A chain reaction

6 min read

More than 10% of manufacturers fear that all or part of their organisation could go out of business as Brexit pressures mount, according to a new CIPS report. Is there anything that can be done to shore-up the nation’s industrial supply chain?

Arguably the most important part of any manufacturing operation is the supply chain – getting goods in and products out is a complex process involving international borders, precision timing and increased vulnerability. The UK’s decision last summer to leave the EU has brought with it a range of challenges for manufacturers, most of which relate to their imports and exports, and all the companies that make that happen.

“The more you trade or send goods internationally, the higher the risk,” says Duncan Brock, director of customer relations at the Chartered Institute of Procurement Specialists (CIPS). “These risks include commodity prices, logistical changes, political crises, natural disasters and so on. You are exposed to all of that. The big challenge for the supply chain is to understand those risks and mitigate them.”

In a recent survey of procurement specialists from all sectors (http://bit.ly/2hRud3n), CIPS found that, when it comes to Brexit, these risks come in many shapes and sizes. Currency fluctuation was the biggest worry – in manufacturing, 75% of respondents highlighted concerns about dramatic changes in currency and the impact it will have on their supply chain. However, says Brock, in the world of procurement and supply chain, this is nothing new. “Cost pressures are high, and have been for a while, especially since the referendum,” he explains. “Those pressures are always there in procurement, though, and people are always looking for ways to drive those costs down.”

“Awareness of the risks”
A standout statistic from the CIPS survey is the fact that 12% of manufacturers said that all or part of their business would cease to exist in the wake of Brexit. On the face of it, that could be potentially catastrophic for the industry, but Brock is more pragmatic. “My interpretation of that stat is that manufacturers are aware of the risks,” he says. “Take EU companies looking to move business away from the UK. If I am a manufacturer that supplies into Europe and that market disappears, I will have to look to shut down that part of the business as I will have things that I might not be able to sell elsewhere.”

Similarly, any import tariffs that come out of Brexit talks will have an impact. Brock highlights the fact that a car will pass through Europe several times in its manufacturing lifetime before it is complete. “If we don’t have free flow of goods through Europe, it’s going to make life tricky,” he explains. “If that car can’t pass through ports easily, businesses will have to adapt, and perhaps even close, as manufacturers consolidate more and more into one location.”

This will bring opportunities for smaller companies in the supply chain to win business. “Brexit is set to move a lot back on-shore,” says Brock. “On top of that, smaller suppliers are more agile and can bring new technology to the big manufacturers faster than a lot of bigger companies. A lot of the supplier innovation will end up coming from SMEs.”

Getting manufacturing voices heard
One way that manufacturers can drive down costs, which may not be immediately obvious, is in simplification – something that may not come naturally to procurement staff. “If you look back 10-15 years, the market was all about global sourcing from across the world and chasing the dollar,” explains Brock. “Since then, the market has learnt from that experience and now have more understanding that that approach isn’t necessarily the best solution. We’re seeing people looking for simplification. If you get a simpler supply chain, it becomes more transparent, and if it’s more transparent, you can see better what’s going on in it. If you can take out a few middle-men, simplify the process and bring things back onshore, that’s something that organisations are looking to do.”

A proactive approach will also be needed as companies look for assistance from those in charge as they chase the best deal. As Brock points out, larger companies are unlikely to suffer here, but smaller ones are. “Smaller manufacturers often struggle to get heard unless they go through a representative body like EEF or the CBI,” he says. “The latter has been particularly vocal about how government needs to better acknowledge the importance of manufacturing in the UK, rather than being swayed by other sectors like financial services. The industry needs to be heard; the challenge is in making it so.”

Positives from Brexit
Despite industry uncertainty, Brock sees Brexit as having the potential to have major benefits for manufacturing. At the outset, it
will encourage companies to take stock and look properly at their supply chain.

