SMEs Battle the Rising Cost of Raw Materials

Small Business News – 13th December 2012

Raw materials - TimberUK SMEs are battling the against the rising cost of raw materials and the only way to win is by cutting costs.

More than one in four (28%) SMEs are having to cut costs because of the rising price of raw materials.

Some small and medium-sized businesses are even looking at relocating as a way to reduce their overheads with nearly 1 in 10 (8%) looking to do so.

Larger firms seem to be the hardest hit with nearly half (46%) of those affected looking seriously into reducing their costs.

16% of UK SMEs who are affected by rising raw material costs have indicated that they will start looking at their business processes or altering their product lines in order to make cost savings.

As firms annual turnover increases so the number looking at change increases – 24% of businesses with a turnover upwards of £20 million have indicated that they will be actively looking at reducing costs elsewhere in their businesses.

Manufacturers are particularly affected by raw material costs and the research comes at a time when UK industrial output has fallen.

One in four (25%) of retailers are seeking cost reduction benefits where that rises to over two fifths (43%) for UK manufacturers.

Jon Greenwood, the Managing Director at commercial insurance firm NIG, who conducted the research, said:

“UK businesses continue to face a very challenging economic environment and a key aspect of this for many firms has been the rising cost of the materials they use to build their products. The consequence is that adjustments are being made in other parts of their businesses to counter these cost pressures.”

Continuing, Greenwood added:

“Firms concerned about the issue of raw materials costs should consult their insurance broker as there are ways of mitigating the issue of rising costs. Many can provide information and advice about how businesses can be better protected, especially how to protect premises and stock; they can also arrange for a risk assessment to be carried out by the insurance company, which can help identify potential issues. This is especially the case if increasing raw material prices mean firms have inadequate cover for damage or theft.”

The research also highlighted regional difference when it came to cutting costs. Just 6% of businesses in East Anglia were seeking to reduce costs compared to 20% of firms in the Midlands. Moving to the South, that figure increased again to 28% and then the North up to 37%. The worst affected region was the North West with more than half (52%) of firms saying they would look to cut costs in light of increasing raw material prices.

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