Brexit: A ‘Huge Supply Chain Problem’

Brexit bluedesign/Adobe Stock

Global supply chain organizations need to take Brexit and its implications seriously, if they are not already.

Much of the rhetoric around Brexit has been very political, but the global business community needs to become a bigger part of the conversation, according to Bindiya Vakil, founder and CEO of supply risk management and market intelligence solution provider Resilinc. Brexit is not a local or regional problem — it will impact companies around the world, she said, adding this is a “huge supply chain problem.”

“We don’t see that the business community is as vocal and the supply chain community is as vocal about how this going to affect them,” Vakil said. “So we think that needs to be part of the conversation in a big way.”

Labor shortages, currency fluctuations, changes to trade regulations and a high level of uncertainty are real and potential results of Brexit, which will impact how companies around the globe operate. They are also possible supply chain risks pointed out in a new report from Resilinc that aims to provide supply chain organizations with a sense of how Brexit will impact their operations and how they can prepare and respond to Britain's exit from the European Union.

The paper, titled “Brexit Global Supply Chain Impact Analysis,” details what companies can expect following the Brexit vote in the short, near and medium term. It also analyses how specific industries, including manufacturing and high tech electronics, will be impacted by Brexit. Resilinc provides guidelines, too, for what companies can do now to mitigate potential impacts of a Brexit, including mapping their supply chains to understand which tier-1 and sub-tier suppliers are located in the U.K, have operations there and are dependent on U.K. products.

Uncertainty and Risk

The uncertainty around how exactly a Brexit will play out and how the new prime minister will lead negotiations with the EU on new trade regulations is perhaps the biggest issue at the moment and poses the biggest risk for companies, Vakil said. However, companies need to assess the all possible impacts of a Brexit now and determine the best option to move forward, she said.

For some, this may mean shifting to, or expanding operations in, another European country instead of building a larger footprint in the U.K. This may not be a feasible option for, say, for a manufacturing company that has already invested a large amount of money in the U.K. setting up advanced technologies in its factories. But manufacturers with near-term plans to build a factory in the U.K. or expand operations there can reevaluate and possibly decide to expand in a different country like Germany, which matches the U.K. In industrial scale, Vakil said.

Germany may also be an attractive option for a company’s Brexit mitigation plan because of the large labor pool it offers. The U.K. manufacturing industry has been facing a worker shortage, which could get worse post Brexit as Europeans are restricted from traveling freeling to the U.K. and contributing to the labor force. Germany, on the other hand, saw its highest net immigration level in 2015, with more than 1.1 million people coming into the country, the Resilinc report pointed out. These are people who could provide affordable labor to companies looking to relocate from the U.K.

With Risk Comes Opportunity

Considering new options, like setting up operations in Germany, presents new opportunities for companies that may not have been considered prior to the Brexit vote.

“Every risk is actually an opportunity,” Vakil said. “If you have information, you can turn it into an opportunity by leveraging this information to act in ways that are more beneficial for you.”

Having visibility into the supply chain could identify opportunities for news business deals or acquisitions, too. According to Vikal, there is an M&A opportunity for companies to acquire brands that were previously too expensive, but in light of currency fluctuations may be within reach. Think critical sub-tier suppliers in the U.K., for instance. This is especially true for “cash rich” companies with the financial backing to withstand the current financial turmoil taking place in the wake of the Brexit vote, she said.

The Resilinc report points out other possible opportunities companies can look as they assess the implications of the recent Brexit vote. Despite the uncertainty, supply chain organizations need to consider their options, risks and opportunities in light of a Brexit.  

“The key strategy is to look for opportunities, identify the potential problems, protect the downside and emerge stronger from this historic process,” the report stated.

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