When the UK finally leaves the EU, there will be a need to establish new trading arrangements with the Union.
Alternative options being considered include membership of the European Economic Area, or favoured nation status, bi-lateral agreements and World Trade Organisation rules, according to Phil Gibbs, Executive Director of Customer Success, LLamasoft.
The UK would also need to establish new trading rules with non-EU countries. Whatever the arrangements, any new barriers to trade will affect the structure of a supply chain and the positioning of inventory. It may precipitate a move to more local sourcing, and companies could decide that they needed more local inventories, opening new facilities and positioning finished goods stock in the different trading areas to overcome any obstacles to the movement of goods, according to a report on ITProPortal.
During the exit negotiations, international exchange rates will be sent on a roller coaster, and it is difficult to predict where they might end up. During this tumultuous period, those with supply chain insight and agility will cope best.
Measures such as dual sourcing of key components and distributed manufacturing could aid in this, trading off increased flexibility and resilience against cost. Clear visibility of the inbound supply chain will be required to correctly assess risks and determine the best strategies for mitigation.
Many commentators expect the Pound Sterling to weaken against the US Dollar and the Euro, making imports of raw materials more expensive. This will disadvantage companies with operations in the UK and could add to the case for global companies to relocate operations from the UK to the remaining EU countries.
One of the few clear results from Brexit would be a reduction in the freedom of movement in people. Many distribution operations in the UK are staffed by labour that originates from the continent, particularly within the Eastern European nations. A labour shortage could emerge from any restrictions may be placed on their ability to work in the UK, leading to upward pressure on costs.
This could be worsened by the progressive increase in the minimum wage in the UK to £9 an hour in 2020. A change in the availability and cost of labour could change the site and transport cost trade-offs that lie behind the design of many supply chains, leading to fewer sites and further automation.