Sourcing across the EU will doubtless be hit hard by Brexit, but you can limit the pain. © Getty Images
Sourcing across the EU will doubtless be hit hard by Brexit, but you can limit the pain. © Getty Images

Is it time to rethink your sourcing strategy?

Rebecca Ellinor Tyler is former editor of Supply Management
9 June 2017

With seismic shifts anticipated in the global marketplace, some businesses are reconsidering their supply chains

Sourcing strategies can seem like fashion fads: one year’s flares are another year’s skinny jeans. In truth, it is the ebb and flow of economic, market, technology, political and geopolitical events that are at work – perhaps never more so than now.

Most sourcing decisions are based on how vital or strategic a product or service is to the business, with other considerations like cost and sustainability. But the picture is ever-changing, sometimes overnight.

One such night was Thursday 23 June 2016, when the UK surprised many and voted to leave the EU. The next day, the pound fell to levels not seen since 1985. Ripple effects that impact currency, inflation, commodity prices, investment and decision-making will be felt for years to come and will inevitably have a major impact on sourcing decisions.

“A weaker pound means upward pressure on costs for importers or companies that purchase goods with a high proportion of imported components,” says David Mooney, general manager and director of supply chain management at Efficio. “This pressure could be further compounded if the UK leaves the EU without a free trade deal and not having negotiated favourable deals with other key global markets.”

Suddenly the manufacturer who has passed a component all around Europe in a merry dance to machine it, coat it, treat it again and finally assemble it in the UK has to consider a mass of customs fees. Not many months later, Trump’s comments hinted at an end to free trade across the US Mexico border.

The currency issue is real and now, and still too few UK companies seem to be grappling with the problem, says Steve Tanner, a procurement and supply chain director at consultancy MJS3. “You can see the direct consequence of forex issues regularly, but what surprises me is that doesn’t seem to concern a lot of businesses, which I can only presume is ignorance rather than deliberate.”

Shifting strategies

Preparation is, however, going on. Firms in the UK and Europe are drawing up plans to sever supply chains across the Channel to avoid post-Brexit tariffs, CIPS research found in May. Its survey of more than 2,100 supply chain managers found a third (32%) of UK businesses that use EU suppliers are looking for domestic replacements. And almost half (46%) of European firms expect to reduce use of UK suppliers.

Companies might want to apply for Authorised Economic Operator status – or AEO – while the UK is still in the EU, suggests Richard Wilding, professor of supply chain strategy at Cranfield School of Management, who works with businesses to improve their supply chains. The AEO provides them with an internationally recognised quality mark, effectively labelling them reliable trading partners, and it is hoped to continue beyond Brexit. “If you have this recognition, you can streamline customs clearance,” he says, “which helps with shipping between the UK, Europe or the US.” He advises companies to review their supply chain strategies and consider shipping some items directly to UK ports, without docking in the EU, and ensure they have the right technology and people in place to manage new processes.

Most large British companies wondering what Brexit means are seeking agility to cope with the unexpected, says Rajesh Shah, a director at consultancy The Hackett Group. “They don’t yet know the outcome but they may need to suddenly move thousands of people – location, offices, manufacturing infrastructure and so on. And since sterling is weaker, businesses are rethinking their importing/exporting strategies. Sometimes local is more effective, sometimes it’s vice versa. They need to move fast: the price difference can be substantial.”

Retailer Next, long seen as a bellwether for the UK clothing industry, raised shop prices by 4% to offset the higher import costs from a weaker pound. And still in March it announced its first drop in profits for eight years. Meanwhile, companies such as H&M are moving supply chain operations from Asia to Europe to improve their speed-to-market, thus competing with lightning-quick supply chains like Zara’s.

Simon Gray, head of procurement at P&O ferries, recommends companies use the threat of Brexit to review key supplier relationships. “Is the supply chain prepared and should organisations look to multi-source core requirements?” he asks. “Should you replace key partners with others who, through their physical locations, are less exposed to regional challenges? There are opportunities to fix longer-term arrangements with key suppliers to mitigate future financial risk.”

Businesses with supply chains flexible enough to alter the mix of local and overseas suppliers will be best placed, adds Mooney. “Where obvious local alternatives don’t exist, businesses would do well to start developing new suppliers and giving guarantees on, say, volume commitments or intent to purchase for a minimum period of time.”

He adds: “With inflation rising to reach a 3.5-year high earlier this year, even businesses with a local supply chain may come under pressure. Procurement teams can help mitigate costs by collaborating more closely with supply partners to identify efficiency measures, and foster innovation across the value chain.”

Certainly some in the food and drinks sector are increasing local content because consumers want to feel they have some involvement in a product. And American Apparel’s new Canadian owner Gildan recently announced it was to test out a ‘Made-in-USA’ product line to see if it was more popular. Consumers will have to put their money where their mouth is though, as some US-made items will cost as much as 25% more.

Coming home

Trump’s protectionist stance could see higher tariffs on goods imported into the US and more expensive cross-border trade in general, says Mooney. This may prompt some US companies that outsource their operations to move them back onshore.

Boeing, for one, after posting earnings well above expectations for the first quarter despite a drop in deliveries of aircraft, is looking at bringing more work in-house to reduce cost of building jetliners. “We are thinking through future supply chain architecture,” chief executive Dennis Muilenburg said on an investor call reported by the Wall Street Journal.

