Will Brexit break your supply chain?
Brexit means uncertainty and complexity for supply chains, but that shouldn’t stop us planning
We know the result, but not much more. The only certain conclusion we can draw from the EU referendum vote is that we’re in for a period of uncertainty.
In one sense, little has changed. The UK’s membership of the EU continues. David Cameron has said it’s up to whoever replaces him to officially notify the European Council of the UK’s intention to leave and that won’t be until September. Then there’s a two-year period to negotiate a “withdrawal agreement”. Even that may be extended.
The UK could remain in the EU into 2019 or longer.
So, on the one hand, nothing’s changed. On the other, everything is different. Whether you support Brexit or think it’s madness, it’s impossible to deny it’s a game changer.
Volatile supply costs
First, there’s the short-term uncertainty. Even the most optimistic supporter of Brexit would struggle to claim we’re not likely to see increased volatility. Big currency moves, for example, are likely to be a fact of life for some time to come. We’ve already seen a 31-year low against the dollar. One analyst has predicted it could fall to parity by the end of the year.
Whether that’s true or not only time will tell, but less settled currency markets will be here for the foreseeable future. The impact on costs of overseas supplies and raw materials could be significant.
Uncertainty also means investments are more difficult to predict, both for businesses themselves and for suppliers. That could affect plans to support growth.
Longer-term, though, the big questions are likely to be about access to markets.
Diverging Regulation and Standards
This is not always going to be simply about tariffs. There are other dangers in going your own way.
Before the advent of the single market, for example, it was often impossible to sell a product designed for one EU market in another due to different technical standards or regulations operating in each.
Manufacturers must keep an eye on these barriers creeping back in. Existing harmonisation in industries may be eroded over time by new regulations and developments in either Britain or the EU. Equally, they may be the result of intentional protectionist measures introduced by the remaining EU countries.
Like any change in tariffs, this will only become clear with time. There is one thing we can already bet on, though: increased complexity
Increased supply chain complexity
Any arrangement other than membership of the EEA like Norway’s is likely to see either a change in the UK’s terms of trade with the EU or the possibility to change its terms with those outside – and perhaps both.
That could mean opportunities, as well as challenges. But if it means sourcing from new markets or just navigating new rules when buying from existing suppliers, it will mean changes to the supply chain that have to be managed.
There’s no crystal ball, but there are things businesses can do to prepare now.
Most obviously, they need to look at anything they can do to make their supply chains resilient. Dual sourcing from suppliers both within and outside the EU could be one way businesses hedge their bets, for example.
Even before considering that, though, businesses need to make sure they really understand their supply chains, and have visibility across them. That will enable them to consider the impact the various possibilities may have and plan accordingly. It will also mean they can react faster and more intelligently to the dangers and opportunities Brexit brings when the time does eventually come.
Thailand Floods Devastate Hard Disk Drive Supply Chains
The impact of the recent floods in Thailand upon hard disk drive (HDD) production in the fourth quarter of this year means retailers world-wide are bracing themselves for PC shortages in the run up to Christmas.
This HDD availability issue won’t pass quickly
Production at two of the world’s largest HDD makers – Western Digital and Seagate – has been badly hit by the flooding (the worst in the country for more than a century), and it could be well into 2012 before they fully recover to normal output.
Toshiba and the HDD motor supplier Nidec have been affected too, with Nidec’s manufacturing facilities being inundated with water.
(Note: 60% of Western Digital’s HDD production is located in Thailand, along with 50% of Toshiba’s. Thailand is second only to China in HDD production.)
The HDD shortage is set to hit Notebook PC assembly/production the worst – sourcing HDDs from other suppliers will result in inevitable price rises.
Key questions to ask
The floods in Thailand have caused short-term price increases for all types of PCs, and will create shortages when manufacturers’ strategic stock runs out.
- Could these shortages and the resulting supplier or sub-assembly supplier workarounds have been avoided?
- Did the PC manufacturers really understand the magnitude of their individual and collective dependency on one HDD supplier?
It’s the whole IT industry being impacted; those PC manufacturers who were most prepared with their contingency planning should be the ones that will fair best.
For some computer manufacturers and media player, set-top box and stand-alone hard drive producers, performing a supply chain risk analysis and quantifying the exposure (by sensibly investing in contingency planning/mitigations) before the floods will be feeling like their smartest business move ever now; acting on analysis findings will be providing them with a real competitive advantage.
Risk assessment and supply chain analysis is surely a ‘no brainer’ now?
Granted, the challenges facing companies in the technology industries (re: building resilience in their supply chains) are huge, with many firms claiming that, the speed of innovation is so steep, they never really have the time or resources to build true redundancy into their chains.
But surely the lesson from the Thailand flooding catastrophe is that making time to risk assess and analyse supply chains (by using a simple and effective tool like SCAIR, which helps to make sense of a complex area of risk) has to be at, or near, the very top of every type of aforementioned manufacturers’ ‘jobs to get done’ priority list from now on? Or at least well before the first raindrop of next summer’s Southeast Asia monsoon gently falls?
White Paper: Industry Contagions Buried Deep in Supply Chains
In today’s global supply chains, the threats that are most likely to elude identification are those buried deep in an organisation’s upstream supply chains. The loss of a direct, single source of a key material could prove a major headache for one company, but what happens if the common source of an industry feedstock should fail?
Systematic supply chain analysis and quantification of the value at risk can help to identify critical exposures and justify practical mitigating actions, such as establishing alternative sources in geographically distinct areas, or holding more strategic stock. The following article considers a number of events which have had global consequences and lays down a challenge to industry to work together to find mutual mitigations... Click here for the complete Supply Chain Risk White Paper.