As we move nearer to Brexit, there is growing concern about potential shortages and the impact these could have on cross-industry supply chains and the availability of some consumer goods and medicines.
Continuing uncertainty about the UK’s post-Brexit trading position means many businesses are worried that a hard Brexit could bring damaging consequences; causing breaks in supply and making it harder and costlier to get goods to market. Many businesses have been banking on a favourable transitional agreement that allows frictionless trading with Europe until 2021. However, this outcome is by no means certain and time is rapidly running out. Without a transition deal agreed, the UK leaves the EU on the 29th of March 2019 and some disruption will be inevitable, as will a devaluation in sterling, adding to the woes of importers.
Border delays and Brexit
To protect their businesses, Airbus and some other manufacturing giants have already announced plans to stockpile goods in order to mitigate the impact of shortages or border delays when the UK leaves the EU. Now drug companies are adopting a similar strategy to avoid potential shortages of important medicines. As more corporates decide to act, should small and medium-sized businesses be doing likewise?
Any decision to stockpile goods or inventory should not be taken lightly. The goods would need to be purchased in advance, putting pressure on cash flow, and the cost of storing them onsite or in a warehouse facility would add to the business’ overheads. Businesses importing goods from the EU may believe they have little option but to keep more stock. However, in reality only those operating to very short lead times, such as just-in-time manufacturers, would be affected significantly by border delays.
“Small and medium-sized businesses are likely to be more resilient to such supply chain shocks and many could solve the problem of import delays by simply bringing forward re-order points by a few days”
Other businesses that are reliant on high volumes of goods sourced from the EU may need to consider other ways to mitigate their Brexit-related risk exposure. Stockpiling could be part of the solution, but it may also be worth developing an alternative sourcing strategy and talking to supply partners about how to bolster the supply chain on a shared-cost basis.
For net exporters to the EU, a hard Brexit could pose even greater challenges if the regulatory approvals required for market entry are no longer possible. In this case, the problem would be less about ensuring reliable sources of supply and more about getting goods to market. In this scenario, no amount of stockpiling would help.
Good supply management is the key to avoiding disruption and it is important for businesses of all sizes to forge strong partnerships with key suppliers. Close contact will give businesses better visibility of what is going on further down the chain, among Tier 2 suppliers and beyond. Spotting a potential bottleneck at one end of the chain and taking steps to address it, could avoid disruption at a later stage.
Further reading on Brexit
- Brexit trade talks: Will Juncker and Trump’s talks freeze the UK out?
- Brexit: What do fast-growing businesses think?
- How much of a threat does Brexit pose to UK entrepreneurs?
Regular risk assessments should be conducted to ensure supply networks are robust and there is sufficient capacity if trading conditions come under pressure. Whilst these assessments incur cost, which could put some businesses off, they should consider the cost of potential supply chain disruption, which could hit sales figures and cause reputational damage.
Care should be taken when engaging new suppliers too. Due diligence should be carried out to check the financial stability of the supplier and their commercial track record, including a consideration of cost-quality delivery. Cost is usually an important consideration for vendors but choosing a supply partner who is willing to collaborate could also bring benefits by improving speed to market or allowing scope for negotiating better deals in the future.
Supply chain disruption
Where there is a significant risk of supply chain disruption – potentially due to Brexit – businesses should consider putting in place a dual or triple-sourcing strategy. This is an approach often taken by manufacturers to protect against possible supply shortages but depending on the extent of the risks involved, it could be applied more widely.
“If a business is reliant on sourcing goods from the EU, then it may be possible to engage an alternative supplier in the UK or another part of the world to avoid any Brexit-related disruption”
Stockpiling goods ahead of Brexit will not be necessary for all businesses but it is important that it is considered as part of any contingency plans. In the event of a hard Brexit, aside from the likely devaluation of sterling, businesses trading in Europe could face significant disruption and any steps taken to mitigate this now could protect the reputation of the business and ensure its continuity.
Mark Waterman is a consultant specialising in helping businesses to prepare for Brexit at management consultancy Vendigital.