In June the citizens of the United Kingdom voted to leave the European Union. As a result, the political system is in a state of chaos as the various parties jockey for control. Some of the changes expected from a Brexit (i.e. British Exit) vote have already happened. A week from the referendum, the pound was down 10 percent against the US dollar and eight percent against the Euro. The UK Chancellor has said there are “clear signs” of a shock to the economy, and the Governor of the Bank of England is talking of a need for fresh stimulus measures. Forecasts for economic growth are being revised downwards for the UK, Europe and the rest of the world.
To start the withdrawal process the UK has to invoke Article 50 of the Lisbon Treaty, which ignites a two year period of negotiation on the exit terms. Depending on the actions of the new Prime Minister, Brexit may not occur until 2019. This gives supply chain professionals ample time to consider the alternatives. However, they are faced with the challenge of uncertainty not knowing the outcomes, so the next couple of years will need to be spent considering different scenarios.
A two-and-a-half year delay could lead to paralysis and stagnation for European companies as business confidence, then consumer confidence, steadily worsen. Questions are coming up about future trade agreements with China and India that could affect the international flow of goods. As the second largest economy in Europe, the UK could still be an attractive base for global companies, and the fall in Sterling could make purchasing assets in the UK a lower cost to companies looking to enter Europe.
How Should Supply Chain Professionals React?
Given the situation, what can supply chain professionals do in the face of this uncertainty? Keep calm and do some objective analysis. Businesses may consider examining:
- More local sourcing and inventory positioning within the new trading blocks
- An increase in dual sourcing to improve supply chain resilience during the period of uncertainty
- Changing sourcing, production and distribution strategies to take advantage of the new exchange rates
- Examining the supply chain implications of changes to labor rate differentials across Europe
Your instinct may be to roll out the spreadsheets and crunch some numbers. There are a number of problems with this:
- Spreadsheets are great at evaluating specific alternatives, but they lack the power and insight of software containing optimization and simulation engines
- When you’re modelling multiple scenarios and variations, spreadsheets get clunky very quickly, and without careful error checking and version control it’s easy to find yourself in trouble
- You might be able to produce the numbers but when analyzing supply chains it’s great to be able to visualize the network in graphic form
Use Supply Chain Modeling to Compare and Test Potential Supply Chain Changes
There are hundreds of supply chain what-if questions to answer when running a global business—and the number seems to be growing monthly. The huge volume of data and complexity of problems can no longer be managed by spreadsheets, and disparate applications lack end-to-end network visibility. You can’t afford to leave million-dollar decisions to gut feelings.
Supply chain modeling enables companies to visualize the existing structure and policies of the end-to-end supply chain, continuously optimize to identify a better future state and rapidly answer what-if questions to adapt to changing market conditions.
- Visualize: For businesses early on in their supply chain design journey, it’s essential to first gain full visibility of what is happening in the existing supply chain before looking at potential future scenarios. Even when downstream visibility is good, upstream visibility is often limited to Tier One suppliers, and it’s sourcing that often leads to supply chain vulnerabilities. Instead of trying to make sense of numbers on a screen, modeling allows you to bring data to life as a digital model in easy-to-understand maps, graphs and dashboards. An end-to-end view of the supply chain enables you identify potential problems and areas of inefficiency or risk.
- Optimize: Identify optimal supply chain designs based on assumptions around demand, costs, lead times and availability. LLamasoft can show not only the cost-optimal supply chain network design, but also the optimal design given variations in your assumptions and business objectives.
- Analyze: If facing concerns regarding Brexit and other economic and political uncertainties, evaluating scenarios will help you make data-backed decisions to react rapidly as the ramifications unfold. Scenario analysis enables you to answer supply chain “what-if” questions by evaluating and comparing dozens of scenarios side-by-side.
- Simulate: Reduce risk by testing your supply chain changes before implementing them. Simulation technology lets you test strategic changes a digital environment that truly factors time and variability into each individual transaction, decision and movement throughout the supply chain at SKU-level before enacting them. How’s that for confidence?
In an environment where the only thing you can be certain of is uncertainty, the ability to test scenarios to inform supply chain decisions will be vital for future supply chain success. That makes the importance of analytics in supply chain design and planning absolutely critical, and businesses lacking rapid analytics capability could be left behind. Instead, design your supply chain to survive—and thrive!
Phil Gibbs is the Executive Director of Customer Success in EMEA for LLamasoft. Gibbs holds of 30 years of experience in the supply chain and logistics industry, supporting hundreds of customers along their supply chain journey. With LLamasoft since 2011, Gibbs has also held roles of increasing seniority at Logistech Limited, KPMG and Exel Logistics among others.