How Supply Chain Professionals and Their Suppliers Can Deal with the Implications of Brexit (Part 1)

We are delighted to welcome this post from Richard Neale, Director of EMEA Marketing, at business intelligence firm Birst, an Infor company.

The Brexit vote took place over a year ago in June 2016, and the ramifications of this decision are still unclear. However, supply chain professionals are focused on long-term planning and being prepared for all eventualities. This is clear from the research published by the Chartered Institute for Procurement and Supply (CIPS), which covered how companies are preparing for the split from the European Union (EU) in May 2017.

The CIPS research noted that about a third of the businesses that use European suppliers were already planning how to substitute in British suppliers instead. The same is also taking place in the European Union – 46 percent of businesses expect to reduce their use of UK-based suppliers. These shifts will require huge effort across each organisation to understand the potential impact.

The immediate impact will be financial and driven by currency fluctuations. While the picture for customs and tariffs is still unclear, the weakening of the UK Pound against other currencies has led to 29 percent of companies re-negotiating their contracts already. About 44 percent of companies are also undertaking risk analysis exercises.

The role for analytics

Getting a picture of the potential impact that Brexit will have across individual relationships will be difficult enough in itself. Estimating this impact across all the relationships that a company has will be even harder. Modelling potential operational impact will therefore involve gathering data from across all the suppliers involved in the chain and using this for a more in-depth analysis.

Changing suppliers to remove some of the costs that could be incurred with Brexit is not as simple as it sounds. Rather, like Edward Lorentz’s notion of the Butterfly Effect – where a small change in the initial environment can lead to significant divergences over time – changes in individual suppliers can have a profound impact on both production of goods and delivery to customers. Rather than looking at supplier switching as a straight replacement, it’s important to model the impact over time on wider service levels, customer relationships and supply chain performance.

Areas that can be affected include the cost of goods and taxes, the changes to delivery and supply arrangements, the physical time to deliver materials or products to customers, and the impact downstream on other suppliers and their committed service levels. There is also the impact on internal processes and customers.

From an analytics perspective, getting all the data on individual customer relationships, supply chain partners and wider economic forecasts into a single view can help create a model that can demonstrate the effect of changes. For some suppliers, a change from one company to another may be negligible for the overall supply chain. For others, a switch could have more consequences for performance levels that have to be considered and planned for. Analytics can help prevent situations where smaller suppliers that are deemed as not having an impact are ignored or not managed properly, leading to problems in the future. The challenge is how to avoid getting only part of the picture due to data existing in silos.

Preventing problems within the supply chain

Brexit will have a material impact on organisations across the supply chain. However, it should not take a shift as big as this one to get more supply chain professionals using analytics. There will always be events taking place at the macro-economic or market level that will have significant impacts on companies.

Making changes involves looking at the supplier network and how tightly it is linked into how a business operates. For some companies, a tightly integrated supply chain can be essential to creating value for customers. However, this can lead to the most upheaval and damage when something goes wrong. The opposite approach, where an organisation has a more “loosely coupled” supply chain that has flexibility on suppliers used in different circumstances, is often perceived as more costly because the company cannot benefit from economies of scale or efficiencies in processing. However the looser approach can withstand those extreme changes in circumstances more easily.

The issue will be most intense for those companies that aren’t already gathering data on their supply chain operations. Without the right data, decisions will be made based on past experiences and hunches. For those with data, the ability to model potential changes and see how they could play out can improve decision making.

Brexit will lead to substantial changes in how supply chains operate across the UK. Companies will have to think about their customers and partners outside the country, and how they can cope with the economic and logistics challenges. However, this is not the first major political change that has affected supply chains, and it certainly won’t be the last. Building up a network of interwoven data on supply chain performance will be of value, whatever happens in the market.

In part 2, we'll look at what suppliers can do to avoid supplier-switching issues.


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