Why Brexit shortages are forcing supply chain redesigns

What do McDonald’s milk­shakes, Hari­bo sweets and Nando’s peri-peri chick­en have in com­mon? Sup­plies have all been hit by a short­age of ingre­di­ents and heavy goods vehi­cle (HGV) dri­vers caused by the Covid cri­sis and wors­ened by Brex­it.  

Food and drink man­u­fac­tur­ing is inher­ent­ly focused on short order lead times and a lean stock man­age­ment sys­tem. The retail and hos­pi­tal­i­ty indus­try uses sales data to fore­cast future demand and only order what is expect­ed to be need­ed. Stock is then deliv­ered on a reg­u­lar basis accord­ing to con­sumer buy­ing pat­terns. 

This just-in-time approach to food and drink sup­ply chains can be high­ly effi­cient because it reduces food waste and asso­ci­at­ed costs. But at the same time, the smooth deliv­ery of ingre­di­ents and prod­ucts from Europe to the UK – or vice ver­sa – depends on fric­tion­less trade across the Chan­nel. This, of course, hasn’t been pos­si­ble since the UK left the EU.

Such is the prob­lem, retail­ers have warned that super­mar­ket shelves could be emp­ty of fruit, veg­eta­bles and chick­en this Christ­mas. The prob­lem could last well into 2022. 

“Over the past 30 years, sup­ply chains have increas­ing­ly become just-in-time. The result is that we now have a chain of activ­i­ties, each reliant on oth­ers, with lim­it­ed resilience. This has become very vis­i­ble recent­ly through a series of inde­pen­dent fail­ures,” says Emile Naus, part­ner at con­sult­ing firm Bear­ing­Point and pre­vi­ous­ly head of logis­tics strat­e­gy at Marks and Spencer. 

Driver Shortage

The short­age of ingre­di­ents, prod­ucts and HGV dri­vers has giv­en the retail and hos­pi­tal­i­ty indus­try food for thought. Should it rethink how super­mar­ket shelves are stocked? And should eat­ing estab­lish­ments stock up on the ingre­di­ents and prod­ucts that are more at risk of run­ning out to avoid future dis­rup­tions?

The answer depends on per­isha­bil­i­ty. Switch­ing from a just-in-time sup­ply chain wouldn’t be much of a prob­lem for food and drink that has a long shelf-life and can be stored for months. But for per­ish­able prod­ucts that can’t sit in stor­age for long peri­ods, a move away from a just-in-time sup­ply chain wouldn’t make sense. 

In a bid to reduce the HGV dri­ver short­age and relieve the pres­sure on just-in-time sup­ply chains, retail­ers and lor­ry firms have joined forces to call for tem­po­rary visas for dri­vers from the EU. The plea has been reject­ed by the gov­ern­ment. 

Analy­sis of the ONS Labour Force Sur­vey for the sec­ond quar­ter for Logis­tics UK indi­cates that 14,000 EU HGV dri­vers left the UK in the year to June 2020 and only 600 returned in the fol­low­ing 12 months. As of the end of July, the UK’s HGV dri­ver short­age stood at 100,000, accord­ing to the Road Haulage Asso­ci­a­tion.

Ris­ing Brex­it-relat­ed costs and oth­er com­plex­i­ties have dri­ven up prod­uct prices and made stock man­age­ment and fore­cast­ing extreme­ly dif­fi­cult for ful­fil­ment providers like Ful­fil­ment­crowd.

“It has become more chal­leng­ing to nar­row down a small win­dow of time to get goods in and then straight back out. This affects just-in-time for both UK imports and exports,” says Chris White, the company’s head of deliv­ery.

Opportunities to improve

Food and drink aside, such prob­lems are forc­ing oth­er indus­tries to address their reliance on just-in-time sup­ply chains and instead con­sid­er keep­ing spare stock, as well as seek­ing alter­na­tive sup­pli­ers.

“It’s not easy to build up stock at a time of short­ages, quite apart from the inven­to­ry costs involved. There is also a short­age of ware­hous­ing space. So many pro­duc­ers are being forced, in the short term, to car­ry on rely­ing on prompt deliv­er­ies,” says Ana Nicholls, direc­tor of indus­try oper­a­tions at the Econ­o­mist Intel­li­gence Unit.

Automak­ers and high-end fash­ion brands in par­tic­u­lar “rely on long-term part­ner­ships with sup­pli­ers that make prod­ucts to their exact spec­i­fi­ca­tions, so switch­ing is tricky”, she adds. The indus­tries that will have the most suc­cess switch­ing “will be those that are more reliant on gener­ic, rather than bespoke, sup­plies”.

Although just-in-time strate­gies will remain chal­leng­ing in the months ahead amid uncer­tain­ties around the post-Brex­it UK-EU trade rela­tion­ship, the con­cept of just-in-time isn’t dead yet, argues White.

“Sup­ply chain tech­nol­o­gy is evolv­ing at pace and sup­ply chains are becom­ing increas­ing­ly inte­grat­ed. This tech­nol­o­gy has the abil­i­ty to quick­ly draw and analyse data to bet­ter under­stand uncer­tain­ty and cre­ate inven­to­ry mod­els to keep mov­ing goods effi­cient­ly and effec­tive­ly,” he says.

Matthew Wood­cock is a region­al vice-pres­i­dent at pro­cure­ment soft­ware provider Coupa, whose cus­tomers include Adi­das and BMW. “The more for­ward think­ing [com­pa­nies] will use this oppor­tu­ni­ty to review the vis­i­bil­i­ty of their sup­ply chains and the expo­sure to key com­po­nents,” he says.

Build­ing vis­i­bil­i­ty and aware­ness of sup­ply chain risks allows for bet­ter inven­to­ry man­age­ment. On the oth­er hand, “stock­piles – if built in pan­ic mode – can lead to increased costs and obso­les­cence risk”, Wood­cock adds.

With no end in sight to the sup­ply chain dis­rup­tions, “there is no easy, quick fix”, says Naus. “There are some stick­ing plas­ter options, such as increas­ing dri­ver wages, but the real solu­tion is to fun­da­men­tal­ly rethink sup­ply chain designs.”