Experienced supply chain director David Kemp says: “Companies are wary of movement in political agendas towards nationalism, as we have seen in the US and UK, but equally, with the resounding support for the European Agenda coming out of the French electorate, there is no certainty. We can expect the bare economics and behaviours driven by the customers to continue to dominate what companies do.”

And in some cases they will have no choice but to source the supply from wherever and whomever does it best. “You have to be able to react when you can’t predict,” says Chris Sawchuk, principal and global procurement advisory practice leader at The Hackett Group. “Demands are always changing. Agility has to be an organisational capability because of disruptive innovation and forces, and one way to do this is the adoption of emerging technology and by rethinking businesses in a more digital way.”

In the meantime, all these challenges mean supply chains are becoming more complex. It’s a trend that looks set to continue. Jim Goodhead, interim procurement and supply chain consultant at Stour Procurement, says: “The automotive sector, for example, sources local parts, seats made from South American leather, rare earth metals and copper from African mines, and innovative electronics from Europe. Everything is assembled in several centres of excellence and exported back across the world.

“The longer the chain the more complexity and risk it has. Global pressures for cheaper or more innovative products continue, and so supply chains will continue to become more complex.”

To mitigate that, particularly in the automotive sector, Goodhead expects tier one suppliers to consolidate packaging requests to their suppliers. Wheels and tyres could be delivered as one, he predicts as an example.

Risk and resilience isn’t getting the time and attention it requires, believes Nick Wildgoose, global supply chain product leader at Zurich Insurance Group. “I’ve worked with a lot of companies on resilience over the past eight years,” he says, “and much of it has been over the comprehensiveness of their risk assessments.

“Clever companies are starting to compete in terms of supply chain resilience as an analytic. They are aware of some of the pinch points in the marketplace and are securing capacity to stop competitors moving in. They also know where their suppliers are, and who to contact should a site become compromised.”

Be flexible in your supply chain number approach, advises P&O Ferries’ Gray, and accept the value in multiple niche solution-providers at times of unplanned urgent requirements. 

It is only now that we’re seeing the long-term impacts of poor supply chain choices, believes Tanner. “The smart, forward-thinking organisations have been fostering longer-term sustainable relationships that have grown in importance with the uncertainty, whereas too many companies have chased quick-win savings for years.

“While we of course want to deliver value, the constant trade-off and indifferent markets mean the relationships have been unsustainable or quality has been sacrificed. Board pressures to reduce cost without concern for impact has created adversarial markets, and it’s a ticking time bomb. For years I’ve watched company leaders globally push this and eventually it was going to implode.”

He has seen a lack of genuine medium and longer term goals – or even a vision. “It’s not easy stuff to do, but I see more decline in its relative strategic importance to companies.”

In the case of Skanska UK, Dale Turner, director of procurement and supply chain, says his company has put a greater focus on relationship management and planning ahead. “We’ve been collaborating early with our strategic supply chain – including a key knowledge share on market conditions. Two years ahead of tenders landing, we are aligning our supply chain so resources can be prioritised to deal with major pinch points. We are consolidating the supply chain for key commodities and hedging and forward-buying where appropriate. And we are looking at a wider pool of providers – flexible and agile to adapt to changing requirements.”

Collaboration is key, and David Kemp has seen a trend towards sharing capabilities. “Whether it’s delivering the motorway network, building naval ships or planning for HS2, we see companies working together to achieve deliverable outcomes with less formal relationships than in the past.

“The use of classic strategic sourcing tools to assess the balance of power in traditional customer/supplier relationships is now being reassessed to take account of partnering models, with the result that the formal JVs of the past are being replaced by alliances of companies with cost and benefit-sharing models.”

Improved technology makes it easier too, provided security requirements aren’t an issue. “Alliances can spring up overnight, innovating in market structures that would have been impractical in the past.”

So what are businesses actually doing? “Partnering, forming alliances, continually reassessing capability versus the market, just as they have always done and will need to do,” says Kemp. And what should they be doing? “Upping the energy and attention they pay to risk management, assessing the potential for the application of new tariffs and different terms of trade, and watching other macro economic drivers – commodity prices, logistics developments and exchange rates.”

More than ever, you must pursue socially responsible and inclusive agendas that comply with the law and the changing expectations of the public, he concludes.

In essence, agility, awareness and competence are key to coping with the changing forces that impact supply chains. Things move pretty fast, and you have to too.



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  • Examine the impact of currency fluctuations and import/export costs
  • Consider ports of entry, logistics costs and applying for AEO status
  • Agility: you might not be able to predict the future, but are you equipped to react quickly when change comes?
  • Ensure medium- to long-term goals feed into your plans
  • Collaborate with existing and new suppliers to strengthen your position and plan ahead
  • Capability – have you got the necessary people, tech and know-how in place to adapt to changing conditions?
  • Carry out a risk and resilience-mapping exercise for vital goods and services
Location: Home-Based with travel
We are offering a salary up to £60,000 for this role, depending on experience.
Zurich Insurance Ltd
Canary Wharf, London (Greater)
£33,119 - £37,209 pa
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