Rising costs and supply chain issues stimulate adaptation and innovation
New research for CommBank has revealed a robust, positive outlook among Australian businesses, more than two years after the onset of Covid-19.
An online survey of more than 800 key decision-makers found almost half were actively planning to innovate and adapt in the year ahead to increase their revenue. And one in three anticipated growth in profits during the next 12 months.
Although rising costs and continuing supply chain issues were seen as major challenges, respondents were confident that an innovative approach would protect, strengthen and grow their businesses.
The research shows the top three initiatives to strengthen business activities this financial year are: restructuring operating costs and debt; adapting to new business strategies; and investing in new vehicles, equipment or plant. Fifteen per cent said they would improve their business technologies, adapt or refresh their sales approach and marketing, and expand or diversify their product ranges.
Business sentiment remains steady
ACA Research, commissioned by CommBank, conducted an online survey during May and June to uncover how supply chain issues were affecting businesses. Purchasing plans and finance needs were also analysed.
Results from 807 respondents confirmed business sentiment across Australia remained steady and positive despite ongoing concerns, particularly around rising costs and their potential effect on profit margins, capital expenditure and employee growth.
Businesses with revenue exceeding $100 million had the highest levels of confidence, particularly those in the retail and hospitality, health and education sectors while small businesses had the most concerns about increased operating costs.
The construction industry showed the lowest levels of confidence as a result of supply chain issues and increased supplier and transport costs.
Responding to rising costs
The impact of rising costs as the world adjusts to life and business post-lockdown was seen as the major challenge for businesses during the next 12 months.
This included concerns about rising overheads (33 per cent), climbing interest rates (25 per cent), increasing transport and distribution costs (22 per cent) and escalating supplier costs (21 per cent).
The construction industry was seen as the most likely to struggle with rising costs, with 86 per cent of respondents in that sector expecting operating costs to increase over the coming year.
As a result, more than any other sector, businesses in construction had plans to introduce more efficient systems and processes and reduce or restructure their costs and debt.
Most businesses in the distribution, retail and hospitality sectors also predicted higher operating costs.
Other concerns expressed for the year ahead were increasing competition (23 per cent); ongoing issues associated with the pandemic (22 per cent); attracting and retaining staff (16 per cent); keeping up with technology (13 per cent); and the negative effects of extreme weather events (12 per cent).
As expected, larger businesses were the most likely to invest more and expect growth in return. Smaller businesses had the most concern about increased operating costs.
Where supply chain issues are the toughest
On a positive note, while many businesses continued to struggle, the percentage of companies experiencing supply chain issues dropped to 37 per cent from 45 per cent last October.
This slight improvement showed that businesses had changed their sourcing processes to overcome availability and delay problems.
Supply chain issues were most common among businesses with revenue over $100 million (72 per cent reported disruptions) and with revenue of between $10 million and $100 million (71 per cent).
The sectors most affected by supply chain issues were production (58 per cent), retail and hospitality (53 per cent), distribution (52 per cent) and construction (48 per cent). Geographically, Western Australia had the most supply chain issues.
Businesses purchasing passenger vehicles experienced the most disruptions, the survey found. About half reported delays, including 19 per cent that faced hold-ups of more than six months. Similar delays were experienced by half of the businesses wanting to buy light commercial vehicles and those trying to buy agricultural machinery and plant.
Adapting procurement to overcome supply chain problems
Businesses have not been sitting on their hands waiting for supply chain issues to ease.
Twenty-three per cent reported they now purchased more from local Australian suppliers rather than importing from overseas.
Other measures included sourcing cheaper products and brands not normally considered (21 per cent) and bringing forward orders to ensure delays don’t affect business operations (17 per cent).
To side-step supply chain delays, 40 per cent of respondents said they were extending the life of current equipment and assets and 15 per cent reported purchasing second-hand rather than new products. Another 11 per cent used different channels to source equipment.
Only 20 per cent of businesses said they had no choice but to wait.
Importantly, only 20 per cent of businesses cited supply chain delays as a key challenge to achieving their business objectives this financial year.
Business considerations and how CommBank Asset Finance can help
- Business sentiment remains steady in Australia despite rising costs. Many businesses are looking to grow and need finance for asset upgrades.
- As interest rates rise, business owners are hunting for financial products and relationships that work to their advantage. CommBank Asset Finance can be an effective business partner offering relevant products, efficient processes, expert relationship managers and flexibility.
- CommBank Asset Finance can help customers understand different ways to execute growth at optimal cost in an inflationary environment. Businesses can, for example, invest in digital transformation to gain a competitive advantage.
- Supply chain issues may persist for some time, but businesses may overcome these by changing their procurement and asset management processes.
- Businesses may be able to minimise outlays by negotiating sale and hire/leaseback agreements through CommBank Asset Finance.
More information about the economy, technology and sustainability, and how those insights can improve your business can be found at CommBank Foresight – insights for future-facing businesses.
Visit CommBank for Retail | commbank.com.au/retailers
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