In supply chain management understanding the environment in which you operate is critical to the strategic decisions needing to be made. This report will evaluate a lean, agile and hybrid supply chain models, varying degrees of decisions to be made in relation to challenges including Brexit, to ensure successful outcome. As Brexit isn’t defined or fully understood by the governments of the European Union and the public, hypotheses to the potential impacts on supply chain will be evaluated. To conclude I will summarise the findings and produce recommendations for a supply chain manager to consider in future operations.
Supply chain
A supply chain is a network of connected organisations cooperatively working together to control, manage and improve the flow of materials and information from not only manufacturers and suppliers, but also transporters, warehouses, retailers and customers. (Jaklic et al., 2006)
Supply chains are commonly categorised into three groups; lean, agile and hybrid.
Lean
Lean uses principles of waste reduction and continuous improvement to make the supply chain as effective as possible. The principles of lean are to improve quality, reduce cost and reduce waste; to successfully improve and become lean the whole process needs to be evaluated from ‘cradle to grave’. Jeffrey and Ross (2009) identify a commonly used tool for waste reduction which is the TIM WOOD acronym also known as the Seven Wastes:
• Transport – unnecessary movement of materials
• Inventory – too much or not enough to meet the demand
• Movement – ineffective employee movements due to
• Waiting and delays – inactivity
• Over production – continuation of production when customer demand has stopped
• Over Processing – re-work and reprocessing
• Defects – non-conformances
This tool is… and pros and cons
Agile
Collin and Lorenzin (2006) identify that an agile supply chain is operating the concept of flexibility, facilitating a greater level of responsiveness to global and customer demands with short notice, maintaining a price and lead times. An agile business has four main characteristics:
• Market sensitivity – understanding what is happening within their market and the ability to react to it
• Extensive supply and demand information sharing – all partners involved in the supply chain have the same access to the same live data
• Process integration – transparency of information and collaboration enables everyone to work in the same way
• Networks – relationship management, treating the whole supply chain as a single entity
The pros and cons
Hybrid
Hybrid is an amalgamation of both lean and agile supply chains to meet the needs of multifaceted project or business. Demand for products can be forecasted with a great deal of accuracy, the chain helps achieve lean principles to a point in the production and then it becomes agile when all the customization of the product happens at the end of the production
The pros and cons
Brexit
“The UK voted to leave the European Union in the 23 June 2016 EU referendum. The government is now preparing to leave the EU in the best possible way for the UK’s national interest.” (Gov.uk, 2017) There is no defined certainty around the future agreements between the European Union and the United Kingdom governments that can be confirmed therefore, all the following impacts to supply chains are hypothetical.
PWC (2017) document entitled Supply Chain: Your Brexit Competitive Advantage have created potential outcomes to Brexit with a number of hypothetical challenges which includes increased cost, uncertain work and higher levels of administration to all three possibilities:
1. The UK maintains access to the single market, with some limits on free movement of labour.
2. The UK loses access to most of the single market, make substantial changes on free movement of labour.
3. The UK remove from the single market and comply with World Trade Organisation rules, and conduct as any other nation trading with the EU.
Decision Making
Decisions are constantly made and at all levels of a business, encompassing all processes and the work carried out. The efficiency of a company relies on the ability to make the correct decisions in every situation. For a supply chain business understanding and considering the strategic, tactical and operational assessments need to be made and actions enacted.
Strategic decisions are forward facing or the long-term goals, the basic way in which the business will operate and the distribution of resource. Strategies enable companies to understand and exploit the industry to gain a larger market share and supports the decision makers in their choice. (Anderson and Wemner, 2008)
A tactical decision in supply chain are medium-term concerns, ensuing all customers, partners and suppliers cooperate effectively. Where strategic decisions focus on the direction of the business and top level aims the tactical decisions are how the aims are going to be achieved, which involves purchasing, manufacturing, transporting, storing and selling. (Govil and Proth, 2002)
Operational decisions are those made in the short term such as day to day workings, ensuring deliveries are met, coordinating the logistics and how to deal with the issues at hand considering the constraints from higher levels of decisions already made. (Schmidt and Wilhelm, 2000)
Increase in cost
Brexit could result in a negative impact on all business sectors which import and export goods due to a change in the tariffs and taxes. Compensation for the depreciation of the Great British Pound (GBP) is another reason that could increase the cost of supply chain, due to the value of the GBP been less but the prices remaining the same in other currencies. (Kwasniok, Guarraia and Garstka, 2017). Type of supply chain. Strategic decisions need to be made when the potential for the cost to rise, this is to ensure that the business plan is still feasible and that the costs can be covered. Tactically this could result in looking for new suppliers or looking to offshore or outsource.
