Political uncertainty leaves supply chains 'in danger of faltering'

Roy Williams
6 May 2015

As the General Election arrives, UK-based industrial supply chains are in danger of faltering unless urgent steps are taken to counter the hiatus effect that an unprecedented level of political uncertainty could bring.

Factors such as the increased likelihood of a hung parliament, the possibility of an EU referendum, the rise in support for minority parties and the possibility of SNP domination in Scotland and the associated effect in Westminster, mean today's General Election is the most unpredictable in modern history. For UK industry, this political uncertainty could cause businesses to become more cautious about their investment spending and in some cases a dip in orders ahead of the election is inevitable.

While most supply chains are sufficiently robust to withstand a temporary dip in demand, there is concern about what might happen if the uncertainty surrounding the election becomes protracted - if, for example, the party with the largest vote fails to form a government and a second election becomes necessary.

If this happens, the prolonged period of uncertainty could create considerable business disruption and some industrial supply chains could suffer. The increased pressure on suppliers could force some out of business.

To protect their supply chains, businesses should prepare detailed plans to ensure they are equipped to withstand a longer-than-expected dip in order book activity. They should also be scenario planning so they are ready to take advantage of any likely upturn in government spending that could impact on their sector, depending on the outcome of the election.

Businesses should avoid being overly cautious. While it may make sense to postpone certain investment decisions until after the election, a lack of supply chain readiness could limit the company’s ability to react to market opportunities linked to any increase in government spending later in the year.

The main thing to avoid from a supplier perspective is being left with a high level of stock in a flat trading environment. This can be avoided by planning ahead, reducing inventory levels and collaborating with suppliers to share the load if necessary.

One of the election scenarios that could create concern for businesses is the possibility of an EU referendum. This could impact on inward investment because of the uncertainty surrounding the UK’s position as part of the European community. UK-based businesses with strong trading links in Europe could also expect to see a dip in orders.

Businesses with strong trading links in Europe need to have contingency plans in place. If an EU referendum is announced, an agile supply structure could allow them to shift their focus to alternative markets, or switch sourcing strategies, in order to bolster profits.

Some industries have also developed collaborative supplier initiatives which provide long term strategic plans to guide their industries through any prolonged period of political or market uncertainty, such as the Aerospace Growth Partnership.

☛ Roy Williams is managing director at Vendigital

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