Growth, inflation and labour market all easing
The impact on SMEs & how business is responding.
The impact of supply chain issues on Australian business moderated further in Q4 2022. In total, 1 in 5 (20%) SMEs report supply chains were a very significant issue for their business in the past 3 months, down from over 1 in 4 (26%) in Q3 and almost 1 in 3 (31%) in Q2. The number of SMEs who reported a very significant impact fell in all states bar WA (27% from 25% in Q3). It was sharply lower in TAS (33% from 50% in Q3), but still highest overall, and lowest in NSW (17%) and SA (17%).
With China abandoning its zero-Covid policy, the rapid spread of the virus increases the risk of supply chain disruption in the near term, as businesses face disruption, with staff shortages due to infections and self-isolation. While any longer-term impacts remain unclear, Chinese factories are expected to face worker shortages until at least February. Much uncertainty remains. Anecdotal evidence suggests that COVID spread very rapidly – much faster than anticipated – in December. This might support a faster than previously expected recovery.
That said, Australian business confidence around supply chains remains high with fewer businesses (18%) expecting it to still be a significant issue in 12 months’ time (24% predicted in Q3 and 31% in Q2). VIC (23% up from 21% in Q3) was the only outlier, and now highest of all states. In contrast, just 13% of SMEs in NSW and SA expect a very significant supply chain impact in the next 12 months.
Around 3 in 10 SMEs in Wholesale (31%) and 1 in 4 in Manufacturing (25%), Retail (24%) and Construction (23%) said supply chain was a very significant issue in the past 3 months, though sharply lower than in Q3 in all sectors. An unchanged 1 in 4 (24%) in Transport & Storage were highly impacted. Interestingly, SMEs in Personal Services however saw a doubling in the number of highly impacted business (13% from 6% in Q3). The number of SMEs who believe supply chain will be a significant issue for them in the next 12 months remains highest in Construction (24%), Wholesale (23%), Retail (21%), Transport & Storage (21%) and Manufacturing (20%), and lowest in Health (3%), Accommodation (6%) and Personal Services (6%).
Prior to the pandemic, supply chains were focused on getting goods as quickly and cheaply to customers as possible. This was achieved by outsourcing parts of the supply chain to cut storage overheads, manufacturers cutting back on the quantity of spare stock and delivering products ‘just in time’ to fulfil customer orders. The pandemic clearly highlighted the fragility of this model, adding to global shortages and inflation. As a result, there have been calls for greater diversification of supply lines and increasing domestic capabilities, particularly for essential goods such as medical supplies and equipment and chemicals but also for a range of other goods including construction materials.
As CEDA has previously noted, while in the short-term the pandemic provided rationale for reducing Australia’s reliance upon extremely lean, just-in-time inventory management, strategic buffers of some supplies and more capabilities in advanced manufacturing (as well as clean and efficient energy, smart infrastructure, transport, construction and services), there was not a need for wholesale reshoring or to turn our backs on global supply chains. In this latest NAB update to better understand how SMEs have responded to supply chain issues, we asked them to rate the extent they agreed with some key behavioural statements about supply chains and their business.
When asked to what extent SMEs agreed they were “shifting from a global supply chain model to one more domestically based”, the incidence was very low. On average, SMEs scored just 2.4 pts out of 10 (where 10 is agree completely). Moreover, only 6% of SMEs were in “high” agreement (i.e., scored 8+ pts). By industry, agreement was highest in Manufacturing (3.0 pts) and Construction (2.9 pts), and lowest in Finance & Insurance (0.9 pts). That said, around 13% of SMEs in Manufacturing and 12% in Accommodation agreed “strongly” with this statement.
For more information, please see the full report SME Supply Chain Update (Q4 2022)
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