De-Risking the Supply Chain in a No-Deal Brexit
May 30th, 2019
While arguments continue as to whether the aggregated votes of Leave or Remain won the European elections, finding a means to assess the effect of a no-deal Brexit on supply chains more urgent than ever.
In November last year Halma plc, a global specialist in hazard detection and life protection, warned that “business could experience shorter-term disruption around the time of Brexit in its supply chain”. More dramatically, Iain Prince, Supply Chain Director at KPMG wrote that “Brexit is shattering the supply chain status quo” and warned of unpredictable cost increases of anything from 10-50% before adding that businesses “should not forget the strategic opportunity (Brexit) presents”.
While some may argue strongly for the opportunities if a no-deal Brexit, there is no doubt that most companies are struggling to think beyond the potential disruption to their supply chains. For example, Electrocomponents planned to increase stock holdings of high-turnover industrial and electronics products by more than £30m while Dominic Blakemore, CEO of a company that provides meals to organisations as varied as train companies and the NHS, was planning for supply chain disruption by varying menus and searching for novel supply sources.
Such examples could be multiplied but what every business wants is an answer: should they increase inventory? Find new suppliers? Close manufacturing and distribution centres? Open new markets? The options are seemingly endless and the only viable solution is to plan for multiple scenarios and assess the probability of each scenario using robust statistical methods. It was precisely this kind of scenario that de-risks supply chains in almost any eventuality and it’s one of the key problems that I-Plan was created to solve.
Even when markets are stable, simulating supply chain scenarios is complex. When those supply chains face unprecedented and unpredictable risks to their stability, the nature and number of variables increase exponentially. It is essential, therefore, that these scenarios are modelled taking into account factors such as transportation, tariffs, inventory, labour costs and the stability of every provider in the supply chain.
This situation is compounded by human psychology which dictates that scenario planning is often inadequate and sacrificed in favour of real-time problems that demand immediate attention. That’s because the future, even it’s not too distant, is harder for us to think about than the present. Psychologists call this ‘hyperbolic discounting’ and experiments have shown that we will forego larger, more distant rewards in favour of short-term gains.
This is, of course, a false economy.
Lora Cecere, CEO of Supply Chain Insights, described ‘What-If’ capabilities as “a primary driver of agility” and estimated that “only thirty percent of companies” have those capabilities in place. While Leavers may label planning for shortages of food or medicine as part of Project Fear, the risk to supply chains is real and pressing.
I-Plan has de-risked global supply chains against multiple scenarios including earthquakes and political crises and we are now doing the same for Brexit. It is one of the most complex challenges supply chains have faced and it requires robust predictive and prescriptive analytics together with an ability to link supply chain scenario planning to strategic decision making across an entire organisation.