The Real Economy: Supply chain disruption threatens business reputations, says RSM UK

A quarter of businesses experiencing upstream supply chain issues say their business reputation is deteriorating as a result. According to RSM UK’s ‘the Real Economy’ report, more than a third (38%) of businesses experiencing supply chain problems said they had seen an overall decline in customer satisfaction, while over a quarter (28%) said they have lost one or more key customers within the past year due to unanticipated supply chain pressures. Businesses with ‘just in time’ supply chain models, and those where products have a limited shelf life or must be kept fresh, such as food retailers, are particularly feeling the strain.

Simon Hart, lead international partner for RSM UK, said: ‘The closer a business is to the customer on the supply chain, the more likely it is to take some reputational hits. They are the ones that are going to be confronted about the delays or non-delivery, and that is when reputations become eroded and ultimately their business profitability declines.’

To cope with the pressure, over half (51%) of businesses that said they were experiencing supply issues have already changed their UK suppliers, and 40% have changed their suppliers outside the UK. Over a third (38%) have resorted to purchasing some supplies from competitors at a premium rate. A further third (33%) have exited one or more product lines and over a fifth (22%) have exited lines of business entirely.

Businesses also reported workforce morale declining due to increased pressures and customer frustrations. Over a quarter (28%) of businesses suffering supply chain disruption saw a decline in employee satisfaction, and over a quarter (27%) said supply chain issues have had a negative impact on business culture.

Middle market businesses have been fighting back to overcome the current challenges, taking steps to ensure their supply chains are more resilient. Almost half (42%) have mapped their supply chain to identify where the risks lie, while a further 36% are considering doing this within the next year. In a bid to become less reliant on one supplier, 42% have increased the number of suppliers they relied on, and 39% have stockpiled goods to reduce the risk of shortages.

Businesses that had experienced supply chain issues have reduced their need to rely on suppliers, with over a quarter (28%) bringing production in house for items previously bought in, while 15% have gone as far as acquiring another company to bring production in-house. As fuel costs continue to soar, more than a third (36%) have changed their transportation methods in a bid to reduce expenditure and a further 41% plan to do so in the coming 12 months.

Simon Hart concludes: ‘The pandemic dealt a huge blow to the well-established ‘just in time’ supply chain model, and many businesses are considering changes to their strategy to remain competitive, relevant and operationally effective. There is a lot in common supply chain practice that now needs to be unpicked. For well over 20 years standard practice has been to cut back on the number of suppliers and instead form multiple-use relationships. Single source practice will now become a thing of the past, as we move towards multiple sourcing and managing capacity in every level of the supply chain. Building a more resilient supply chain is going to be essential to business survival, particularly in a high inflation recessionary business cycle and it will take active management, time and money.’