This article by Clinton Jayne looks at individual organizations around the world and what their supply chain may have to endure during this period of geopolitical instability, where trade arrangements seem to change daily and the long term impact of potential arrangements such as Brexit are largely unknown and not transparent.
I am not an economist and make no attempt to look at national economies and their individual circumstances. I also do not consider myself a politician (a fact I am immensely happy about) and do not look at political imperatives that drive the trade uncertainties. The point of this article is to look at individual supply chain circumstances and what organizations may need to do to ensure their survival and longevity.
Those expressing concerns
So, having explained the context let’s consider some of the known outcomes (taken from news broadcasts) thus far.
Airbus recently completed a study of their UK circumstances and the possible impact of Brexit and the customs union. The factory (employing 14,000 people) that produces wings and relies on the supply of aluminum and other products, not all of which are produced in Britain. I have no idea what their detailed findings are but their warning to the politicians indicate that the impact could be very significant.
BMW also joined the voices that express such concern. BMW has over 4,000 UK based suppliers with products moving back and forth across the channel. They are concerned about trade tariffs for countries outside the customs union and how they can continue business. How will the borders be addressed?
The Irish have a major concern over the Northern Ireland-Ireland border and how this will be addressed, as Ireland remain part of the EU. This has major ramifications for both and that includes some complex socio-political concerns. No practical solutions are yet apparent.
The CBI is talking about some manufacturers facing extinction if Britain does not remain within the Customs Union.
British farmers have long spoken of imported labour to assist during the picking season and its absence could have very dire consequences and potential loss of crops and income.
Outside the UK, China, India, Canada and other countries are in trade conflict with the USA imposing new trade tariffs on various products. This shows no sign of slowing down or ending. Reactive trade regulations do not make for good business.
and above all this, the impact of migration of people seeking refuge from internal strife and proxy wars is not reducing. This is taking its toll across the world but especially in Europe and USA. It seems to have taken priority over all else at this point in time.
What should we be doing?
There have been a growing number of voices speaking of their concerns, but let’s focus on individual businesses: what does each business need to consider in order to minimize the impact of tariffs, resource availability and indeed the impact on the sale and distribution of end products?
It may all fizzle out and normality return. This is highly unlikely. Things will not return to normality overnight and those driving increases in tariffs and those seeking solutions do not seem to find any compromise.
The problem lies not just in the tariffs. The wording of each is of the utmost importance. If you trade with the USA and China, there could be complications that prevent you from doing business with the USA unless you cease trading with those sanctioned countries. Sounds a little convoluted but it’s there. There are other countries involved also, including Iran and a few others deemed to be a problem for the USA and/or EU. Airbus and others have major contracts with Iran that are now directly affected by USA sanctions. The consequences could be catastrophic for those businesses, involving billions of dollars.
So, what should every organization do to check on the impact they may find themselves facing?
Each manufacturer obtains raw materials from various suppliers. Suggested actions include:
- Check on each supplier and see if they have been affected by geopolitical trade decisions.
- Question suppliers and obtain assurances of supply given a number of possible scenarios or current circumstances. Ensure that they have contingency plans where necessary.
- Check each supplier and not just by value. You may have a critical component that costs little but without which production stops or is negatively affected.
- Begin to consider contingency plans for your organization where you have sole suppliers. Find alternatives that are not subject to the same risks.
- It is not a bad idea to establish a risk register for your supply chain and evaluate each one and describe its impact should it be realized. Your management can then make informed decisions on possible mitigation.
- Consider the impact on costs and include as realistic values as you can in the risk register. Cost any possible delays and consider carrying higher stock levels. Just-in-Time may not be the perfect answer anymore.
Your organization sells its products locally and possibly internationally?
- Are there any duties or new fees likely to be imposed?
- What is the impact on profitability, delivery delays, cost of manufacture?
- Is the product still saleable with the imposed costs added?
- What fixed price contracts are affected and can they be resolved or mitigated in some way?
Is there a situation where your end product moves across trade barriers more than once back and forth? Possible returns for remanufacture, re-use of materials etc. There may be an additional cost that this leads to?
Where tariffs have been imposed on manufacturing this would probably affect the sale price and possibly future sales. This means the normal trading partners would need to renegotiate. Existing sales contracts may not have a clause to change prices outside certain parameters. This could present serious problems on profitability. Contracts may need to be renegotiated and this requires major diplomacy especially between EU partners and those outside the EU trade agreements.
Resilience and continuity
It’s easy to say ‘build resilience’ but much harder to put into practice. The supply chain can be very complex and requires considerable analysis before any action is taken.
- Avoid single points of failure in the supply chain;
- Make sure that all aspects of trade tariffs and restrictions are well understood;
- Look at work-arounds for risks identified;
- Understand the risks and financial implications well. Do not underestimate them;
- Don’t put your head in the sand, it leaves you exposed!
You can achieve the ability to continue and avoid possible major collateral damage to your organization through a formal approach to these issues. Admittedly the issues are not easy to grasp and the scenarios many. However, good planning can make the difference.
Clinton Jayne MBCI, MIRMSA, ITIL 3 cert, CISA, PMP
Clinton has over 23 years’ experience in continuity and resilience and his work covers a very wide range of industries. He is currently working at King Abdullah University for Science and Technology in Saudi Arabia. Contact firstname.lastname@example.org