Brexit: Long-Term Implications For Supply Chain Leaders


Kevin O'Marah

July 8, 2016

Two weeks after the United Kingdom’s surprise vote to bolt the European Union, impacts are nastier than I had expected. The UK economy looks ready to take a serious hit and, far worse, the political ground has turned to sand. Uncertainty is king now and nothing dampens investment plans like worry.

Dealing with uncertainty in the short run, especially in supply chain strategy terms, boils down to scenario modelling as an analytical basis for making bets on inventory, capacity and commodity prices. Companies known to excel at this include Shell, Nike and Caterpillar.

Of course, unless you already have the data and network models ready to go, this advice is cold comfort.

Anticipate Anarchy

Looking past the immediate yearning for terra firma, it might be wise to remember an old adage credited to Baron Rothschild in the 18th century: “When there is blood in the streets, buy real estate.” The idea is that uncertainty means opportunity and those with a view on the long term can seize it.

Here are a few fundamental trends worth remembering as you make supply chain plans over the coming year:

Free trade is in trouble – Brexit was partly a populist rejection of the idea that the benefits of free trade outweigh the costs. The American presidential race offers the same promise, with both Trump and Clinton now rejecting the Trans-Pacific Partnership and broadly running on ‘bring back our jobs’ rhetoric.

Meanwhile, the European Union, most prominently in the person of Margrethe Vestager, is spending far too much energy fighting businesses like Google and Apple in court instead of actually building anything. Plus, the flailing BRIC countries are still largely operating in a protectionist double standard mode vis-à-vis the ‘developed’ economies. Politicians smell this and are naturally drawn to promise toughness on trade. It won’t stop, even if it is crazy from a macroeconomic perspective.

Inflation is dead – I’ve written about this for years and it’s now more true than ever. Retail prices in the UK have now fallen for 38 consecutive months. Oil, after rebounding to $50/bbl, is back down again. Interest rates are at or below zero in some economies and idle cash is everywhere. At the same time, private equity giants like 3G Capital patrol the world looking for businesses ripe for aggressive cost-cutting measures.

The megatrend here is the dematerialization of the world economy, which means a steady move away from scarce physical products and toward abundant information products. Intellectual property like brands, technology and pure content are where value is being created. Even 3G knows this, as evidenced by its price increases on strong brands and loss of market share elsewhere.

Social and environmental responsibility is here to stay – Brexit was also in part a rejection of immigration and, as such, a cry for cultural respect. Addressing social injustice by, for instance banning conflict minerals or child labor, is only half the equation. The balance is finding ways to create economic opportunity in places like Detroit and Sheffield.

Global supply chains built exclusively with the customer in mind run the risk of destroying their own demand. American voters on both the left and the right are tired of seeing factories close. Apparently the British people feel the same.

Back to the Future

Maybe supply chain leaders should think about their networks more like a collection of cells than an integrated whole.

The technology is there with fast dropping prices on incredibly flexible production machinery to build regional or even local manufacturing. It’s also getting ever easier to attach Uber-like start-ups to existing supply chain nodes for direct-to-consumer delivery or premium field service. And cloud-based systems for delivering digital product like software keys, CAD models and control algorithms are growing quickly.

The main message of Brexit for supply chain leaders looking ahead five years may be to prepare for localized competition. By this logic, China trade has peaked already, cost-cutting as supply chain gospel is nearly at an end, and accountability to employees and community is on the rise.

Perhaps what ‘leave’ voters really want is just a return to the Shire. For those who know Tolkien’s idyll, this makes perfect sense.

160707 KOM Forbes


This article was written by Kevin O’Marah from Forbes and was legally licensed through the NewsCred publisher network.

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