Global Supply Chains are being forced to rethink their strategies as they attempt to adjust to the U.K.’s Brexit decision to withdraw from the European Union.
However, good supply chain management decisions have always required solid strategic risk analysis approaches to doing business in this global economy. And, a good strategy for dealing with uncertainty (as Brexit represents) is where it all starts to happen.
In the case of Brexit, there are many areas of risk to consider, since for more than 40 years, companies operating in Europe have been designing their supply chains for a trade regime of minimal paperwork and zero tariffs.
Brexit could turn this low cost, low friction system on its head. Or maybe it won’t.
Uncertainty about the ﬁnal outcome, how long negotiations will take and a possible transition period creates a huge dilemma for leadership teams.
It will be necessary for leadership teams to incorporate elements of change into their strategic decision making process. By incorporating change into their strategic decision making process, companies can pivot and correct course more quickly as Brexit unfolds over time.
Certainly Brexit is not the only worry for these supply chain leadership teams. In addition to Brexit these leaders have to anticipate, identify and analyze other potential supply chain risks to their organizations, such as from the possible instability or breakup of the Eurozone to the potential changing US trade policy under the Trump administration.
Companies that develop a strategy for facing and defending against uncertainty will be able to pivot faster than the competition.
Supply chain management teams that have learned to manage in uncertainty focus on the few risks that matter most. They assess each potential scenario and identify the critical trigger points that signal a swing from one outcome to another. That approach helps determine a clear portfolio of strategic actions that balance commitment and ﬂexibility.
Instead of basing a strategy on conditions at a discrete point in time, leaders engage in a continuous cycle of execute, monitor and adapt, redirecting the company toward the best opportunities over time.
In a recent article entitled “Is Your Supply Chain Ready for Brexit?“, the authors offer some guidelines that can help leadership teams understand how Brexit could play out for them and their companies:
- deﬁne the speciﬁc uncertainties your business might face and their economic impact on your company (absolute and relative);
- formulate a set of probable scenarios and their economic impact;
- devise a speciﬁc set of strategic options; and
- identify a clear set of signposts for action.
Global supply chain risk grew to a record high at the end of 2016 as the CIPS Risk Index, powered by Dun & Bradstreet, rose to 82.64, from 79.14 at the end of 2015. The figures put global supply chain risk at the highest level in 24 years following a year in which the pace of globalization appeared to slow.
If applicable, please pass this information along to those supply chain management members in your organization.