The Impact of Brexit on a Global Supply Chain
Recent global events have severely impacted supply chains around the world. The COVID pandemic alone has forced entire industries to react quickly, and the twin impact of Brexit has revealed some serious issues with an increasingly complex global supply chain. It has been reported that Brexit has caused more disruption in supply chains than cyberattacks and natural disasters combined. When as many as 19% of businesses use a supply chain that comprises over 30 suppliers, disruption of any kind is always going to cause problems. While being connected in so many ways has opened new doors of opportunity, Brexit has revealed flaws in supply chain management that are going to have long-term consequences for all industries.
With the breaking away from the EU, a whole new level of trade restrictions has been implemented. That has immediately pushed up the costs of raw material and parts for UK firms reliant on multiple suppliers located worldwide. Disruption has added to the problem, with new customs checks that came into force on January 1st, 2021, slowing down delivery rates. That leads to slowdowns in production time and slower delivery times for customers. Lead times are being stretched to their limits for both raw materials and supplies, and both B2C and B2B brands are having to shift to a 'just in case' model rather than a 'just in time' setup. As it becomes more challenging, expensive, and time-consuming for UK brands to receive or deliver goods to the EU, businesses on both sides of the Channel have to rethink their supply chains and quickly.
Still dealing with a catastrophic approach to COVID, the UK government has been struggling to manage the difficulties caused by Brexit. They have announced funding of £20 million to help small businesses get more used to the change in customs rules and costs, calling the current situation 'teething troubles' that were entirely expected. However, the fact is that supply chains were being disrupted by Brexit as far back as 2016 when the referendum's results were announced. Some industries were harmed almost immediately. The textile and apparel sector, which has been increasingly reliant on a global supply chain, has been hit hard, with projections showing a dramatic drop in exports. Escalating prices and shipping delays are impacting the construction sector too. Timber alone has risen by 20% since trade restriction began in January, and demand is expected to continue to rise to unprecedented levels.
The Challenges of Complexity
One of the reasons why supply chains have shown such a high vulnerability to Brexit changes is that they have become so complex. Modern logistics with multi-layered, interconnected, and unwieldy structures have an inherent weakness. Minor disruptions can cause flow issues that have a knock-on effect across the entire chain. Modern businesses can have supply chains that take in primary, secondary, and tertiary producers and manufacturers, as well as ocean terminals, freight companies, and airlines. As Brexit has highlighted, there are too many links where disruptions halt productivity.
To respond to the supply chain challenges caused by Brexit, firms are going to have little choice but to change their approach to supplies. The 'just in time' approach needs to be moved away from until those 'teething problems' are more resolved and new trade agreements are established. Until that happens, supply chain management teams will need to be looking more at the 'just in case' model, meaning more forecasting and more of a strategic approach to inventory management.