EXCLUSIVE: Supply chain resource risks could sound death knell for SMEs

The stark warning came from Ricardo-AEA’s resource efficiency practice director Adam Read who believes that many SMEs are not aware of the threats they face from volatile commodity markets that are now a reality further down their supply chains.

Speaking to edie, Read said there was a real ignorance around these issues for the “mass of industry” – those businesses that operate predominantly within a local environment.

“This stuff is 5 to 10 years’ away from being catastrophic. We need to stop exporting materials, we need to start building more infrastructure to boost our energy and raw material security needs,” he urged.

According to Read, as resource risks become increasingly resonant to business leaders, smaller firms supplying larger corporations could be at a mercy of material specification changes or rising fuel prices.

“As pressure comes from the big corporates, these companies will one day have to wake up to it else face supply chain disruption,” he warned.

“We need to ask businesses, have you thought about commodity pricing, could you product substitute or close the loop? If you understand how your business runs then you’ve got a good chance of avoiding cataclysm.”

However SMEs often lack the time and human resource needed to investigate these issues and draw up mitigative strategies – but Read said they could benefit by working together more through established collectives such as business improvement districts.

“These businesses tend to be quite lean so the concept of having someone thinking about your resource strategy is a bit alien,” he observed. “How much time have they got to surf the net looking at innovation in the supply chain?”

Worryingly, research published earlier this year suggested that small firms have been sidelined in the debate about sustainable business practices and as such, have been slow to adopt environment-related improvements.

In the EU, only 29% of SMEs have introduced measures to save energy or raw materials – compared with 46% of large enterprises – and only 4% have a comprehensive energy efficiency system in place.

Ricardo-AEA has published a free guide to help businesses assess potential risks around energy, raw materials and water, with the overriding message that resource efficiency can result in significant cost savings with payback time as little as six months.

Read is of the firm belief that in order to get smaller firms onboard with this agenda, the message has to be framed in a way that is relevant to them.

“More and more as we deal with business it comes back to, what’s the bottom line? If you can say ‘This is good because it will save you 5%, or protect your supply chain for the next five years or de-risk your business’ that will make them more open to engaging,” he maintained.

“But the biggest barrier is time. Until these businesses have got the time to think about it, cost doesn’t come into the equation,” he added.

Maxine Perella