Brexit has built a full head of steam as the country enters more unchartered territory. In the last week there’s been complete chaos in Government, a harder line from the EU27, and more than a million taking to the streets of London. Despite all the fuming and arguing, all the political wrangling and eleventh-hour negotiations, business is still no clearer about Britain’s terms of withdrawal. All we know is that Brexit will be delayed, and from past experience we know this situation may change again.
UK manufacturers have been extremely concerned throughout Brexit, and now the impact of a delay raises further issues for the supply of electronics and materials into their production schedules.
Take immediate advantage of any delays
Many UK companies did not respond early enough to the possibility of component shortages caused by Brexit. Any extension of the withdrawal process is welcomed as it provides more time for UK manufacturing to prepare, however until we have full clarification the advice remains the same: prepare for Brexit and make full use of any delays to mitigate possible disruptions.
Mitigate risk through the supply chain
The most important step is for manufacturers to continue giving their supply-chain partners visibility beyond 2019. Not just their component suppliers, but subcontractors and their commercial off the shelf (COTS) equipment providers as well. It’s important for them to health check their bill of materials (BOM) to ensure they have multiple, approved vendors for critical parts, especially within mature systems. If a part is approaching last time buy (LTB), they must not wait until the last minute: try to secure the product as far ahead as possible. They need to engage with their supply chains and have an open dialogue.
Alway think ‘safe supply’ in a volatile marketplace
Market uncertainty has been worsened by Brexit. In a challenging marketplace the supply-chain is vulnerable to opportunistic attacks in the form of counterfeit and fraudulent electronic components. Such attacks can be devastating to end-users, especially if the application is safety and reliability dependant. Often the internet may show the buyer that there is product “available” somewhere, but the source of the these components may not be clear. When a $1 chip is holding up a $50,000 piece of equipment, the chances of “rogue” buying can increase.
A quality-driven supply-chain partner will never be more valuable than in today’s challenging times. This applies to authorised distribution networks as well as non-traceable, catalogue, vendor reduction partners, subcontractors and any other key elements down the supply chain. A distributor whose operations are run in accordance within the AS6081 quality processes will mitigate the risks of purchasing and supplying fraudulent/counterfeit electronic parts. It’s important that manufacturers remember - help is always available.
Continue to increase buffer stock
Whether Britain leaves the EU or not, whatever the basis of our departure, it remains important to mitigate against manufacturing risks. Those of increased costs and extended delivery terms are the biggest concern. One of the easiest ways for manufacturers to mitigate risks is by ensuring their supply chain has landed UK stock and hold that in reserve.
Recently, the chief economist at Aerospace, Defence, Security & Space (ADS) Group, Jeegar Kakkad, was reported to say: “When you’re selling an aircraft you can’t have any parts missing. One part stops the whole process.” Of course, this is true of all manufacturing! Many manufacturing companies, especially within Aerospace and Defence, are building up stocks of materials and finished goods to protect against delays in deliveries to customers. Airbus previously said it would have to stockpile €1bn (£875m) worth of parts.
Distributors can help customers to anticipate how much extra product they might need and in some cases to hold ‘buffer stock’ in excess of normal levels.
Expect sterling volatility: Hedge or forward contract
A short delay of weeks or even a couple of months is unlikely to make a difference in itself, however a worsening pound does have immediate consequences. Sterling has been volatile since the referendum result and that volatility is expected to continue. UK manufacturers naturally want to remove as much risk as possible from their imports.