Resilient Retail Supply Chains - Minimizing the impact of Brexit and other supply chain disruptions
On the 23rd June 2016 another key date was added to the history books. The British people voted to leave the European Union. The final tally was 48.1% to remain and 51.9% to leave – as expected, the impact on the financial markets were immediate and the Pound Sterling dropped to its lowest levels versus the US Dollar since 1985. The stock markets across the globe shed value and the impact on British companies suffered big losses on the market. British retailers such as Marks & Spencer, Sports Direct and Tesco suffered double digit percentage losses on the open markets. The repercussions of this momentous event on the supply chain are only beginning to be felt by global retailers. There are two key areas of impact; Labor and the Inventory Flow
Brexit could lead to an elaborate and regulated visa process for EU citizens already working in the U.K. In Retail, fulfillment needs to be geographically centered around local markets which is why many retailers are adopting a strategy focused around localization. Retailers ability to bring products to market faster and more customized is more prevalent than in other industries. And the power of such unions as the EU is that retailers had greater open access to a large single market, but now with Brexit that will change for retail. U.K retailers will still want access to the EU market but they are likely to face greater trade restrictions and limitations. This could add further complications for quintessential British retailers like Marks & Spencer or Thomas Pink. If labor costs now go up because retailers have to go out and get work permits for their EU workers on the ground that will impact costs and eventually creep into COGS. Retailers will need to decide how those incremental cost increases will get absorbed. Will retailers swallow those costs or pass them on to their consumer?
Whilst these implications are being understood and evaluated retailers still need to reassure their employees. In the U.K. so many retail workers are from the EU – from shop floor labor all the way through the extensive supply chain. Labor in the warehouse and in the logistics nodes of the retail supply chain will all, potentially, feel the impact of the changing labor laws. In retail, this labor often interacts with customers directly and represents the brands. Could the instability and distractions from shifting labor laws have a negative impact?
It would take a minimum of two years for the UK to leave the EU. During that time Britain needs to continue to abide by EU treaties and laws, and organizations need to navigate their new waters carefully whilst maintaining their position in the market.
Flow of inventory
The EU enabled the free flow of products between its member states. Post Brexit the U.K. will now need to renegotiate trade deals which can open the door to potential legislative barriers and trade wars. Retailers will need to evaluate the position of their inventory, what markets they continue to serve and how they serve those markets in the EU. Managing inventory levels in a single market is complex enough for retailers battling with shifting consumer trends. Brexit will now add another layer of complexity with regards to tariffs, trade and time to market.
Impact on a retailer’s ability to get their products to market swiftly is especially a concern with fast fashion retailers who trade in the U.K. Fast fashion retailers who serve the elusive millennials market normally have weeks and sometimes days to react to demand fluctuations. Extra inspections and permit authorizations could inject delays into that lead time which could ultimately translate into lost sales. Fast fashion retailers have a very small window to maximize on margin – that’s now at risk if their time to market runs long.
Dealing with disruption
The impact Brexit will have on supply chains is similar to any other socio-economical or geo-political change and can have as much of an impact to supply chains as a natural disaster or unforeseen disruption. The commonality is the unknown – supply chain strategy is now very much based on unknowns rather than certainties. How supply chains react to such disruptors comes down to how nimble and how flexible the supply chain network has been built. No supply chain can prepare for every possible disruptor, but how quickly the supply chain can lean on its digital mirror to react faster will separate which supply chains just about survive and which actually thrive in moments of chaos.
Supply chains must be nimble enough to be able to react to such changes – which markets will become more profitable, where may the new costs impact profits. These are but a few questions that supply chains must be able to address in order to survive and thrive in this environment.
Retailers understand the risks around supply chain disruption and invest time, effort and resource to assure supply in the face of a crises. Unfortunately, disruptions are impossible to predict and in the event of one occurring managing the impact on the business is never smooth sailing. Through this process, decision makers often realize that an accurate view of current inventory, total costs, production, and availability of alternative transportation providers and suppliers is hard to get sight of. The cost of this ‘reactive’ approach can outweigh the potential lost revenue.
The most effective risk mitigation against supply chain risk is to have a supply chain management system and process in place that allows a business to be collaborative, transparent and agile when working with suppliers and trading partners. A starting point when considering how to mitigate the impact of supply chain disruption is to consider the following two points:
The more industrial grade digital supply chain you have to mirror your physical supply chain the greater flexibility your supply chains will have to react to these occurrences. For example, if a UK based grocer depends on supplies from French vineyards for wine, Italian distributors for olives and Spanish farmers for pork, with the new geopolitical shifts how fast can this grocer find new sources of product? How rapidly can they determine the potential cost impacts new tariffs etc may have on their cost to fulfill? Without greater transparency and understanding of the network they might be operating with old data or even no data. A challenge in a market that demands rapid and wise reactions to these disruptions.
Retailers are interdependent on their suppliers, sourcing partners and customers - For global brands, the retail supply chain has become an interconnected supply network. Inward-facing supply chains will have trouble in an increasingly globalized world. Disparate supply chain functions creates silos, which can make a company particularly vulnerable when it needs to strategically orchestrate its end-to-end supply network.
The unpredictable nature of risk, and the disruptions that occur as a result, often finds businesses reacting to events they might never have anticipated in the past. Those with the most connected and informed network will likely have the most effective contingency plan and lose the least from disruption.
Collaborate for Greater Visibility
Vast and international supply chains which operate on a network where transaction data between trading partners is pooled together and shared, gain the benefit of all parties being updated on changes, progress and events in near real time. A supply chain network based on a cloud platform can handle supply chain disruptions with the help of others on the network. This collaborative way of working where outside partners can tap into a common unified source of real time information can help a company make quick decisions when the pressure is on. For retailers a collaborative platform that can provide a network view of inventory is vital when they are trying to provide a product that is “mass customization at scale” - requiring a high-resolution look at supply chain activity, from sourcing to customer delivery.
The best companies today are those that recognize disruption is unavoidable, and that agile, responsive networks are better suited to manage these risks than rigid, inflexible supply chains. These supply chains can not only respond better to disruptions but also thrive in a state of constant chaos.
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