Yesterday I had the opportunity to participate in a meeting in Barcelona in which the Secretary of State for the European Union, Mr. Luis Marco Aguirano outlined to the extent possible the current situation on Brexit, therefore, not very clarifying.
In any case and referring to what the supply chain and supplier management is, I will try to outline the current situation and challenges faced by my clients both in the United Kingdom and in the rest of Europe at the moment and the challenges in the medium / long term depending on how the Brexit events unfold.
On one hand, it is true that there is an important asymmetry in the level of stress in the supply chain and supplier’s relationship, in general if we look at the situation in the United Kingdom with respect to the rest of Europe.
On the other hand, in the United Kingdom we find in sectors such as technology, manufacturing, industrial and distribution, situations of great dependence on European Union supplies, this has led to contingency plans that have been maintained for almost a year very focused on the creation of security inventories and an important dedication of financial resources destined to inventories of components, raw materials and even finished products. This has contributed very negatively to the efficiency indicators of the companies.
Stoking is a measure with a short-term perspective, dedicated to mitigate the effects of shortages in the market that could occur in case of an abrupt Brexit and the collapse of customs management services at first until the situation stabilizes.
This dynamic of security inventories increase in the rest of Europe is much more limited and it is concentrated in very specific technological sectors and especially in the aeronautical sector, since the dependence in general on supplies sources in the United Kingdom is less in the EU, at the same time the ease of locating alternative local suppliers. In both cases we talk about very short-term measures that do not solve a potential future problem at all after Brexit, both with agreement and without it, since in both cases it is more than foreseeable that there will be customs penalties on imports from both sides.
Taking into account this increasingly feasible potential, we have begun a process of competitive review of current suppliers and a survey of alternative local and non-EU suppliers in order to systematize and standardize cost comparison and decision models which do not jeopardize the competitiveness of the company and if needed we can quickly execute.
The work axes are focused on:
a) Implementation of TCO cost models that allow us to make localization decisions versus maintain the current provider.
b) Inclusion in contract clauses that exempt payment of custom duties in a given period (The duration of these clauses has logically limited effects depending on the scope of application of customs duties).
c) Review and risk analysis extended to Tier 2 and Tier 3 supplier.
d) Source in local suppliers for products that are currently imported from the European Union, or from the UK as appropriate.
e) Production transfer to destination markets of part or the total of the production either in own plants or through local partners in destination.
I currently see the market just thinking about what will happen in the short term, first and second month after a Brexit, but few are working to ensure long-term competitiveness and that is where companies truly play their future.
At ProcValue we help organizations prepare for Brexit and implement sustainable solutions that guarantee their success.