Three in four businesses hit by supply chain disruption - report

23 November 2021

Supply chain problems have caused disruption to nearly three-quarters (72 per cent) of businesses in the West Midlands in the past 12 months, according to research carried out by risk management and insurance brokerage Gallagher.

In the past year, businesses in the region experienced serious supply chain disruption six times on average, directly leading to a loss of income and with many companies taking the extreme step of temporarily shutting down elements of their business (35 per cent).

As a result of delivery issues, West Midlands firms have reported having to ask customers to wait longer for goods to arrive (23 per cent), only being able to part-deliver some orders (18 per cent), and in some cases, taking the decision to stop stocking or selling certain items (17 per cent). Many businesses have also been left out of pocket by having to turn customer orders down (17 per cent), or absorb increased costs (17 per cent) due to a lack of supply driving up prices.

Meanwhile, over two-fifths of businesses who have ever taken legal action due to supply chain issues did so in the past 12 months.

The vast majority of business leaders in the West Midlands (80 per cent) expect supply chain issues to continue in 2022 – with 72 per cent of bosses concerned about the potential negative impact they could have on their organisation.

Businesses predict that Covid-19 legacy issues (54 per cent), the Brexit fallout (28 per cent), plus changes to regulations (19 per cent) and labour issues (18 per cent) will cause continued disruption.

To combat future issues, 81 per cent of businesses in the region intend to alter their supply chains. Despite the turmoil of the past year, this could mean a long-term benefit to some UK businesses, with 18 per cent of senior leaders saying they’ll switch to domestic suppliers in 2022 to avoid cross border issues.

Others intend to move away from 'just in time' supply chains,  meaning receiving goods only as they need them for the production process, to avoid needing to store them (18 per cent), prioritise certain customers to ensure a good level of service can be maintained (14 per cent), increase automation (10 per cent), or use insurance (11 per cent) to help offset any financial impact. Currently, 56 per cent of businesses in the West Midlands are uninsured for supply chain issues.

Guy Mills (pictured), Birmingham director at Gallagher, said: “As demonstrated by recent events, issues in supply chains can quickly lead to significant disruption for businesses involved and can impact both their bottom line and reputation.

“Businesses with complex supply chains, particularly those that span multiple countries, are particularly vulnerable to disruption. For instance, with 40% of all cars exported from the UK made in the West Midlands, the car manufacturing industry relies heavily on the supply chain to ensure timely production, with a host of suppliers involved in the process of manufacturing and delivering parts to factories before assembly can begin. However, recent supply chain issues, including the ongoing global microchip shortage, has thrown a spanner in the works for many car manufacturers – leading to the slowdown of production, including temporary shutdowns at some manufacturing plants.

“No matter where your business sits within a supply chain, failures can have serious financial and reputational costs. Organisations should speak to their insurance broker who can advise on steps they can take to help mitigate issues. Tools like contract risk management, where risk specialists will review agreements in place with suppliers, and business continuity plans which help prepare businesses for critical issues, are key to help ensure businesses can keep trading effectively.

“Trade credit insurance can be another valuable tool to consider. This type of cover provides businesses with financial protection in the event that their customers are unable to pay for the products or services they've ordered,  pay later than the payment terms dictate, or  financial losses suffered by a business due to a failure in the supply chain . There are a variety of products are available – for both large and smaller businesses – with companies having the option to take out a policy against a single invoice, client or project, or for the firm as a whole.”

 

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