How will Brexit affect supply chains?

How will Brexit affect supply chains?

Milan Panchmatia Blog, Brexit, Supply Chain

Although many elements of the UK’s departure from the European Union remain unclear, it is a safe bet to assume that Brexit will impact supply lines to and from the continent.

It has been a few months since 52% of the British population voted to leave the European Union in a national referendum. The pros and cons of the departure have been debated at length. While remain campaigners have lamented a break from a huge market, leave campaigners have applauded the opportunity to escape from copious regulation.

As it stands Britain’s exit could result in a number of scenarios. These include membership of the European Economic area (the ‘Norwegian option’), a series of bilateral agreements which allow for participation in the internal market, or something more unique.

The truth is that the real impact of Britain leaving the European Union will take years to assess. As it stands, many of the terms, timescales and other details have yet to be established. However, there is little doubt that relationships between businesses on each side of the channel will be affected. Businesses looking to thrive in a post-Brexit environment will need to make sure they are prepared.

New challenges and opportunities

Depending on the outcome of future negotiations, businesses may find themselves in a position to embrace shorter, more sustainable supply chains. Alternatively, many may focus on developing localised storage facilities and positioning prepared goods in areas with the least trade barriers. New trade barriers have the potential to affect the structure of supply chains, but also the physical positioning of inventory.

A more restricted access to lower cost European labour could also see numerous businesses compete for a smaller pool of workers. For some this may present an opportunity to invest in automating processes.

British retailers reassess supply base

The impact of these potential scenarios is illustrated by a survey carried out in August 2016 by Barclays, amongst British retailers. The survey found that just under a third of British retailers are considering changing suppliers following Brexit. 45% of respondents anticipated reducing the number of products sourced from Europe.

The report revealed that 32% expect to source more products locally and more than half believe they will work more with suppliers in India, while 43% anticipate working more with Chinese suppliers. A further 38% predict they will source more from Africa.

Insight, flexibility and risk management

The one certainty surrounding Britain’s exit process is that the businesses with the most insight into their supply chains will be best prepared. The organisations that manage to remain flexible throughout the confusion will be uniquely positioned to thrive in a post-Brexit environment.

The key to any successful sourcing strategy has always been effective risk assessment. In this context, businesses able to correctly analyse their cost data and spot potential opportunities as they arise, will be able to take full advantage of changing circumstances.

Assessing the potential impact of multiple scenarios is vital to navigating the turbulent times ahead. Stress testing existing and hypothetical supply chains is one of the most valuable initiatives for businesses unsure of the future. Given the current environment, that means all of us.