New research has suggested that Australian SMEs, in response to the COVID-19 pandemic’s supply chain disruptions, are seeking to replace international suppliers with domestic ones.
According to the latest SME Growth Index by Australian non-bank business lender ScotPac, 28% of Australian SMEs, especially small SMEs (32%), plan to add new domestic suppliers over international suppliers in the next 18 months.
This strategy aims to enhance supply chain resilience and build a stronger domestic network, the index suggested.
In further good news for Australian manufacturers and suppliers, the bi-annual index found 21% of SMEs plan to cut ties with international suppliers in 2023-24 to support local products, services and jobs.
This comes after a ScotPac survey found in December that 100% of Australian SMEs were hit by supply chain disruptions.
ScotPac CEO Jon Sutton (pictured above centre) said the global supply chain challenges of the past three years had sharpened the focus on inventory management for all SMEs and improved the outlook for Australian suppliers.
“Disruptions and challenges caused by events like the COVID pandemic, political conflicts and rising inflation have become the new normal for business owners,” Sutton said.
“It is clear from the well-considered strategies SMEs have outlined in response that a growing proportion view strengthening supply chain resilience as a core business planning priority, rather than a reactive event.”
The benefits for SMEs, lenders, brokers, and suppliers
Commercial brokers Cameron Perry (pictured above left) and Geoff Fox (pictured above right) from Perry Finance said a shift to Australian suppliers “makes sense” and can be “beneficial in many ways” for SMEs and brokers alike.
“From shorter delivery times of domestic supplies, avoiding currency management, lengthy overseas shipping delays and, most importantly, support of other Australian businesses looking to increase their presence in the market,” said Perry, the director of the Melbourne-based credit advisory firm.
“This is an opportunity for domestic suppliers to be competitive in the market against their overseas competitors through innovation and technology driving efficiencies to promote customer engagement locally.”
Fox, Perry Finance’s credit advisor, said brokers can assist in this space as all businesses “should conduct their due diligence on domestic suppliers”.
“They should ensure they have both the capability and capacity to supply now and in the future before shifting their focus domestically,” Fox said.
“Due diligence can include seeking recommendations from other customers, personal engagement by visiting their suppliers together with understanding workforce capability and supply chain management.”
This support is clearly needed by SMEs according to the Index, with 52% saying they want to get closer to key suppliers and customers, while 36% want to focus on key inventory items and remove others.
A need for trade finance
ScotPac said all of this has been reflected in the surge in demand for its trade finance facilities over the past year.
“SMEs have sought greater purchasing power to support their trade needs and opportunities, both domestically and internationally. It highlights the fact that access to fast and flexible finance will always be one of the best tools any SME can have at hand to mitigate supply chain shocks,” said Sutton.
Sutton encouraged business owners to talk with their brokers or advisors to ensure finance is part of their supply chain management strategy.
“Whether it is trade finance to better manage the flow of goods, or asset finance to buy equipment when you need it, ScotPac has the greatest breadth of products to help more businesses in more circumstances than any other lender,” Sutton said.
With over half of SMEs (54%) wanting to secure more flexible trade and supply chain funding arrangements according to the research, the door is open for commercial brokers and lenders.