For three years, the UK has been staring into the abyss, awaiting a Brexit outcome, with organisations left to hedge their bets on what to do until then. CPOs tell SM about their pain points and what they’ve done
Whatever happens on 31 October, Brexit has already affected Christmas. In August, a fifth of UK supply chain managers in businesses affected by seasonal demand said preparations have been more difficult, the CIPS Brexit survey revealed. And 78% risk being turned away from the UK/EU border due to a lack of paperwork if there’s a no-deal – and these are businesses with EU supply chains.
CPOs are focused on ensuring there is no break in business, but the solutions are far from uniform. While stockpiling is the saviour for one business, it could be the downfall of another – or an impossible ask when warehouses are full and prices sky high. Even within an organisation, there are pros and cons. The fall in sterling’s value has given the Natural History Museum its best visitor numbers, and taken away its ability to start long term experiments, requiring a certainty of supply of petri dishes and chemicals that the March deadline could not deliver. Read on to see what has been done, and for further guidance head over to www.CIPS.org/Brexit
AG Barr: watch the price of sugar
While 95% of AG Barr’s manufacturing is in the UK, the maker of Irn-Bru, Snapple and other soft drinks buys a wide range of raw materials and packaging from Europe and the rest of the world. Short-term concerns about blocked ports and immediate deliveries to sites from Europe have led to stock increases of 25% to 30%, says Gordon Crane, group procurement manager.
“We’ve just repeated what we did in March ready for October. And we might be doing the same again for January,” he says. This involved identifying key components coming in from Europe, and increasing raw materials and packaging stock, to delay any impact. Sugar is a key commodity which is usually brought in from Europe, points out Crane, and higher prices would see UK producers push up their prices. “Ultimately, there’s a shortage of sugar in the UK,” he says, the same as the whole marketplace, leading to price increases, which is impossible to mitigate against, he adds. European sugar suppliers currently offer a Delivered Duty Paid price, but after Brexit it could be subject to tariffs. “Nobody’s going to offer prices they know they can’t actually deliver on.”
Uncertainty has been the biggest issue. “The ripple that it’s causing is all the what-ifs. What if we get a deal, what will it look like, what will this mean for our forward input costs far beyond Brexit? Nobody really knows because when tariffs come into play that will impact. And where will the currency sit? If we crash out of Europe, and the pound falls less than one-for-one against the Euro, it’s going to drive different decisions within the marketplace.” Crane points to sweeteners – a key product – it buys from Germany. “Without a doubt that will be a risk for us, because sweeteners are the key to a soft drink. The alternative to that would probably be towards China, which is something we’d be quite averse to, but again we wouldn’t rule it out, depending on the impact of Brexit.”
Cummins: avoid import-export bottlenecks
For the US-based maker of engines, filtration and power generation, with multiple locations in Europe, communicating across its global supply chain has been key. It began by ensuring capacities and constraints were known and, if potential hiccups were discovered, strategies were put in place.
Denis Ford, international sourcing leader EMEA & APAC, says: “We needed to understand their current capacity: could they increase effectively? Were they getting similar requests from other clients or areas? How were they going to store extra goods?”
Components for the B6.7 litre engine, built in Darlington, come from Germany, US, China, India, Netherlands, and the engine is supplied to the UK and Europe. With goods in and goods out a large part of its business, Cummins has concerns about transportation lanes, ports of entry and modes of transport if the usual routes are affected by new documentation. “But there are mitigation plans government have put in place,” he says.
Compliance with import-export codes could be a particular bottleneck says Ford. “We’ve not had to do anything at the moment, but I know the French and English sides of ports have increased their staffing levels and procedures.”
One downside for Cummins has been that some of its service-related suppliers, such as banking, have relocated to mainland Europe. And, while not knowing the final outcome has meant preparing for “multiple eventualities”, the closer understanding of the supply chain has strengthened supplier relations, says Ford. “And when [Brexit] happens, there could be some positive supply chain efficiencies that come out of this.”
