Thousands of businesses at high risk of collapse due to supply chain disruption

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Almost a third of businesses in the North and the Midlands are at high risk of collapse due to the impact the coronavirus outbreak could have on their supply chains, a new report claims.

The study by Durham University Business School reviewed 1.7m in a range of sectors and found 29% are at high risk of collapse because of disruption to supply chains and 35% at either low or medium risk.

The study – which includes a number of case studies from North East businesses – highlights the long-term risks to companies because of their interdependence on other businesses which may be suffering in the global coronavirus lockdown.

Companies in the real estate, food and drink, personal services and construction sectors have been found to be particularly at risk, though businesses in computer programming, management consulting, architecture and baked produce areas were better placed.

Prof Kiran Fernandes, professor of operations management at Durham University Business School, said: “Most companies in our region had never experienced such an external shock and therefore were not prepared with mitigation strategies for their complex global supply chains.

“Analysing a large number of companies using a big data approach has allowed us to better understand supply-chain configurations and more importantly allowed us to identify and suggest mitigation strategies which can be adopted by supply chains across all a large number of sectors.”

The research features case studies from two companies in the North East, one in manufacturing and the other a bakery chain.

Problems such as sourcing raw materials from overseas, the difficulty of switching production practices, falling demand and lack of staff are all highlighted as big risks to the companies.

Durham University Business School is now offering consultations for businesses with experts from its Centre for Technology and Innovation Management to mitigate the dangers facing firms which operate in global markets.

Prof Fernandes said: “The Durham University Business School is part of our region’s ecosystem.

“It is critical and timely we work with our regional businesses and ecosystems to ensure our expertise can be used to make them develop both short-term and long-term resilience strategies which can help them not only survive but compete in the post-Covid19 environment.”

A separate study has warned two out of three manufacturers have seen their order books halve in the past 30 days and a similar number will run out of money before the end of the month without support.

A survey of more than 850 small to medium-sized firms by business lender MarketFinance indicated most have less than £50,000 in funds.

Half of those polled said they were interested in accessing funds through the Coronavirus Business Interruption Loan Scheme to shore up their business for the medium to long term, said the report.

One in three were seeking an average loan of £62,500, 4% wanted a £10,000 loan, while 3% said they needed £300,000, the research indicated.

As more companies lay off staff, the Government is being urged to set up a “Cobra for jobs” to deal with the employment impact of coronavirus. The Institute for Employment Studies (IES) estimated employment has fallen by around 1.5m to two million over the first month of the crisis, equivalent to 5% of all those in work.

The IES said early analysis suggests groups at particular risk in this recession are likely to be young people and the lowest paid, with women more adversely affected than men.

IES director Tony Wilson said a back to work campaign was needed, adding: “We recommend government brings together a ‘Cobra’ for jobs, to work together on designing, co-ordinating and mobilising this response and convening a wide range of partners including government departments and agencies, local government, sector bodies, trusts and foundations and key stakeholders.

“The proposals will help to ensure as the economy recovers we can keep people attached to work, help them find better work and minimise the ‘scars’ from being out of work.

“With a cost of around £4.7bn over the next three years, the evidence from previous programmes tells us this investment would more than pay for itself in the future, while the evidence from previous recessions tells us the costs of inaction would be far higher.”

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