Five things to consider before stockpiling ahead of Brexit
October 11, 2018
In recent weeks and months there’s been much discussion and debate about the need for “stockpiling” of food and medicines (for example) in case of a shortage after Brexit. Many are pointing to this being an example of how Brexit, in particular a ‘no deal’ Brexit, is wrong for the country - a sentiment that seems to dominate social media posts and some mainstream media outlets.
However, we would argue that stockpiling, whilst a very emotive word for some, could also be described as holding additional stocks in case of uncertainty. This is also known as "safety stock" which is not only a far less emotive and dramatic term but is prudent, in a customer centric supply chain, to ensure that demand can be met.
Wherever there is uncertainty in the supply chain there is a need to mitigate any concerns, often through increasing inventory. And while much of the press has been focussed on stockpiling of drugs and food in the UK, it’s also certain that buyers of UK products are also likely to stockpile goods for the same reason. Is this because the world is going to end or the UK is facing economic collapse? No, it's simply because in a prudent customer centric supply chain model it’s essential to hold sufficient inventory to see you through any period of uncertainty such as volatility in supply and demand. The optimisation of inventory is predicated on the following:
- predictable supply of raw materials or components meeting quality requirements
- predictable demand from your customers
- reliable manufacturing lead times and output quality
- reliable and predictable logistics arrangements
- favourable Incoterms
- an efficient returns processes to put resaleable inventory back into stock rapidly
- a stock keeping unit (SKU) level understanding of supply and demand
- an optimised supply chain footprint.
As we transition to a new trading relationship with the rest of the world, it’s unclear how these factors will be impacted but history (and economics) tells us two things; firstly that there will be uncertainty; and secondly that a ‘new normal’ will be established in time bringing greater certainty in the future.
But in the meantime, here are five practical things that businesses can do to minimise the cash impact of holding extra safety stock or ‘stockpiling’ during the transition to a post Brexit economy:
- Optimise inventory and eliminate excess stock. We often find that stock holdings are the product of instinct rather than sound analytics aligned to a holistic supply chain strategy. Therefore by analysing inventory and demand at SKU level there are likely to be opportunities to eliminate excess inventory to counterbalance any extra safety stock that may be required on other more critical lines
- Optimise payables and receivables. Inherent process control weaknesses and a lack of focus mean that there are often opportunities to release cash in these areas by reducing overdues and early supplier payments while addressing other associated cash levers such as payment terms.
- Take advantage of supply chain financing offered by key customers where the cost of borrowing may well be lower than that which your company might otherwise be able to raise.
- Asset based financing of receivables or inventory (for example) to lessen the cash strain on the business of holding additional inventory.
- Review alternative sourcing options and markets for your goods to geographies where the customs arrangements are well established and therefore more predictable. While wholesale changes are complex and likely to take time, there may be quick win options for some businesses.