J Sainsbury: currency informs everything
With many areas of exposure for the UK’s second-largest supermarket, there has been a lot of time spent scenario planning, says Patrick Dunne, director of group property, procurement and cost transformation. “Being a UK-centric business, how the currency behaves post-31 October will inform our sourcing strategies. In the case of no deal, we face WTO tariffs; that is worst-case scenario,” he says.
The company has been looking at risk implications and mitigation plans, adding stockholding for critical items where possible. “People say grocers are stockpiling but it’s impossible because of the inability to keep fresh produce,” says Dunne. It has increased that of essential non-perishable stock “within reason”, but while the retailer has taken some extra temporary storage, space is “simply not available at a macro level”.
There have been discussions with an EU supplier of critical components for in-store refrigeration systems to ensure it can be reliably sourced. But more worrying is the medium- to long-term labour market, with immigration rules affecting seasonal produce pickers, transient warehouse operatives, drivers, and store workers. “Even now we are seeing people heading home for holidays to places like Poland and not returning to the UK…it’s becoming less attractive financially for workers, plus with the exchange rate, sending wages back home is less valuable.”
In the week of Brexit there will be greater manning levels of its stores, to handle any increased shopping levels, says Dunne. “And if ports and the transport industry are organised enough to sort out the paperwork and get our goods through – and we are working well enough with our big logistics organisations to hope that is the case – and we keep a close eye on tariffs, then it will be business as usual: that is what we are hoping for.”
Ministry of Defence: stockpile non-perishables
“We’ve had to stop quite a lot of business-as-usual stuff to work with suppliers to check how prepared they are,” says chief commercial officer Andrew Forzani. “Our focus has been on the impact to the economy and how that flows into our supply chains, and the impact on the things we’re trying to deliver.”
The MoD is one of the largest caterers in the UK, feeding the Armed Forces, which is no simple feat. So it has worked with its catering suppliers around contingency plans to keep supply chains going, stockpiling some non-perishables.
“There will be a fast-track process in a no deal event for certain types of priority freight such as medicines and some perishables in certain circumstances for goods to flow through the borders more quickly,” explains Forzani. This will be in place across government departments, he says, for freight classified as the highest priority.
Simulating the impact of potential border delays has helped to identify particular items with longer lead times or where choice is limited. “We haven’t been stockpiling across the board,” says Forzani. “It’s been done intelligently. For specific items we’ve been asking suppliers to hold stock, or stockpiling that item ourselves into our own supply store. But it’s not massive, there aren’t huge amounts of stock sitting around the UK’s military bases.”
A lot of MoD activity is UK-based or government-to-government contracts, he says – and Brexit doesn’t change the whole policy landscape of the department “like it does with Defra or the Home Office”. But it does have dealings with firms like the UK section of French Airbus and Thales.
“In supply chains which are more European based, risk would be more present, so that’s where we’ve focused understanding, not just on stockholding. We rely on particular people, skills and capabilities of EU nationals, and that could be a risk under certain no deal scenarios.”
The planning has given the MoD a clearer focus on the visibility of its supply chain at the lowest levels of tier three, four and five. And a strengthened SRM programme has created a strong platform for Brexit discussions, and greater transparancy. “There’s been a drumbeat for the past two years, but we have met all 19 tier one suppliers individually recently, working towards a possible end of October deadline,” he adds.
NHS Arden & GEM: contract plans
With 900 staff, including 100 clinical specialists, NHS Arden & GEM Commissioning Support Unit delivers support services, from IT and business intelligence to procurement and contracting, to more than 100 NHS clients in the UK, and its main concerns are regulatory changes.
Senior procurement manager Neli Garbuzanova says: “With a commissioning support remit, our preparation is focused on regulatory changes. Currently, we comply with a ‘light touch’ legislation when procuring healthcare services, which requires a degree of advertisement for some public contracts. This NHS procurement regulatory regime may change.”
Currently, there is a proposal in the Health and Social Care Parliamentary Committee concerning legislative changes for procurement in the NHS as part of a long-term plan for the NHS. This, explains Garbuzanova, includes the introduction of a ‘best value’ test on whether to use procurement or not. The scope and practicalities around its application are one uncertainty.
