Supply chains and Brexit: getting the best out of preparing for the worst
Supply chain mapping is important for creating a Brexit contingency plan. It will help with identifying how to accelerate, or rationalise supply. It might also identify disproportionate costs and lead times which may have been previously hidden in a complex chain. Brexit preparation provides the opportunity to think beyond the immediate risks.
A typical doomsday scenario involves a sudden exit from the EU, without transitional arrangements. Lorries stack-up on the M2, waiting to pass through customs clearance zones not yet constructed; customs declarations require new paperwork, albeit electronically, through a new HMRC computer system under development; tariffs might apply.
In the short-term at least, a no deal Brexit will be deeply disruptive for businesses trading with the EU. But how individual businesses are affected will vary significantly; not just depending on their situation and business model, but also due to their preparedness and choices they make now. Although for many businesses Brexit, at least at first, will be a net cost, there will also be opportunities.
Being mindful of both will help businesses achieve the optimum result.
Mindful supply chain mapping
A detailed understanding of supply chains, timings, dependencies, and costs can yield useful insights beyond Brexit decision-making. It might help identify where supply could be accelerated or rationalised, or disproportionate costs or lead times previously hidden in a complex supply chain. It might enable optionality to be built in at critical points – providing alternative supply. Most businesses will already have a keen understanding of all of these factors. But the Brexit supply chain mapping exercise, coupled with new technology options now available, provides an opportunity to take that visualisation to the next level.
Brexit may also be the catalyst for supplier review. Regardless of whether the economics of a relationship actually changes or not after Brexit – as part of contingency planning businesses will be asking "what if?". What if this input costs, for example, 10% more or takes a week longer to arrive? Those questions will often yield uncomfortable answers, particularly for businesses on slim margins. But they might also provide an opportunity for renegotiation or redesign that might otherwise have been considered non-essential. Brexit changes the threshold for action and challenges inertia.
Equally, the rational outcome from scenario planning will often be to do nothing. Where the outcome results in cost now, or is uncertain there may be a strong case for simply accepting risk or deferring a decision. In this situation the biggest challenge might be challenging a natural bias to action – particularly where competitors have made a decision to change.
Prepare now for Brexit as an EU importer/exporter
Practical steps to prepare for Brexit might include obtaining financing to extend working capital – or expediting orders in February 2019, planning for a fallow April. Equally there is also an opportunity to look beyond Brexit at fresh opportunities and markets that the business might be able to exploit.
Brexit will inevitably cause pain in the short term for many businesses, but there might also be rewards for the courageous businesses that seek them out.
Five steps to supply chain mapping
- Start supply chain mapping early. Recognise that this exercise is not just about Brexit. Set the expectation that it should deliver broader business benefits. Resource with this in mind.
- Target documentation on actionable insights. Set a high bar; will all the information to be collected be:
- New? Avoid manually collating information that already exists elsewhere.
- Actionable? Ask what you intend to do with every parameter collected.
- Quantified? Doing a sensitivity analysis relies on having numerical data on, for example, price or lead times.
- Accurate enough? Data might change, but does this really detract from decision usefulness. To avoid future distraction agree a threshold for error.
- Consider options. The supply chain map will tell you how things currently are, but how might they be different. Plan the supply chain investigation to target in on follow-up questions, identifying priority stakeholders (suppliers, customers, financiers) to negotiate with, or options for process redesign. Recognise you can only action a targeted group of potential changes.
- Expedite opportunities. Recognise that identifying the costs of Brexit will be easier than identifying opportunities. Plan to go the extra mile to find the upside in every cost.
- Ask how you will plan to avoid the bias to action. Before individuals become invested in action, what arguments would you make to defer or avoid change?