner – often as a leap of faith, given the current market uncertainty in terms of customer attitude and expectations.

ARA members report having either insufficient stock or stock arriving at the wrong time – a particular issue in highly seasonal sectors such as footwear and apparel, which are affected by the weather, and stationery, where sales are boosted significantly by the back-to-school rush at the start of the year.

Businesses also need good liquidity to be able to purchase ahead and have higher inventory holdings because of the longer supply pipeline.

2. Invoice financing

As a result, businesses are resorting to invoice financing, a hitherto unpopular form of borrowing.

Invoice finance, also known as factoring, entails cashing in orders from your clients at a discount – typically, roughly 80% of the face value – in exchange for instant funds from a bank or other financial institution.

Invoice financing is not without risk. The Commonwealth Bank of Australia shut down its invoice finance section after lending more than $40 million to Viking Group, a trucking company tied to the Comanchero motorcycle gang.

What to do now?

NAB polled 760 SMEs about the impact of supply chain disruptions on their businesses and what Australia could do to prepare for future supply chain challenges.

Australian-based manufacturing was also commonly viewed as a means of tackling supply chain concerns. Whether by corporations creating their new manufacturing facilities, increasing their usage of Australian-based suppliers, or assisting new Australian-based manufacturing start-ups. Sourcing products locally and tying up with the existing local chain is a great way of tackling this issue.

Businesses devised “ingenious” solutions to deal with unexpected supply chain issues, with 38% switching to a model with several suppliers for a single item and 27% investing in extra storage to retain more stock and raw materials.

Around 30% of Businesses stated they had already raised their rates due to supply issues or planned to do so soon.

According to the findings, firms in Western Australia (WA), a wide but sparsely populated state, were the hardest afflicted by supply chain challenges.

Around 35% of WA businesses said they were still hampered by insufficient supply chains, while their counterparts in the eastern states, which include the nation’s main cities of Sydney and Melbourne, had about 10%.

Also Read: Why Small Businesses Are Hurting In 2023?