It was a startling surprise and wake-up call for the global economy when UK voters decided that the country should follow the Brexit (British Exit) movement and terminate its membership of the European Union. All over the world, business leaders are contemplating whether it is time to react or whether it is premature. The only certainty is that the outcome of the referendum inserts a level of uncertainty which, historically, has been bad for business and for growth. And to respond quickly to the demand swings likely to occur as a result, supply chain leaders need to act now to increase supply chain agility.
Import, export and almost every aspect of the supply chain would undoubtedly be affected by Britain’s departure from the EU. Over time, the UK’s position may also affect the location of manufacturing plants. Bigger manufacturing plants rely on the ability to reach significant markets from their location. If it becomes too cumbersome to get manufactured goods into the EU from the UK, then plants in the UK may be limited to selling only to the UK market. As the manufacturing plants rely on their suppliers and these suppliers again rely on sub-tier suppliers, this may snowball through the supply chain to impact smaller suppliers and UK communities that rely on manufacturing.
Essentially, Brexit is a multifaceted supply chain disruption. And like natural disasters, it can have a destabilising effect on even the most resilient supply chains. The result is a significant impact on cost, cash and service. Also, the nature of the global supply chain is inherently and almost inextricably interlinked. So even if your US-based business doesn’t trade directly with Europe, the connectedness of suppliers and buyers means that destabilising any node in the system could negatively impact on all those that are part of it.
Organisations that run global supply chains can best manage the impact by ensuring their supply chains are as flexible, cost efficient and risk-averse as possible. In an attempt to offset increased cost, savvy supply chain leaders might turn to dual sourcing of key components as well as distributed manufacturing efforts to gain greater flexibility. Leveraging existing technology that provides clear visibility into the supply chain can help determine the best strategies for mitigation, as well as help reduce operating costs, boost profitability and create great efficiencies.
Furthermore, organisations must ensure that they are able to react quickly to any cost changes within the supply chain, and this relies upon understanding the capacity that non-EU suppliers have to increase output if required. Alternatively, businesses that rely on goods that are produced in Europe — such as industrial chemicals or automotive components — should work with existing suppliers to devise cost-saving strategies, and seek efficiencies elsewhere in the supply chain or production process, including waste reduction and improved stock management.
Some useful advice to determine whether your supply chains are moving in the right direction can be found in the article, Supply chain disruptions and how to avoid them.
Act now to increase agility
To respond quickly to the demand swings likely to occur, supply chain leaders must act now to increase supply chain agility and spread risk in order to ride out any political or legislative changes. While the cost of imports would most likely increase in the short term, the selection of viable alternatives and an agile supply chain strategy is vital to ensure your products remain competitively priced.
Typically, six areas would require a new focus:
1. Visibility of data on supply and demand changes
Promote data sharing with suppliers and customers. Through having visibility of the entire supply chain, you can devise the appropriate demand responses.
2. Collaborative relationships with customers and suppliers
Develop working relationships with customers and suppliers to emphasise the value creation cycle in the supply chain. Consider areas such as the joint value-engineering of components and extend risk management across the supply chain.
3. Product design
Design products to share common parts and processes. In addition, the product finalisation or customisation can be postponed until order confirmation. By adding flexible capacity to this finalisation process, it allows the supply chain to respond once more accurate demand information is available.
4. Inventory buffers
Enhance agility by identifying inventory bottlenecks, and building inventory buffers of critical components at appropriate locations. Re-evaluate these inventory buffers on a regular basis.
5. Dependable supply chain network
A dependable supply chain network must be created by ensuring contracted and in-house logistics capacity that can be flexed with minimal lead times and cost.
6. Risk management
Continually reassess contingencies so that the required agility is in place when required.
The risk brought about by events such as Brexit also brings with it a sprinkling of opportunities for nimble businesses brave enough to take advantage of the upheaval. But businesses will require courage and a keen perceptiveness to pick out the opportunities in a crisis like this. Your goal is not merely to survive Brexit, but to gain as much competitive benefit as you can from it.
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