Brexit, Britain’s decision to withdraw from the European Union (EU), is likely to cause one of the most significant disruptions to the supply chain industry in recent history.
And this particular disruption is unprecedented in many ways.
Compared to the tragic tsunami that impacted Japan in 2011 and kicked many organizations’ supply chain contingency plans into overdrive overnight, the terms of the Brexit withdrawal make the looming supply chain disruption seem like an insidious illness—we know it is coming but we don’t yet know the extent of its ramifications or the timing.
The Brexit disruption is also quite different from Y2K’s impact on supply chains—an event that was to take place at a precise time and for which organizations had time to ramp up departments and create entire companies to provide large-scale support.
Unlike the Japan tsunami and Y2K, Brexit’s impact on supply chains has started and will likely gradually increase in complexity over time in ways we can’t predict. Supply chain leaders would be well-served to get ahead of the disruption as quickly as possible and form an action plan during the two-year negotiation period—before it’s too late.
In a situation fraught with uncertainty, the first step is to review what’s known. The most recent data tells us that the effects of Brexit are being felt by way of increased inflation and a sustained devaluation of the British currency. Higher inflation (expected to reach almost 3 percent next year) and a weaker exchange rate together make for an increased cost of imports. With Britain’s position as a net importer spiking this summer, organizations with supply chains involving Britain will likely face cost pressures. As for exports, the long-term impact remains unknown, as trade deals have yet to be negotiated. That said, one should assume some tightening from the EU, one of Britain’s largest trading partners.
Hence the analogy of Brexit’s disruption to an insidious disease: we know it’s coming, and it likely won’t be good, but there is more that we don’t know, than we do know. So, how can supply chain leaders navigate through the uncertainty? There are three key imperatives—and they all involve people.
Being nimble enough to respond to unknown challenges and adapt to an uncertain future will be critical as Brexit’s ramifications amplify. Evaluating options like, “Are we able to source alternate component manufacturers, if need be?”and “Will our manufacturers be able to handle increased volume on short notice?” and “Should we shift more assembly to a new location?” will be critical to navigating the uncharted waters ahead. While these decisions are typically made at senior levels of organizational hierarchies, often with limited data to support, we would suggest that supply chain organizations should shift their approach.
If we posit that organizations don’t get things done, but rather people do, supply chain leaders would be well-served to augment their strategic planning and execution capabilities by creating a cross-functional team of employees who are excited by the challenge of responding to Brexit’s supply chain disruption.
Leaders should take people off the line from the distribution and packaging department and put them in a room with sourcing associates and employees from manufacturing and cost accounting. Then, after sharing the available near-term data with the group, leaders should ask these individuals to collectively explore where the organization could look for opportunities, and how the company could get ahead of anticipated barriers or challenges. We’ve seen these types of coalitions generate effective and creative approaches to obstacles that “management” may not have ever considered.
Almost every sophisticated supply chain organization has cost management built into the core of its operations. But to get more juice out of the orange, you need to squeeze it differently.
Before the cost pressures from Brexit further intensify, leaders have the opportunity to reframe the organization’s approach to cost management. Doing so will involve creating a positive, aspirational opportunity that everyone in the supply chain and throughout the company can engage in. Communicating this vision broadly will generate momentum toward “finding new or improving old” cost management initiatives. While not all initiatives will lead to $400,000 cost reductions, when combined with the positive approach (versus a punitive “stick” approach), leaders can create better results and happier people—a win-win for everyone. We’ve seen multiple $50,000 cost-saving initiatives that very quickly add up to some impressive numbers.
Networks will beat hierarchies in any match-up. Their secret? Networks deliver “functional flexibility.” By creating a powerful, cross-functional supply chain network where people who spot opportunities or issues are given permission to immediately respond, supply chain leaders will foster this functional flexibility. This is key to managing disruptions—especially those like Brexit, where organizations can’t anticipate every impact.
Compare a culture of functional flexibility to that of a rigid, highly structured hierarchy where, if an employee has an idea or identifies an issue, that individual tells his or her boss, who, in turn, may (or may not) tell his or her boss. Then, the idea either gathers dust or is put onto a list of action items that someone, somewhere will be tasked with. Functional flexibility is different; it acknowledges that leaders exist at all levels and are not a threat to the hierarchy. It also empowers organizations to create and harness a powerful source of execution capability by carefully and cleverly tapping into the minds of hundreds, perhaps even thousands, of employees. Ultimately, functional flexibility is rooted in the belief that more people, not fewer, will lead to a better outcome.
Brexit, or any other massive disruption or transformation, should be approached boldly. By recognizing this and creating a culture of strategic agility, effective cost management and functional flexibility, pioneers in the supply chain industry will empower their organizations to navigate Brexit’s disruptions and accelerate the impact that their networks are delivering. Are you ready?
Russell Raath is a president at Kotter International, the leadership and strategy acceleration firm founded by renowned Harvard Business School professor Dr. John Kotter. He can be reached at firstname.lastname@example.org.