UK SMEs in wholesale and distribution struggle to gear up for growth

This article is brought to you by Retail Technology Review: UK SMEs in wholesale and distribution struggle to gear up for growth.

The UK's small and medium-sized wholesalers and distributers continue to struggle for growth and are yet to find a viable place in the modern, globalised wholesale and distribution ecosystem. This is the key finding of a new report by Exact and the Centre for Enterprise and Economic Development Research (CEEDR).

Less than a quarter of respondents in wholesale and distribution (23%) were positive about their growth prospects next year. Their peers in the manufacturing sector were markedly more positive about growing their businesses to a significant extent (32%).

The Small Business Efficiency Index (SBEI) finds that SMEs across manufacturing, business services, wholesale and logistics with above average levels of operational efficiency – based on 17 different operational functions – not only have greater productivity levels but are also considerably more successful in terms of sales growth and more optimistic about their future development. Time management plays a key part in this, as those SMEs that manage their time well are a fifth more likely to clock up higher growth margins than those that don't.

Out of the three sectors surveyed for the SBEI report, the wholesale and distribution sector emerges as the most challenged in many operational areas.

Less than half the respondents felt that they were operating at above average levels of operational efficiency (43%), making it the least efficient sector out of the three surveyed (manufacturing: 54%; professional services 45%). Most significantly, when asked how wholesale and distribution businesses rated their efficiency levels in distribution logistics – one in four (25%) stated they were average and 7% as poor or very poor at such tasks.

On the positive side, nearly half of SME wholesale and distribution businesses (49%) said they were operating at 90% capacity or above, and over a third (35%) were achieving between 75% and 89% capacity usage.

The research suggests that operating at higher capacity and with greater operational efficiency could be linked to a greater penetration of advanced technology, in particular cloud-technology.

While nearly a third of manufacturing SMEs (27%) have upgraded to cloud-based systems to manage financial and business processes, little more than one in 10 wholesale and distribution firms have done so (13%). That said, 43% had invested in capital-intensive on-premise software, suggesting that maximising return on investment from existing investments might be stopping these companies from deploying more flexible solutions.

More worryingly, around one third of wholesalers were still using Excel spreadsheets to manage their business (32%) – the largest proportion to do so out of any of the sectors surveyed – and nearly one in ten relied on pen and paper (9%).

The SBEI report put particular emphasis on the importance of improving time management as a factor affecting efficiency and impacting on business growth. The biggest barriers to improving time management among wholesale and distribution businesses were fears that it will cost too much (41%), a lack of time to consider improvements (36%) and lack of resources to pay for improvements (33%).

"These findings come on the back of recent Government statistics showing the vast majority (68%) of the UK's 4.9 million SMEs set out to grow their businesses last year, but only 13% succeeded in doing so to any real extent," said Dr Rob Baldock, Principal Researcher at CEEDR. "Better time management and automation of business and financial management through technology – in particular Cloud solution - are of considerable importance in increasing performance capacity and growth. But this is easier said than done for the SMEs we surveyed."

Lucy Fox, General Manager, Cloud Solutions at Exact UK, said: "What this research shows is that for wholesale and distribution SMEs, market conditions remain challenging and profits are a tight squeeze. In many cases, the current toolset and processes are not up to handling the complexities of modern wholesale and logistics efficiently. There is a real opportunity for companies who can overcome their fears on perceived costs and resources, and dedicate time to improving how they work, to reap the benefits of a post-recession economy."

"While there is plenty of financial support being offered to SME businesses through growth accelerator funds and Government grants, more needs to be done to help support them in other ways, such as systems and processes," she added. "Time is one of the most valuable commodities SMEs have, and we should help them to invest it wisely."