From a practical perspective, the government has been preparing its own website for advertising public contract opportunities, which will become active at the eleventh hour of the 31 October 2019 if there is no deal.
Planning for Brexit has exposed weaknesses in the supply chain, such as concern about continuity of vital surgeries currently provided via the NHS outside of the UK. In these cases, she believes, collaborating with providers across a wider range of markets is beneficial for UK patients. Similarly for critical cancer treatments and components delivered from Europe.
“Maybe, through Brexit, we will learn how exposed we are, and see how necessary collaborating with our European partners is,” she says. “There’s a little bit of nervousness internally and I can see it from my customers. We are extra careful how we advise and plan for future projects because of all the uncertainties at the moment. We are always monitoring the risks of Brexit and try to keep staff informed too.”
Historic Royal Palaces: sourcing in the UK
It’s been a record year for the charity, with more than five million visitors to its six venues in the past 12 months, but HRP is not immune to Brexit concerns. “Some of the barriers to people travelling more freely from Europe might cause issues, but on the upside, there’s a possibility that domestic visitors might increase,” says head of procurement Marc Dial.
While 95% of its suppliers are UK based, they may be sourcing materials and ingredients from overseas, so HRP has worked with them to identify potential pitfalls. Dial refers to catering firm CH&Co’s Ampersand, which has stockpiled imported non-perishable ingredients, and increased storage space for more ingredients. Daily fresh food has been moved to more local and sustainable sources, with more seasonal produce coming from palace gardens, says Dial.
By stipulating that contractors pay London Living Wage to catering and cleaning staff, HRP hopes to avoid potential labour market issues, even “if we do end up losing members of staff, because of their right to work being no longer valid or new entrants not coming into the country”, says Dial.
“Supporting domestic suppliers has been a benefit,” he adds, pointing to uniforms for visitor-facing and security staff at Hillsborough Castle in Northern Ireland, which are now being produced by a local supplier. “Over the past two years, we’ve been sourcing more domestic suppliers,” but some uniforms are still sourced overseas, and he worries about disruptions in supply or tariffs that may be applied in the future.
Rising costs are a key theme, something that could also apply to the bulbs purchased each year from Holland for the palaces’ gardens, if they incur post-Brexit tariffs.
Overall, says Dial, Brexit has caused a shift in the organisation’s mood. “We’ve been a very ambitious and forward-thinking organisation, but all the uncertainty is causing us and our CEO to adopt a more cautious outlook than we’re ever had before.”
Amberside Capital: benefits of food price hikes
“I’m not a Brexiteer,” says director David Scrivens. “But we are where we are. It’s going to create change, which is amazing for businesses. My view is it will create huge opportunities.”
And an opportunity for the fund manager is the food price increase that the UK is likely to face post-Brexit. Scrivens’ firm is behind the development of British high-tech tomato-growing business Sterling Suffolk. It currently runs one site the size of 11 football pitches, producing 1,520 tonnes of tomatoes a year in energy-efficient glass houses that have climate corridors, evaporating water to keep it cool in summer and heating plants – not entire greenhouses – using vortexes in winter.
“If we can grow, produce and compete with current food prices, when the prices go up, that puts us in an amazing position,” says Scrivens. “We’re suddenly benefiting from the food prices going up and protecting supply in the UK.”
Sterling Suffolk tomatoes currently go to a wholesaler, Suncrop, and are distributed to UK supermarkets including some Waitrose and Morrisons stores. The technology and equipment for the glasshouses does come from overseas, mainly Holland, but Scrivens remains unfazed.
“We’ll still want to do business with the Netherlands. It might cost us a little more because of import tax, but you can never predict the future cost of something you’re importing. It’s not really going to change much with Brexit and even if we’ve got tariffs, we still won’t know the exact price because it will depend on exchange rates at the time.”
Only 20% of the 500,000 tonnes of tomatoes eaten yearly in the UK are currently domestic. But Scrivens has ambitions for 10 more tomato-growing sites over the next five years. The next big construction project for the business is planned for June 2020, by which time Scrivens hopes for “a little more certainty”.
Mitigating risk of trade wars, currency dives, terrorism…