UK firms should see Brexit as an opportunity to rethink supply chain strategies and make them more resilient, according to McKinsey & Company.
In a report McKinsey said the level of EU-UK trade, coupled with the length of time it took for the EU to negotiate trade deals with Canada and Switzerland, meant even if a firm Brexit decision is taken in the next few months, “uncertainty about the UK’s trade regime could persist for a decade or more”.
The report, based on interviews with around 50 UK executives, said in 2018 the EU accounted for 54% of UK imports and 49% of exports, while trading ties were particularly important for firms in the food and drink, chemicals, and automotive sectors.
An executive at a food manufacturer said: “If Brexit goes badly, we could easily lose £100 million of business. Some of our products become immediately uncompetitive if we are hit with tariffs.”
Another executive at an automotive manufacturer said: “The operational costs alone of managing increased customs processes will be in excess of £7 million pounds a year for our company.”
McKinsey outlined six steps to rethink strategy:
1. Redefine sourcing strategy. This could include onshoring, developing local suppliers and hedging currency and commodity price risks.
2. Revisit footprint. Optimise manufacturing and logistics operations.
3. Review inventory strategy. Ensure business continuity and maintain service levels.
4. Prepare for changes in demand. Reinforce forecasting capabilities and increase flexibility to deal with greater volatility and uncertainty.
5. Adjust product portfolio. Alter R&D strategies to manage changes in product specifications.
6. Strengthen capabilities and talent. New forecasting and analytical capabilities will required a push to attract and retain talent.
“Whatever the eventual outcome of Brexit, companies can and should see the current high-uncertainty environment as a prompt to rethink their supply chains and so make them more resilient,” said McKinsey.
“For many firms there is a big need to update supply chain strategies, bring greater flexibility to their operations, and build new structural agility into their organisations.”
McKinsey said companies that adopt strategies for “high-uncertainty supply chains” could see increased revenues of 3%, due to fewer stock-outs, and a 10% drop in overall inventory by reducing excess safety stock.
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