The prospect of Brexit in just a few months, deal or no deal, has focused minds on the inevitable consequence of supply chain interruption. The British media have begun to report the likelihood of stockpiling goods and even panic buying of certain products such as pharmaceuticals and food – although fresh produce can’t be stockpiled and must be delivered straight to destination within a very tight window.
Automotive parts and finished vehicle logistics providers arguably are not under the same pressures as those who import and distribute food and work to retailers’ demanding replenishment deadlines. Nonetheless, a change from the seamless flow of products across our borders from the EU, which we have become used to over the last 40 years, to a ROW (Rest of World) model, where a customs declaration for all imports is required, will clearly impact on the automotive industry.
The Society of Motor Manufacturers and Traders has called for government to prioritise the free-flow of automotive goods at the border to avoid costs, maintain competitiveness and support just-in-time (JIT) manufacturing. Key issues include continued application of common customs rules and procedures without the burden of checks or reporting. We have yet to see whether and how this may be achieved.
For those of us in the warehousing industry, the suggestion of stockpiling, or businesses such as vehicle-makers adjusting their supply chain model to hold more inventory closer to home markets, would seem on the face of it to be good news. Indeed, our members have reported an upsurge in demand for extra capacity.
However, as UK Warehousing Association (UKWA) has been warning for two years, fit-for-purpose, appropriately located warehousing is in desperately short supply in the UK – and in any case, stockpiling flies in the face of the logistics principles first introduced and established by the automotive sector, such as Kaizen, JIT and VME (virtual machine environment).
These practices are now truly embedded in the industry and accepted as the norm, but what new supply chain innovations are developing?
Learning from other industries
In the retail industry, the inexorable rise of online shopping has forced retailers and their logistics providers to radically rethink their supply chains. The high street is in freefall and even the most successful retailers are struggling with the costs to serve their technology-enabled consumers, who expect to order online and receive same or next day delivery free of charge – and with the option to return. Price and delivery expectations have been driven by the giant online retailers such as Amazon, and yet everyone else in the industry must dance to the same tune.
This transition from the high street to omni-channel, customer-centric logistics has been phenomenal over the past five years and is continuing to develop at an unprecedented pace as logistics becomes ‘the new retail’.
Despite this, the retail sector still has much to learn from automotive, especially in understanding and controlling cost to serve, the impact on net margin of supply chain/logistics decisions over mode, routing, inventory and so on.
Moreover, automotive is undoubtedly leading the deliberations on Brexit, driven by the complexities of its multiple-channel, multiple cross-border supply chain ecosystem, but also by its importance to the UK economy – as an £82 billion ($105 billion) industry that accounts for a hefty 13% of export value. The UK sends £3.4 billion worth of components to European car plants annually, and three times that amount travel the other way, most without a customs check.
Various voices from the industry have sounded a warning cry, including the CEO of automotive supplier Unipart, John Neill, who believes that delays resulting from car parts held up at the border between the UK and the EU could destroy the finely timed movement from supplier to manufacturer that has evolved over the last 40 years. Jaguar Land Rover, meanwhile, has suggested that a ‘bad’ Brexit deal could cost the company more than £1.2 billion a year in lost profits as well as potentially inflicting serious job losses if the company is forced to close plants in the UK.
Essentially, what the automotive industry wants is ‘business as usual’, but the likelihood of Prime Minister Theresa May achieving agreement on that with either the EU or her own ministers is in doubt.
Perhaps Brexit may have the effect, ultimately, of driving fresh supply chain innovation in the automotive sector. Another plus point could be that, although a hard Brexit would put barriers up, it could boost the UK components industry by making a UK part more competitive than an EU one, given the potential tariffs and border interruption, and persuade OEMs to increase the percentage of UK parts on cars built in this country in order to hit rules of origin requirements.
In summary, while retailers’ supply chains are complex, due to the explosion of omni-channel, they still don’t compare in complexity with automotive supply chains; both have their strengths born of different market experience, yet remain as silos, closed to one another with minimal cross over of resources and skills.
My message as CEO of an association that supports and promotes the interests of warehouse operators and logistics providers across all sectors, is that there is opportunity for knowledge sharing and adoption of best practice between different industries – each has much to learn from the other and pretty well nothing to lose as we face the challenge of Brexit together.
Peter Ward is CEO of UK Warehousing Association