This week Bloomberg reported that Heathrow is stockpiling rubber gloves for a No Deal Brexit. Last night I discussed Brexit planning at the arts centre I am a trustee of; we are stockpiling a few things that are essential to the running of our cinema, including loo paper and a spare cinema projector lamp. On a much bigger scale, one of my clients is building up an extra 4 to 12 weeks of finished goods to ensure they can meet consumer demand if UK ports clog up.
So, as the UK becomes a giant warehouse, here are a few reflections on Brexit stockpiling from our experience at Grant Thornton working with manufacturers, retailers and others on No Deal contingency plans: why stockpile, how and where to build up stock, and pitfalls to avoid.
The reasons for stockpiling:
- government and academics are forecasting major disruption at ports especially Dover and Folkestone in the event of No Deal.
- we also anticipate some EU hauliers avoiding U.K.
- tariffs and additional customs administration costs on EU components entering the U.K. and products exported to EU mean that stockpiling now avoids short term cost increases.
- products that reach EU markets before 11pm 29 March can be legally sold without requiring any relevant additional regulatory or labelling changes required after No Deal Brexit.
- Progress extending UK participation in EU trade agreements with third countries such as Mexico and S Korea has been slow (as reported in the FT this week) and there is no guarantee that on 29 March the UK exports will have the same access to these markets.
For these reasons stockpiling takes many forms:
- stock of components and packaging to ensure continuity of manufacture
- stock of spare parts for factory machinery - there is no point having stock of components if machinery breaks and stops production
- stock of imported goods for U.K. market
- building stock of finished product with subsidiaries, distributors and customers - in EU and third country markets
In doing so, businesses need to take account of a variety of factors:
- in sectors most affected by consumer confidence (eg cars, some luxury goods), avoid building up stock for April 2019 if demand may collapse in U.K. as a result of a No deal economic crash. The Bank of England stress test scenario for No Deal suggests an economic crash in the UK worse than the 2008 financial crash
- watch the impact on cashflow and working capital: tying up cash in stock. Look at how you can free up cash or reduce spend in other areas. Encourage your distributors to share inn the risk and take extra stock themselves.
- make sure your plans join up with those of customers and suppliers. Your plan needs to fit with theirs. Otherwise you may have too much or too little stock tied up in the wrong places. You need an end to end supply chain plan.
- think about stock movements. Supply chains used to just in time delivery are ill suited to switching to irregular, large movements of stock. How will you manage this change?
- rather than building stock everywhere you can, what are the best places to do so in view of your customers and logistics operations
- don’t forget pallets. You may have stock orders but unless you have pallets for it, it probably isn’t going anywhere. And in the event of No deal, wooden pallets entering the EU will be required to meet plant health checks - so make sure you have compliant pallets.
- how does this fit with consumer behaviour and any sales promotions planned? In some areas consumers are stocking up now (some of my clients are seeing unexpected increases in consumer sales of staple goods); how will consumer behaviour change as we get closer to Brexit Day with no deal in sight?
There is a lot to consider. You need a single plan that takes an end to end supply chain view of this. And time (and warehouse space) is running out if you have yet to start. But it is not too late to identify your biggest vulnerabilities (what do you need to ensure continuity of operations and sales?) and take steps to protect against these.
as the U.K. becomes a giant warehouse, here are a few reflections on Brexit stockpiling from experience working with manufacturers, retailers and others on No Deal contingency plans: why stockpile, how and where to build up stock, and pitfalls to avoid.