The rising cost of raw materials is causing problems for SMEs, however, there are steps they can take to mitigate these challenges

For Britain’s battling businesses, there are few ‘rawer’ nerves than the rocketing cost of raw materials.

A rapid succession of major disruptive phenomena – Brexit, Covid, energy inflation, geopolitical conflict – has dislocated raw materials sourcing, caused shortages and stockpiling, and repercussions throughout the length of supply chains across vertical sectors.

Bigger businesses may be able to withstand the price fluctuations by absorbing unanticipated costs against profits and use their commercial clout to strike better deals with suppliers.

However, small and medium sized businesses (SMEs) have much less room for manoeuvre.  They often have to pay market prices, with little option to pass on extra costs to their cash-strapped customers.

Growth x shortages = higher costs

Raw materials cost increases have come as UK SMEs are still struggling to achieve stable finances following the disruption of Covid.  The pandemic had a significant impact, both directly and indirectly, on raw materials pricing.

Sector-specific impacts

Certain sectors are more exposed to rising raw materials costs than others.  FSB Voice of Small Business Index research from Q4/2021 found that 27% of manufacturing businesses and 23% of construction businesses said their costs had ‘significantly increased’ over the previous three months.

Contractual re-evaluation could help

Businesses should carefully consider and re-evaluate the terms on which they trade with their suppliers and customers.

A way for companies to ensure the cost prices of raw materials will stay the same for a period is by agreeing on fixed prices for a specific period of time with suppliers for the raw materials.

Underinsurance Risk

Price inflation of raw materials also increases the risk of underinsurance.  Businesses should regularly review the value of their material damage assets and adjust policy values to take account.

Contact RS Risk Solutions if you wish to discuss your insurance values.  We would be delighted to assist – Go to: www.rsrisk.solutions for our contact information.