Supply chain challenges and how to solve them

Starting your own business can involve building a supply chain – how you get materials, products, and inventory from suppliers and manufacturers to your company and then on to customers.

Disruption to global logistics is having a significant impact on UK businesses.

According to data from the Office for National Statistics opens in new window (ONS), 21% of UK businesses faced problems with suppliers in May 2022, with 19% of firms reporting that they were unable to get the materials, goods or services they needed from within the UK, or had to change suppliers or find alternative solutions to do so.

Many businesses rely on effective, timely processes to ensure they can source goods and materials and provide products to customers.

The whole supply chain can be impacted if the different stages of the chain start to falter or are interrupted.

This can lead to problems obtaining materials to make products, leaving manufacturing lines underutilised, or additional costs in sourcing and shipping, which can dent your bottom line and reduce profits.

 

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Supply chain challenges

As a new business owner, it’s important to recognise the challenges you may face with suppliers.

No matter the size or industry of the business, many across the country are facing similar difficulties.

Here are just a few of the causes behind supplier issues that small businesses face, along with guidance on reducing their impact.

 

Covid-19 and Brexit

The Covid-19 pandemic has affected logistics for many businesses.

According to the ONS opens in new window, 30% of manufacturing, wholesale, and retail enterprises reported global supply chain disruption that may be attributed to the pandemic and Brexit.

 

Staffing shortages

Businesses have struggled to recruit employees, leading to gaps in staffing, affecting industries such as agriculture, food manufacturing, and haulage.

According to the Institute for Government opens in new window, there were around half a million staff shortages across the entire UK food logistics network in September 2021.

 

Shortage of HGV drivers

A shortage of HGV drivers may have contributed to logistical problems.

While 10% opens in new window of the UK’s HGV workforce made up of EU nationals pre-Brexit, this figure fell by 37% opens in new window between March 2020 and March 2021.

The number of UK citizens working as large goods drivers fell by 7% opens in new window.

Around 40,000 HGV opens in new windowtests were cancelled in the UK because of the Covid pandemic, but since restrictions have lifted, the backlog of tests seems to be clearing opens in new window
.

 

Rising energy prices

Businesses and their suppliers are being hit with rising energy and fuel prices.

Around one in four opens in new window UK businesses reported that at the end of 2021, their production or suppliers had been affected by gas prices.

Companies such as the APS group, which supplies tomatoes in the UK, have considered reducing their production opens in new window to cope with the increase in energy costs, for example.

 

Component costs

Electronic components have been scarce due to the closure of key factories and ports due to Covid-19 lockdowns, impacting the availability of microchips, semiconductors, and printed circuit boards.

 

Shipping costs

The average shipping container price in September 2021 was four times higher than 12 months earlier.

This is due to shipping companies reducing capacity by around 11% opens in new window during the Covid-19 pandemic and being unable to meet a surge in demand as business and industry emerge from lockdown.

 

Steps you can take to reduce supply chain issues

Many start-ups lack cash reserves to pay for increased costs and the financial clout to ensure priority access to shipping and suppliers.

This can mean long waits for inventory or materials, unexpected delays, and a knock-on effect on the ability of your business to meet customer demand.

This can increase costs, reduce income, and increase cash flow issues.

Below are some steps to help mitigate logistics problems for your business.

 

Keep track of stock and inventory

Knowing the quantities of what you have as on-hand inventory can help avoid restocking emergencies.

Tracking your inventory means you can plan and replenish products before they run out.

Leaving supplies to dwindle may lead to customers waiting longer for delivery from you, and you risk running out as the supplier runs out.

 

Bulk buy

Where possible, bulk buy from suppliers.

This can reduce costs due to volume discounts, and some suppliers will prioritise bulk orders.

Check any expiry dates for some supplies to ensure that you can use them before their shelf life expires.

 

Increase storage space

Logistics issues have impacted just-in-time and on-demand supplies, so consider investing in more warehouse space or other storage for bulk-buying to keep supplies secure.

Consider flexible, short-term leases to increase warehouse capacity until supply chains improve.

 

Use multiple suppliers

Try not to be dependent on one supplier.

A broad range of suppliers can give you more security and support during supply chain interruptions and offer more options in terms of pricing.

 

Use haulage comparison sites

Haulage and logistics services are available via comparison sites such as Shiply opens in new window and uShip opens in new window.

You can enter your shipping requirements, and hauliers will bid for your business.

This can result in lower pricing and help you arrange haulage when you need it.

 

Alternative materials and goods

Research alternatives for materials or goods you use.

That way, you’re covered if your usual supplier doesn’t deliver.

It’s also worth having suppliers based in different locations, so you can still receive some stock if issues arise due to supplier location.

If your suppliers can’t meet your needs, consider offering customers a similar product from other suppliers.

This can be particularly helpful in the food industry, as you can provide alternative ingredients or dishes based on supplies in stock.

 

Improve returns process

Improving the efficiency of your returns process can help tackle logistics issues.

Effectively dealing with returns may mean you don’t have to worry about immediate extra stock, as you can reuse and resell returns that aren’t faulty.

If you have a thorough returns management process, you’re less likely to have unhappy customers waiting for refunds and exchanges.

You can salvage faulty returns by repairing or recycling them.

 

Communicate with customers

Communicate with customers about any delays, stock issues or errors.

Customers may appreciate your openness given the circumstances and understand that some things are beyond your control.

Keep customers updated on progress, offer alternatives, and be prepared if a customer decides to cancel an order.

 

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Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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