Brexit may be delayed, but #UKMFG still needs to step up its preparations...
25 March 2019
UK manufacturers must make full use of any Brexit delay to mitigate supply chain risks, says Mark Shanley, Sales & Marketing Director at electronics distributor & procurement specialist, Astute Electronics.
Brexit has built a head of steam over the last few weeks, as the country continues to enter yet more uncharted territory. In the last week alone, there’s been complete chaos in Government, a harder line from the EU-27, more than five million signatures on a petition calling for Article 50 to be revoked, and more than a million protesters marching on the streets of London. Despite all the fuming and arguing, the political wrangling and eleventh-hour negotiations, business is still no clearer about Britain’s terms of withdrawal. All we know now for sure is that Brexit will be delayed beyond the 29th of March – and from past experience, we know this situation may change again.
UK manufacturers have been extremely concerned throughout the Brexit process – and now the impact of a delay increases uncertainty and raises further issues for the supply of electronics and materials into production schedules.
Take immediate advantage of any delays
Many UK companies, particularly SMEs, have not responded early enough to the possibility of component shortages caused by Brexit. Any extension of the withdrawal process should therefore be welcomed, since it provides additional time for UK manufacturing to prepare. However, until we have full clarification, the advice remains the same: prepare for Brexit – making full use of any delays to mitigate possible disruptions.
Mitigate risk through the supply chain
The most important step is for manufacturers to continue giving their supply-chain partners visibility beyond 2019. Not just their component suppliers, but also subcontractors and COTS (commercial off-the-shelf) equipment providers as well. It’s important for them to health check their BOM (bill of materials) to ensure they have multiple, approved vendors for critical parts, especially within mature systems. If a part is approaching last time buy (LTB), OEMs should wait until the last minute: try to secure the product as far ahead as possible. OEMs need to engage with their supply chains and have an open dialogue.
Alway think ‘safe supply’ in a volatile marketplace
Market uncertainty has been worsened by Brexit. In a challenging marketplace, the supply-chain is vulnerable to opportunistic attacks in the form of counterfeit and fraudulent electronic components. Such attacks can be devastating to end-users – especially if the application is safety or reliability dependant. Often, the internet may show the buyer that there is product ‘available’ somewhere, but the source of the these components may not be clear. When a $1 chip is holding up a $50,000 piece of equipment, the chances of ‘rogue’ buying can increase.
A quality-driven supply-chain partner will never be more valuable than in today’s challenging times. This applies to authorised distribution networks, as well as non-traceable, catalogue, vendor reduction partners, subcontractors and any other key elements down the supply chain. A distributor whose operations are run in accordance within the AS6081 quality processes will mitigate the risks of purchasing and supplying fraudulent or counterfeit electronic parts. It’s important that manufacturers remember: help is always available.
Continue to increase buffer stock
Whether Britain leaves the EU or not, and whatever the basis of our departure, it remains important to mitigate against manufacturing risks. Increased costs and extended delivery terms are the biggest concerns. One of the easiest ways for manufacturers to mitigate risks is by ensuring their supply chain has landed UK stock and hold that in reserve.
Recently, the chief economist at ADS Group (the premier trade organisation for companies in the UK aerospace, defence, security and space sectors), Jeegar Kakkad, was reported to say: “When you’re selling an aircraft, you can’t have any parts missing. One part stops the whole process.”
Of course, this is true of all manufacturing! Many manufacturing companies – especially within Aerospace and Defence – are building up stocks of materials and finished goods to protect against delays in deliveries to customers. Airbus previously said it would have to stockpile €1bn (£875m) worth of parts.
Distributors can help customers to anticipate how much extra product they might need – and in some cases to hold ‘buffer stock’ in excess of normal levels.
Expect sterling volatility – hedge or forward contract
A short delay of weeks, or even a couple of months, is unlikely to make a difference in itself. However, a worsening pound does have immediate consequences. Sterling has been volatile since the referendum result – and that volatility is expected to continue. UK manufacturers naturally want to remove as much risk as possible from their imports.
Customers are typically interested in ways to hedge against unexpected changes, and in setting up forward contracts that are fixed to exchange rates, but they also want to know about regional price variances. Astute has been working in the global components markets for many years, with real-time access to the latest listings and prices, and has cultivated very close supplier partnerships that enables us to spot price disparities.
Demand is expected to remain strong – act now
In the last 18 months, we’ve seen UK manufacturers not only attempting to secure more stock, but accelerating some of their existing projects. Distributors and contract manufacturers are also holding more stock than they typically would. There were supply issues within electronic components, especially passives and memory, even before Brexit. This hunger to ‘Beat Brexit’ is, of course, adding further pressures. A vortex of demand is occuring – as customers make more frequent reviews of their forecasts, and call on more stock. Astute Electronics sees no end to this in the foreseeable future, particularly while there is uncertainty over a leave date. We can only recommend that customers try to anticipate the extra demand by acting now.
Make regular communication part of your risk mitigation
On-going, regular supplier communication is the way to identify potential issues. As a franchised distributor, Astute is privileged to have continuous contact with its component lines and traceable supply partners, enabling us to better understand the risks and timelines connected. Communication must continue between suppliers and manufacturers throughout the entirety of Brexit – whatever the period of delay.
Seek help from reliable sources
As a global electronics distributor, Astute Electronics has been following the Brexit landscape very carefully in order to minimise disruption to the supply chain, taking advice where appropriate from informed sources such as The ADS Group and relevant Government working groups. Astute has global sourcing offices in 10 countries and sells to 45 countries across six continents. Information is being gathered across these sites and fed back to the market. The advice we offer is to ask for regular updates from your supplier.
Look towards the future and any positive outcomes
We are sure there will be eventual benefits, whatever the scenario, but in the short term the dominating feature of discussion continues to be about how to avoid disruption. To this end, we are advising all customers to plan ahead and make provisions now. Our trading history shows a strong willingness to offer flexibility – and this period in our history will be met with the same commitment, timely communication and high service levels.
In the event of the UK leaving without a deal, we are already considering what this change could do for the price of parts and components. Identifying custom clarifications, plus checking the World Trade Organisation (WTO) tariffs and potential EU import tariffs can give an idea of what is to come. In a no-deal Brexit, the UK will eventually be able to move away from EU regulations, creating the potential to reduce and change them. UK-based suppliers may be more competitive due to a weak pound and they can enter into trade agreements with new international markets, but this will need to be balanced against potential restrictions on the free movement of capital and personnel. European manufacturers are reliant on tariff-free, frictionless trade.
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