“Manufacturers often tend to use the same core supplier base, with maybe a few components moved occasionally, unless someone goes out of business,” he explains. “What’s happening now, though, is that people are having to look hard at their supplier base, and properly review their long-term strategy, which could destabilise a lot of suppliers that feed into manufacturing sites. From a procurement perspective, people are definitely taking a longer-term look at their suppliers than they normally would.”

For suppliers, the opportunities are even greater, continues Brock. With manufacturers looking at their supply chains in ever greater detail, and particularly looking to ‘reshore’ them to the UK, those companies that supply products into manufacturing sites have a rare opportunity to win new business. “Our report highlights so many great opportunities for suppliers as manufacturers look to onshore and find UK-based suppliers,” he says.

Brock acknowledges that Brexit is causing “a bit of doom and gloom” and, as a result, the industry is feeling a bit concerned. However, he points to the monthly Purchasing Managers’ Index (PMI) reports (http://bit.ly/2zcp6oS) as a sign that manufacturing remains resilient. “The industry is still healthy, and has gone up strongly in the past few months,” he explains. “That shows that not just manufacturers, but also their supply chains, are in a good state at the moment. The currency is also working in our favour, which means we’re seeing a good level of orders from both the UK and overseas.”

Brexit and technology
Technology is set to have a major impact on supply chains of the future. This, explains Brock, will in theory lead to a more agile supply chain. “The challenge is in linking up the relevant technologies,” he says. “If you can get all the elements working well, then a) people will have both better speed to market and better visibility and b) the people who work in the supply chain are freed up to work on meeting challenges.”

The speed and productivity boosts that technology can bring may be offset by Brexit, adds Brock. “Brexit will bring in cost issues and additional red tape as the regulations are tightened up. This will slow down the supply chain, counter to technology enhancing it. It’s going to be interesting to see how the two factors play against each other.”

As the CIPS report demonstrates, manufacturers are concerned by the impact Brexit could have on their supply chains. Any potential tariffs imposed in a post-Brexit world would slow down international trade and even jeopardise the long-term future of some manufacturers.

Getting Newton Aycliffe back on track

However, Brexit provides an ideal opportunity for manufacturers to look at the workings of their supply chain and look to simplify it. The industry also needs to work harder to lobby for government support, with support from organisations like EEF and the CBI, to ensure the future remains bright for the UK’s manufacturing supply chains.

One company that has looked to simplify its supply chain is Hitachi Rail Europe, whose Newton Aycliffe plant is the first of its kind outside of Japan, and has been established to serve the European market.

In such a fast-paced and high-tech facility, making sure products are available exactly when they are needed is not an easy task, and requires careful planning. Hitachi Rail worked closely with component supplier, Optimas, to simplify their increasingly cumbersome existing process.

“We worked closely with the Hitachi Rail team to rationalise the number of duplicated parts and simplify the numbering system,” explains Peter Mould, application engineer at Optimas.

This push towards standardisation also meant a significantly reduced bill of materials, as fewer unique components were required.
“By standardising component choice for Hitachi Rail we were able to offer simplified supplier management, but that was not the only benefit of local knowledge,” explains Mould. “Working with Hitachi design engineers we were able to enact EU component standards across the facility instead of Japanese equivalents, which simplified logistical demands and ensured that the fasteners were specialised for applications in the UK.”

With a clear component policy defined in conjunction with Hitachi Rail, Optimas turned its attention to
increasing the efficiency of transporting fasteners from storage to the state-of-the-art production line. Optimas supported the Hitachi Rail team to develop a kanban system on-site. The system aims to increase the efficiency of production processes, by ensuring an optimum number of parts are available on the line at any one time.

“Our dedicated Optimas team continues to work closely with Hitachi Rail to constantly review parts and the supply chain,” concludes Mould. “We update the policy at the start of every new project, meaning that we keep the bill of materials in review for every new model, so we can maximise overall cost effectiveness and efficiency. By being dynamic, we can move on the same path of expansion as Hitachi Rail as it grows in the European market.”