Brexit and the Great Uncertain Certainties Saga for SCM
As the metaphorical storms rage around the British Isles regarding the uncertain certainties of Brexit, which currently continue to entertain and amuse (or panic?) the masses, then let us spare a thought for the good ship “SCM” and all of the procurement, purchasing and supply chain professionals who sail in her!
Firstly, regardless of whether you operate in public or private commercial arenas, as a sole proprietor or a multinational corporation, by now, your organisation must have considered the potential supply chain implications of Brexit, especially as Exit Day (29th March 2019,) is looming ever closer!
Whilst this article is not intended to teach one’s granny the optimum method of what to do with eggs if she is unable to chew them for lack of teeth, it should serve as a prompt from a supply chain perspective to remind you, that if you haven’t already done so, there are some fundamental tasks you can perform in-house to help to mitigate the uncertain certainties of supply chain risk before Exit Day.
Thus the following SUPPLY CHAIN MANAGEMENT acronym may help or at least prompt further discussion:-
Stock – What is your stock position? How long will this stock last? Do you have enough capital on hand/to cover the next 3 – 6 months of customers orders?
Understanding – your customers need reassurance from you that you understand the supply chain risks and are doing all you can to mitigate them!
Prepare – for the worst, hope for the best? What finance do you need to allocate for the extra stock from budgets? Also, consider allocating funding for purchasing currency;- euros, dollars, etc. (see Currency comment below.)
Plan –make sure your production planning and forecasts are up to date and allow visibility for a minimum of 6 months. What ideas does your supply chain have in place?
Liaise – internally with all departments that will be affected, typically most of them! Externally liaise with your vendors, let them know your supply chain concerns, what contingencies do they have in place?
You! – As the procurement/purchasing/supply chain professional your role is going to be pivotal and crucial during this time, before, during and after Exit Day. Your knowledge and experience of how to approach this uncertain certainty of the supply chain impact are yours! Become part of the solution. Not the problem!
Currency –based on the dramatic fluctuation of sterling v euro back at the time of the original referendum to Remain or Leave Europe, it would be useful to consider buying a large amount of euros pre Exit day, (especially if your supply chain is in Europe). As financial markets are bracing themselves for another sudden repeat drop in the value of sterling against the euro, and in any event, costs will rise. However, to what level?
Hierarchy – consider the origin and supply chain structure of where your EU goods come from, just because they are imported from the EU doesn’t always mean they are manufactured in the EU. Where does the flow of products not only from an EU perspective originate, but the non-EU supply routes too! It would be best if you considered all the directions that are logistically available to you globally.
Administer – your plans and strategy when agreed by all concerned internally and with input from your supply chain. Keep reviewing and modifying your plans accordingly as circumstances dictate.
Innovate – consider what non-EU alternatives you can sample and dual approve alongside their EU counterparts. Especially consider this for those specific items which are critical. Work with your customers to identify those items and perhaps where there are mutual cost benefits; they will be more receptive to change!
Net landed costs – The cost of the product in addition to the relevant logistics costs such as transportation and handling will be of paramount importance and needs to be considered post Exit day, what factors will affect this from a customer and supplier perspective?
Map out and identify your high value, high demand, and strategic customer base and suppliers.
Allocate your supply chain strategy to consider the following three main routes:- UK < > EU, UK < > Rest of the World and finally the UK domestic. In essence what directions are between the UK and Europe, which ones UK non-Europe (rest of the World,) and the UK local (efficient, sole UK manufacturing and distribution.)
Network Planning – you need to consider overall costs regarding where the inventory distribution or transportation planning strategies lie which is best to benefit your organisation and your customers, regarding the time/cost of travel or expense of holding inventory across multiple sites for the foreseeable 3 – 6 months post Exit Day.
Average cost per unit – for those not familiar with this SCM cost protocol term, it is the average cost of stock of any given item based on having incurred different values for each time a receipt was processed, which is then usually calculated at the time of a new arrival by multiplying old inventory quantity by the old average cost, then adding the received count and total cost, then dividing the original total value by the new inventory quantity – is undoubtedly going to have to be recalculated post Exit Day!
Gross Margin – for those not familiar with this term either, the Gross Margin is calculated as being the amount of contribution to the organisation itself, after paying for direct fixed and direct variable unit costs, required to cover overheads (aka the fixed commitments) and to provide a buffer for unknown items. It expresses the relationship between gross profit and sales revenue. Post Exit Day, this is another uncertain certainty which is highly likely to be eroded, so you need to consider what impact this will have on your organisation.
Expediting – whilst this may seem a low-level aspect of the whole supply chain operation, it is critical that given the uncertain certainties in logistical delays, (goods held up at ports, long queues and delays from the EU logistics route?) that you continuously monitor and chase up your incoming products and do not rely on an agreed initially delivery date. If it can go wrong, it can go severely wrong in transit!
Make or Buy – Whilst this is typically a business decision that compares the costs and benefits of manufacturing a product or product component against purchasing it to then ultimately sell the finished product to your customers, you may have to consider logistical and purchasing costs of raw materials to manufacture if these are EU affected items, to either continue to buy in or to construct yourself if you have the commitment and investment to do so. Maybe worth seeing UK domestic manufacturing options to either buy within the UK or to partner with UK manufacturers for mutual benefit?
Exit Day! – Currently expected to be 29th March 2019! You should already know this, and if not, you can guarantee your competitors will! You do not want them taking your business if you have not been prepared!
Net Requirements – for those unfamiliar with the term, this relates to the gross requirements for an item; (gleaned from customer orders, forecasts, high-level demands, etc.,) which is then deducted from stock already available and scheduled receipts of inventory coming in, wip, etc, so this is an essential indication at a high level as to where some of your stock vulnerabilities could lie in short to medium term future post Exit Day.
Time – Is a luxury that you may not have! What is going to happen next? At this juncture, you can only plan and prepare and try to consider and cover off as many risks as you can foresee.
The supply chain impact re Brexit may end up being minimal (or potentially catastrophic!) for your organisation, however, if you have already considered what to do next, then at least you will be more prepared than those who have not!
Andrew Clifton is the Head of Procurement at the Centre for Process Innovation Limited, and has been in the procurement and supply chain industry for over 30 years, working in both the public and private sectors, with specialist knowledge in the areas of procurement, production planning, contract law and supply chain management. As Britain’s exit from the European Union scheduled for 11pm on 29th March 2019 approaches, this historic event will affect everyone in the UK, impacting on the finances and legislation of consumers and businesses alike, affecting to some extent, procurement and the supply chain. The articles written by the author covering potential supply chain issues and drafted potential changes in public procurement law should serve as helpful discussion points to the industry at the very least, as the unwritten future catches up to the actual present!