• Offshoring – Exporting knowledge and manufacturing work overseas to exploit lower wages and operational costs. An example of this clothing manufacture in sweatshops, where it is cheaper to employ and run production.
• Outsourcing- Where another company with specialised knowledge or skills is hired to do the work as it is cheaper than investing and developing the skills in house for the business. (Plunkett, 2008)
Additional costs to businesses potentially could be contract legalities, many contracts didn’t foresee Brexit. This is in relation to the cost of renegotiating and reworking contracts to ensure they still deliver the requirements and satisfaction to the end customer.
A forecast increase in the number of import and export declarations post Brexit UK ports will result in significant delays estimates at 360%+ (Ey.com, 2017). The implications of delays will result in wasted time in the operation making it less lean, also reduced customer satisfaction and higher prices.
Opportunities
Brexit has a lot of hypothetical negative links to it however there are some foreseeable benefits such as the ability to outline and approve new trade strategies and agreements, enabling the United Kingdom to potential lead the way in how to define supply chains going forward. The potential to define a new trade strategy, agree new trade agreements and use new aid and trade tools constitutes a major opportunity for the UK to continue championing the cause of trade and development. It is also an opportunity for the UK to make trade policy work more effectively and efficiently in delivering development opportunities (Mendez-Parra, Willem te Velde and Winters, 2016).
The PWC UK Economic Outlook (2016) in UK trade prospects after Brexit section stated that the UK has experienced a good level of success exporting out of Europe, which is a positive position for the future. Strategic decisions need to be made within supply chains whether they want to maintain soley focusing on EU markets even post Brexit and mitigating the implications or striving to obtain new markets also. This would involve tactical decisions on who the potential partners, suppliers and customers could be (Sentance, 2016).
Recommendations
Brexit will impact both European Union and United Kingdom supply chains, to prevent a negative outcome for businesses who work across the European continent, the best way is to assess the issues to ensure they can react when necessary. The following recommendations are how to reduce which supply chain supply chain disruption –
• Evaluate the supply chain – will it still be a feasible business case post Brexit? Review the implications of newly introduced taxes and tariffs, can you apply for grants or offsets?
• Are there alternative suppliers or hubs that can be used or utilised? Can warehouses be optimised to a greater standard or could the premises be relocated to somewhere that would have a lower financial burden in relation to customs taxes.
• Consider the potential to outsource or offshore to reduce the cost of the supply chain.
• Analyse existing contracts to ensure that the deliverables will still be achieved, re-work in line with new operation procedures that will be followed post Brexit
• Explore the potential cost benefit of changing EU suppliers to UK based suppliers in order to offset tariff or customs charges
• Understand what other non-EU markets are there that trade deals could be signed with.
• Review the supplier and customer business cases and ensure there are contingencies and mitigations for their organisations to safeguard against potential destabilisation.
• Complete assessment of any immediate actions that could affect the supply chain up until Brexit is finalised.
• Find potential work arounds to ensure customs clearance is quicker, such as an AEO accreditation with HM Revenue and Customs (HMRC) which speeds up approvals, this is currently in place and will continue post Brexit.
Conclusion
Customer satisfaction is imperative to the success of any business which is why competition in the global market is not only in the products but the supply chains which enable each step through to delivery. There are a number of outcomes that can impact on supply chains hypothetically positive and negatives, but the key to ensuring the continued success of the chains is that preparation and planning of the mitigations starts as soon as possible so that when policies are confirmed by both the EU and the UK government change can happen effortlessly. The one thing that is certain is that Brexit will change the way that supply chains operate and their decision-making strategies however if the right steps are taken any transition will be smooth.