Supply chain issues eased in Q3 and are expected to be less problematic in the next 12 months according to NAB.
According to the latest SME Business Insights: Supply Chain Update Q3 2022 from NAB. The impacts on business and supporting local manufacturing to address them supply chain issues eased in Q3 and are expected to be less problematic in the next 12 months.
But 1 in 4 SMEs still report supply chains as a “significant” issue for their business. New research shows 1 in 2 SMEs are “very” or “extremely” likely to increase their use of Australian based suppliers and over 4 in 10 would support new local start-ups. The pandemic has highlighted the fragility of global supply chains. Heightened goods demand, factory closures, rising freight rates, a reliance on 'just-in-time' inventory systems and the Russia/Ukraine conflict, have coalesced to create significant challenges for supply chains across the globe. Australian businesses have not been immune. As Australia’s largest business bank NAB is in a unique position to understand the impact of the supply chain on SMEs across the country.
In this survey around 760 SMEs were again asked about the impact on their business of supply chain disruptions and what they believed Australia should do to deal with future supply chain issues. In total, around 1 in 4 (26%) of all SMEs said supply chains were a “significant” issue for their business in the past 3 months (i.e. scored the issue 8 pts or higher), however this is down on just over 3 in 10 (31%) firms in Q2. With global indicators of supply side pressures easing, a fewer number of SMEs (24%) also believe supply chain will remain a significant issue in the next 12 months, down from 31% in Q2. The easing in global supply chain disruptions and rebuilding of inventories, raises the prospect of a fall in inflation. Freight rates have substantially unwound, supplier delivery times and order backlogs are normalising and some retailers, faced with excessive stock, are now moving to discount prices.
Whether this will see a rapid decline in inflation or only partially offset now broad-based inflation is an open question. By industry, supply chains remain a “significant” issue for over 4 in 10 firms in Wholesale (44%) in Q3, and for around 1 in 3 in Retail (34%), Construction (33%) and Manufacturing (33%) where it fell heavily from 48% in Q2. The number of firms who reported “significant” issues was lowest in Finance & Insurance (5%), Property Services (6%) and Health (7%). Fewer SMEs in all sectors experienced “significant” supply chain issues in Q3, bar Business Services where the number that did so climbed to 9% (2% in Q2). Almost 4 in 10 (38%) Wholesale firms believe supply chain will still be a “significant” issue for their business in the next 12 months, compared to just 5% in the Finance & Insurance sector. Encouragingly fewer firms in all sectors expect to experience “significant” supply chain issues in the next 12 months, except in Business Services - see full report. Many countries are increasing domestic sourcing to combat supply chain issues.
This is helping to jump start investment in additional production capacity. Some firms are also nearshoring - i.e. relying on suppliers that are geographically closer to production facilities to reduce transport costs, time and risk. Investing in Australian based manufacturing is also widely seen as a key way of addressing supply chain issues. New research this quarter explores how likely SMEs would be to support local manufacturing - i.e. either through establishing their own new manufacturing facilities, increasing their use of Australian based suppliers, and supporting new Australian based manufacturing start-ups. Around 1 in 2 (51%) SMEs said they were “very” or “extremely” likely to increase their use of Australian based suppliers, rising to almost 7 in 10 among Construction and Accommodation, Cafes & Restaurants small and medium sized businesses. By state, SA businesses are most likely to increase their use of local suppliers (64%). Encouragingly for those considering establishing new manufacturing operations in Australia, over 4 in 10 SMEs (44%) said they were “very” or “extremely” likely to support new local start-ups (19% were “extremely” likely to do so, 24% “very likely”), including over 5 in 10 SMEs in the Construction sector (54%).
To read the full report SME Supply Chain Update (Q3 2022)
