The uncertainty created by Brexit is particularly challenging for those in the logistics industry involved in long-term planning. Quite rightly the FTA has called upon the Government to make logistics issues a priority in negotiations with the EU in order to keep goods moving freely.
Unfortunately, as in most negotiations, neither side is likely to make concessions piecemeal unless they are in the overwhelming interests of both parties, for fear of giving away an important negotiating point. As a result, whilst indications of possible new arrangements may emerge, the logistics industry could be waiting anything up to 3 years before there is certainty. During this time there are businesses to run and customers to serve. For most companies, doing nothing is not an option unless they are prepared to run the risk of falling behind the competition.
Fortunately, as a general rule, the logistics industry is remarkably adept at adapting to new situations and challenges, be it changes in legislation or technical innovation. The outstanding levels of service across the industry are testament to that fact. The challenge, however, comes when investment is required for infrastructure. The problem is not only with the timescale to bring additional capacity on stream but also the impact on the fixed costs of the business, a situation aggravated by the continued short supply of speculative warehousing in most areas of the Country. Getting the timing wrong can be just as damaging as selecting an inappropriate solution.
The final agreement on Brexit could profoundly impact the future business environment and the suitability of a company's infrastructure. Possible key questions include:
- What is the likely impact on future economic growth?
- Will it change the optimum manufacturing locations?
- Will border controls make it more difficult to warehouse in one country and distribute in another?
- Will restrictions on the free movement of low-cost labour make automation increasingly attractive?
- Will more imports and exports be 'deep sea' as opposed to using the Channel Tunnel?
For many businesses, considering the implications of a disadvantageous settlement will not change their infrastructure plans. For others, such an outcome could profoundly impact the attractiveness of an investment. It is here that logistics and business modelling can play a useful role. By creating a suitable model, different scenarios can be tested and the implications understood to enable management make informed decisions.
In addition to possible Brexit outcomes, modelling can be used to evaluate changes to one or all of the following:
- Sales volumes
- Customer locations and type
- Customer order size and minimum order quantity
- Product range
- Order lead time
- Supplier minimum order quantities
- Supplier delivery lead times
- Introduction of automation
- Alternative routes to market
- Packaging and unitisation
- Operating cost movements
- Road congestion
- Alternative transport modes
Typically, a modelling exercise will begin with detailed analysis of the productivity and costs of the current operation, in order to establish a base case against which alternative scenarios and operational solutions can be compared. Where additional information is required, Davies & Robson can use its own extensive library of benchmark costs and productivities.
Once the modelling is complete, detailed consideration can be given to the financial risks and opportunities arising from alternative operational plans. 'What if' questions can be answered quickly and accurately and at minimal additional cost. This process inevitably brings greater insight into the impact of the key risk factors arising from an event like Brexit and their consequences for future profits.
The process allows the senior management team to balance future certainties and uncertainties with opportunity so that a final plan can emerge. Whist no modelling system can substitute business judgement, it provides the best way to mitigate risks and to plan for a range of contingencies.
Davies & Robson has helped organisations across many sectors develop their logistics plan. If you would like to know how we could assist your organisation, please call Brian Templar on 01327 349090.