The United Kingdom’s tortuous withdrawal from the European Union appears to be headed for a hard landing. Instead of leaving the EU in an orderly fashion, the country could be unceremoniously dumped outside the door without an agreement.
The experience is delivering some harsh lessons for the UK – and for other countries including the United States.
Brexit’s supply chains lessons are especially painful.
Chief among them is that a Brexit-scale disruption can shatter product delivery schedules that are finely attuned to lean manufacturing principles. If the divorce is messy and acrimonious, the shock waves will reverberate for some time and leave crippled or destroyed companies in their wake.
As the Wall Street Journal reported recently, a survey of 1,310 supply chain managers in Europe carried out by the Chartered Institute of Procurement & Supply finds that one in 10 company executives in the UK fear that their enterprises could go bankrupt if Brexit causes Customs delays of just 10 to 30 minutes. If delays of one to three hours or 12 to 24 hours become the norm, 14% and 15% respectively of the UK businesses surveyed expect to go under.
These findings provide a stark reminder of just how vulnerable international supply chains are to interruptions to the free flow of goods.
The survey responses also highlight the importance of risk management in supply chains – and how political uncertainty can paralyze companies.
As I describe in my blog post How to Prepare for a Brexit-Style Disruption, there are a number of risk mitigation measures companies can put in place to prepare for this type of crisis. And the survey respondents indicate that companies are implementing some measures. For example, 23% of companies plan to stockpile goods, and many enterprises are looking to build more flexibility into supply contracts with European customers.
But absent a political agreement or effective exit plan, companies are understandably cautious about committing too much money to expensive actions such as paying for additional product storage space. Moreover, the decision is becoming more difficult by the day as the political impasse continues and related costs increase.
Hubris also is playing a part in preventing the Brits from preparing properly for a disorderly exit. A recent article in The Economist provides a no-nonsense account of this pitfall. British Prime Minister Theresa May has taken the line that “no deal is better than a bad deal” in an attempt to convince the EU that the UK is quite prepared to walk away from an unsatisfactory agreement. The country’s citizenry has taken this cue, and attitudes towards a negotiated settlement have hardened. But as The Economist points out, this is not like buying a car where a buyer can simply walk away from a lemon. Like it or not, the UK is due to officially leave the EU at the end of March 2019, and if it does not have an acceptable agreement in place the consequences will be dire. Meanwhile, the misguided belief that the country can simply vacate the table and go its own way has taken some of the urgency out of the preparations that need to be made.
Populism also has dampened the urgency of the situation. Anxieties over unbridled immigration – expertly fanned by the pro-Brexit lobby – are at the root of the country’s decision to leave the EU. But populist arguments – especially with regard to immigration – appeal to emotion not common sense, and tend to distort the true nature of important decisions and their real-world consequences. For example, already there are reports of labor shortages in Britain’s agricultural sector as sources of immigrant labor dry up.
Many of these ramifications are familiar in the United States, where the populist machine has been running at full throttle and where there are now more job openings than job seekers. US retailers are already fretting about the lack of workers in the logistics industry in preparation for the holiday rush, despite large salary increases for truck drivers and warehouse workers. And Americans should not assume that they are immune from this spat on the other side of the Atlantic Ocean. If the UK tears itself away from the EU, the implications for global supply chains and global geo-political alignments are likely to be far-reaching.
The Brexit debacle is not only a self-inflicted crisis in the UK and Europe, it is a symptom of broader political and economic maladies that affect us all.
This post was written by Yossi Sheffi, Elisha Gray II Professor of Engineering Systems at MIT and Director of the MIT Center for Transportation & Logistics.
Source link http://supplychainmit.com/2018/10/04/hard-lessons-from-a-hard-brexit-landing/