How Brexit Will Affect your Supply Chain
Deliveroo can bring a burrito directly to your doorstep. ASOS have launched same day delivery in London. Supermarket shelves are stocked with Peruvian quinoa, Italian olive oil and Madagascan vanilla essence. It’s easy to feel like supply chains are getting simpler or shorter, but the onward march of globalisation and international trade has created an interconnected supply chain that is, although rich with opportunity, creates more room for disruptions.
According to a study by Deloitte, 74% of surveyed organisations faced a disruptive event with third parties in the last three years. As many as one in five experienced a complete third-party failure or an incident with major consequences for their supply chain.
What is the impact of a supply chain crisis?
When supply chains do go wrong, the impact can be catastrophic for businesses. One of the most infamous examples of supply chain disaster was the Tesco horse meat scandal in 2013, when cheap meat used in burgers was found to have contained up to 29% horse meat. Tesco lost nearly £300 million in share value following the scandal.
In some supply chains, it isn’t just money that can be lost: lives can be put at risk and reputations can be damaged
When supply chain communications fail
Supply chain crises such as these happen when communication is not good enough. The horse meat that ended up in Tesco’s burgers had passed through so many processing companies and cold storage centres, and had been relabelled so many times, that no one was quite sure who was responsible for dealing with it. The PIP implants had found their way into NHS surgical theatres through failings of French watchdogs and a lack of scrutiny over the private companies in the NHS’s supply chain. A resilient supply chain needs to not only avoid over-reliance on one or two suppliers (as KFC found out the hard way when it switched to a sole supplier for its chicken, meaning branches had to close when their supplier couldn’t deliver), but also have strong communication links at every step. Strong communication links promote transparency, accountability and faster responses in a crisis.
How might Brexit affect supply chains?
One of the biggest challenges to supply chains and maintaining communicative relationships with suppliers will be Brexit. Whatever the outcome, Brexit will cause a shake up in the supply chains of many businesses, and the chaos at ports such as Dover that some are predicting and potentially the need for every lorry driver to have an international driving permit (IDP) seems likely to dramatically slow down the flow of goods into the country. Government officials from the departments of health and transport drew up three scenarios for a no-deal Brexit – mild, severe and one called “Armageddon”. Some industries will be hit harder than others, such as the gin brewers who are facing a potential “juniper war” due to shortages of the mostly imported berries. As a result of this bleak prospect, almost businesses that work with suppliers located in the United Kingdom expect to move some part of their supply chains out of the U.K according to a study by the Chartered Institute of Procurement and Supply (CIPS).
Unfortunately for those involved in supply chain management, the making and breaking of new supply chains will make crisis communications harder. When Toyota’s supply chain was disrupted following a fire in 1997, the company’s close relations with its suppliers meant that it was able to recover quickly – opening factories again five days later. After Hurricane Mitch devastated Central America, most of the banana crop in Guatemala, Honduras and Nicaragua were destroyed. However, by communicating with a network of suppliers that Chiquita Brands International Inc. had close ties with, they were still able to maintain a steady supply of bananas, growing their revenue by 4% by the end of 1998.
The importance of communication in supply chain resilience
Building and maintaining close working relationships with suppliers is vital for supply chain continuity, as is a diverse network of suppliers. With Brexit potentially threatening those relationships, supply chain managers must be ready with a robust communications infrastructure and software. Clear, efficient lines of communication are necessary to on-board new suppliers and communicate quickly with existing ones in case of a (highly likely) if an “Armageddon” no-deal Brexit happens. If this is lacking, then when a truly unpredictable crisis happens (a terror attack, fire, loss of power), it becomes even harder to manage it across the supply chain quickly and effectively.
It’s when one of these true disasters happen that communication becomes the most important and the most difficult. Having a parallel form of communication in place, one that is more streamlined than a call-cascade or an email chain, can make the difference between recovery and disaster. If a fire takes out the phone lines of your supplier, you need another way to get hold of them. If a contaminated food product has entered the supply chain, then you need to be able to contact every company who handles that product between the source and the customers’ plates in order to find the contaminant and stop distribution. It is the corporate social responsibility of organisations to ensure that they are ready to handle an emergency safely for everyone, from the factory workers all the way to the consumers. Reliable, fast communication is the essential ingredient needed for flexibility, and it’s up to every organisation to deliver.
In a time of extreme uncertainty, we need to be prepared for the unexpected and not be reactive to a potential supply chain disruption brought on by Brexit.