Are EU supply chains strong enough to support SME confidence?

SMEs still confident in growth despite Brexit but supply chains are not strong enough to support them through the next few years.

A third (31 per cent) of small businesses witnessed a disruption in their supply chain in the previous twelve months. Somewhat paradoxically, against this backdrop of fragile supply chains and Brexit uncertainty, two-thirds of businesses expect turnover to increase over the next twelve months. Construction, engineering and manufacturing sectors have the weakest supply chains, reports YouGov’s Supply Chain Funding index.

There is a lot of business data that tells us about the health of small businesses – we hear from banks about small business debt; we can find data on productivity; and the Federation of Small Business reports on small-business confidence.

However, there was never any data around the efficiency of supply chains until YouGov published its Supply Chain Funding index (SCFi), sponsored by funding specialist URICA. The index measures the health of supply chain funding and resilience on a scale of zero – ten.

Will the UK recover?

YouGov published the first edition of the SCFi in October with commentary from eminent economist Dr John Ashcroft. The October report described a weak and underperforming supply chain rated at 6.6. What did that tell us? It told us that 34 per cent of businesses taking part in the survey had experienced a broken supply chain in the previous twelve months.

A third of businesses also forecast that the picture would get bleaker during the following six months. Strikingly, this is Business rating itself; it’s not the view of a panel of experts. This is Business saying: ‘We’re working hard to grow; we’re confident we can grow; but the whole house of cards could collapse at any moment.’

YouGov has just published the second edition of the SCFi and those businesses that forecast things would get worse got it spot on. The overall index worsened by 6 per cent from 6.6 to 6.2 but, perhaps more tellingly, small businesses (those that turnover between £250,000 and £9.9 million) fell back by 7.6 per cent from 6.6 to 6.1.

So what has happened to small businesses to bring the index tumbling? What’s happened is 31 per cent of small businesses witnessed a broken supply chain in the previous twelve months. What’s more, two-thirds of those suffered disruption to their businesses – when supply chains break, business plans break too.

The remaining third got away with it. This time.

Things can only get better?

But businesses can’t get away with it indefinitely, which is why the outlook isn’t great – almost a third of respondents expect things to get worse over the coming six months; that spells trouble.

Somewhat paradoxically, against this backdrop of fragile supply chains, two-thirds of businesses expect turnover to increase over the next twelve months. Almost a third expect turnover to increase by more than 10 per cent.

But these businesses are walking a tightrope from which they may well fall if, as forecast, supply chains become even flimsier.

Dr John Ashcroft, chief economist, has concerns, saying, ‘If the index slumps further towards 5.5 I fear for the welfare of many SMEs in the UK and their capacity to capitalise on growth opportunities.

‘So what entrepreneurs are really saying is: “We’re bullish about growth but we’re worried about our suppliers’ capacity to deliver.’

Ironically, these same businesses that worry about their suppliers are suppliers themselves; what’s happening to small businesses right now will filter upwards to larger businesses in the future.

Lindsay Whitelaw, chair and founder of URICA, says, ‘What the index tells us is extremely worrying for businesses that are forecasting growth while, at the same time, admitting their supply chains are shaky. Many of these businesses will see their plans wrecked by failing supply chains. I genuinely believe if we can move the index up by just ten per cent we will see a three per cent improvement in growth and productivity.’

SME business owners are naturally optimistic, it’s what makes them successful. However, if nothing else, the SCFi tells us we need to get liquidity into supply chains to stimulate growth and productivity. Cash in the supply chain creates confidence and when businesses have confidence they invest for growth. Then again, the index also tells us we’re some way off and, ominously, heading in the wrong direction.

Further reading on EU supply chains

Nominations are now open for the British Small Business Awards, the leading event celebrating the brightest stars in the SME sector. Click here to enter, and make sure you get involved today using the hashtag #BSBAwards. Good luck!

Owen Gough, SmallBusiness UK

Owen Gough

Owen was a reporter for Bonhill Group plc writing across the Smallbusiness.co.uk and Growthbusiness.co.uk titles before moving on to be a Digital Technology reporter for the Express.co.uk.

Related Topics

Supply chain