Supply chain models may shift in such times of uncertainty

posted by Malcolm Harrison
6 September 2019

We may not know what challenges Brexit will unveil, but we do know the procurement and supply profession is embracing the challenge, says Malcolm Harrison, group CEO, CIPS.

It’s impossible not to be affected by Brexit. The precise outcome may be unclear, but it is evident there will be challenges, particularly in supply chains. These will present opportunities for the profession to seize.

Procurement and supply professionals are well versed at managing risk, times of change and adversity, but we always find a way to adapt to mitigate the impact. Yet Brexit is a different ball game as we know there will be changes, but it is uncertain as to what will change. Planning for 31 October is incredibly difficult. But plan we must.

The uncertainty is having a knock-on effect as July’s IHS Markit/CIPS Purchasing Managers’ Indices revealed, with business optimism at its lowest since 2012 and job losses at their steepest for six years. UK businesses are experiencing real costs because of the Brexit impasse, the lower value of the pound, the increased probability of no deal and the slowdown in the global economy.

But supply chains are adaptable. I am not advocating blind optimism, but we will have to switch to different operating models, look for alternative sources of supply, or adapt our needs to what is more readily available and affordable.

My own procurement experience goes back to before the EU, when borders were anything but frictionless, tariffs were in place and we dealt with multiple currencies. We all carried more stock of imported materials as we were acutely aware of running out. I was once 10 hours away from having to close a production line because of a stock out due to customs delays. At least we had enough stock… just…

This is what we can expect to see more of, and it’s already happening with pharmacists warning of low stock items, and stockpiling other medications. Stockpiling is a solution and a problem at the same time – the last CIPS Brexit survey showed 43% of UK supply chain managers were stockpiling goods.

For businesses sourcing goods and materials from the EU, this will be one solution; but only a temporary one. The lack of premium warehousing space in the UK is hampering businesses in their plans to build up stocks and is also tying up cash.

This is where we could see a big shift in supply chain models, away from the lean, efficient sourcing we currently enjoy. The trend for just-in-time delivery means many businesses will not be geared up for holding large amounts of stock. Businesses in many sectors will be chasing the same materials, potentially creating more shortages or increased prices.

So what can be done? Performing a risk analysis exercise, identifying the critical supply issues and reviewing at regular intervals should be a starting point.

Know what information you need concerning new customs processes, apply for the correct registrations, train people to complete the documentation and adapt procedures accordingly. And start doing this yesterday!

Many supply chains have become more expensive, impacted by Brexit-related currency fluctuations and a reaction to political developments. Our research found UK businesses are re-negotiating contracts so different prices can be agreed in volatile times.

The last Brexit survey found 31% of UK supply chain managers had already amended their existing contracts. Lidl announced this month it is engaging with all its suppliers to ensure they have the necessary information, certification and documentation in place to avoid disruption in their supply chains. Lidl’s suppliers all have delivered duty paid (DDP) clauses in their contracts and any tariff costs will be picked up by them or indeed further down the supply chain.

All this comes at a time when procurement professionals have their broadest remit ever. Cyber security, ethical sourcing, the urgency of the sustainability agenda and the need for visible supply chains, all on top of the day job of ensuring continuity of supply and delivering increased value.

This high demand for procurement and supply skills is another opportunity to demonstrate how valuable we are to our organisations. We are faced with opportunities as much as we are faced with challenges.

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