Brexit will invariably have a major effect on the supply chain operations that underpin over $575 billion in annual trade between the UK and the EU. But while the changes could be profoundly disruptive, careful consideration of contingencies should take precedence over hasty actions.
In other words, hope for the best, take into account the different possible scenarios that could unfold, and start dialoguing now with your supply partners in the different markets for if and when a UK trade wall goes up. Long-term planning could even reveal latent opportunities as the UK reemerges as a stand-alone trade bloc, so here are five ways to make your supply chain ready for the Brexit change. In some cases, you may discover new opportunities pending what many still say will be an economic disaster.
Brexit is something organizations obviously need to monitor very, very closely, and the creation of a taskforce should help you do that. Among other things, a taskforce should have a war room at its disposal, where the entire list of suppliers, including tier-2 suppliers, are diagrammed and analyzed for a range of “what ifs,” once Brexit is completed.
“You also really need to form a taskforce across the organization to look at this so they can stay abreast with every change and to react quickly,” Gartner analyst Lisa Callinan told EBN.
Careful supply chain planning could also reveal opportunities that may lay ahead as the terms of Brexit are finalized. A Norway-like agreement between the UK and the EU, for example, is an example of a potentially favorable outcome. If the UK could retain its trade advantages with the EU in such a way as Norway does, it would also allow a company based in the UK to benefit from trade agreements between the UK and North America, outside of the EU’s scope. An organization, in this case, might be able to procure components from both EU and North American sources without paying tariffs and duties.
“The freedom of the UK to form trade agreements with a country outside of the EU is certainly one possible advantage,” Callinan said.
Following the decision by British voters to exit the EU, the British Pound plummeted, which also immediately created a competitive advantage for UK firms that were suddenly able to export goods to the EU and elsewhere at a cheaper sale price.
“If your supply chain can indeed make an investment and benefit in the meantime from the cheap pound, then that is something to obviously look at,” Callinan said. “But it is also better to look at long term investments, and since we do not yet know the impact of Brexit, we also advise on acting on decisions that will have a long-term impact.”
Assess the Scenarios
The potential ramifications of Brexit for supply chains fall under three categories: border controls, distribution network designs, and staffing. In the event that the UK splits off rapidly in a way that invalidates all existing trade agreements, border controls will once again play a factor when shipping parts between EU countries and Europe. Centralized hubs based in the UK will thus face a number of new logistical challenges for cross border shipments with the EU. After enjoying an extended period of visa-less hiring of workers from EU countries, UK organizations will have to find ways to retain European workers or replace them if obliged to do so under UK labor laws.
“The free movements of goods and people are hugely important, which must be watched closely. Returning to the old days of customs controls will add delays and create an administrative burden, as well as all of the documentation that goes with it,” Callinan said. “For [time-sensitive] shipments, such as when temperature is a factor, any delay to the movement of those goods will require a reconfiguration of the supply chain.”
Bring the Goods to Customers
Supply chains can be ready by knowing how to bring inventories closer to customers ahead of time if border controls and other impediments to the free movement of goods between the UK and EU are reinstated.
“Those companies that have centralized distribution centers should review their strategic inventory and how they can bring it closer to customers in different countries and markets if necessary,” Callinan said. “ This will help to avoid disruptive forces such as border controls. Local logistics partners can also help mitigate disruption for scenario planning.”
“There is going to be a recession so you better start slashing inventories and cutting your losses now.” At least that is what you can believe by reading media reports and listening to the doomsday rhetoric of politicians. But acting and making investments in preparation of a scenario that may never happen is a foolish practice.
“There is no reason to conclude that there is going to be a recession at the moment. That is all speculation,” Callinan said. “ What we are saying from a supply chain perspective is that companies should look at contingency planning. The time is now to make scenario plans and add probabilities to them, knowing full well that no one knows what is going to happen.”