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Supply chain disruptions persists as global inflation booms: Effects on SMEs

Paragon Bank research on 1,000 firms found that nearly 9 in 10 SMEs have experienced supply chain disruption and difficulty in 2022, out of which 37% found the disruption caused to be significant while 49% experienced a moderate impact. Additionally, the devastating war in Ukraine has exacerbated global retail issues as 86% of SMB supply chains have already been or expect to be impacted by the conflict abroad. The Russian invasion of Ukraine on February 24, 2022, the resulting trade sanctions, and disruptions to Russo--Ukrainian economic activities are putting more pressure on supply chains. The widespread lockdowns in 2020 planted the first seed for today’s supply chain disruptions. The abrupt freeze in economic activity crimped supply and depleted inventories, forcing businesses to seek new supplier relationships and reroute supplies, while disrupting the smooth coordination of global production.

Lockdowns also severed employee-employer matches in many cases. All this left the supply side of the economy in disarray and vulnerable to new shocks. Though the bottlenecks are slowly easing across sectors and countries, significant dislocation remains. One element contributing to bottlenecks' widespread and severe dislocations is their amplification and transmission over international value chains (GVCs). This explains the unexpected persistence of bottlenecks as well. Other elements include technology and behavioral changes. The semiconductor sector is a good example of how the combination of these factors has generated a potent amplification mechanism. The sector occupies a central node in GVCs, with numerous modern consumer products requiring chips as critical inputs.

Supply chain disruption being one of the major sources of inflation, these trends show many SMEs are facing difficulties balancing working capital and cash flow in the wake of all these supply chain bottlenecks. As supply chain issues have ripple effects on the business performance of SMEs, it has resulted in most business leaders lengthening their own delivery times, reducing their profit margins, and increasing the prices of their products to meet the rising costs of their inputs. But It is not only one sector that is affected, but many, including the manufacturers, who create the products. Manufacturing companies cannot pay bonuses to employees or dividends to shareholders with the money they would need to store their products as a safety net against supply chain issues.

Similarly, if they have already paid for the product or material but it has not yet been delivered to the business, this can result in unpaid invoices, leaving both the business's customers and its supplier waiting for payment of an earlier invoice for materials that the SME has not yet received. Solving the challenge will require coordination across multiple industries, as well as between business and government. Ultimately to build supply chain resilience and minimize supply chain disruption businesses study, assess the effects on an internal level, and authentically communicate with their customers. There is no one size fits all answer but there are actions small businesses can take and strategies they can adopt to mitigate this ever-changing and challenging industry.


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