In the run up to 29 March, and then 12 April, fears of a no-deal Brexit led many businesses to stockpile essential goods to reduce the impact of any possible disruption.
This happened throughout the supply chain, with suppliers building up reserves of raw materials and manufacturers building up parts, while retailers and distributors increased stocks of finished product.
The Brexit ‘flextension’ creates a new no-deal date at the end of October, so how should organisations manage any increased inventory?
Brexit concerns disrupting supply chains
The most popular items being over-stocked are those with long shelf lives, minimal supply chain inventory (for example in the automotive sector) and imported products.
We have seen companies increasing their stockholding at all points along the supply chain, which has resulted in additional costs for warehousing, logistics handling and waste/damaged stock. For example, frozen warehousing space is now at a premium due to the increased demand, resulting in the highest per square meter prices.
In addition, the more recent delay to Brexit has resulted in some companies who had previously over-stocked items now de-stocking products. This will lead to peaks and troughs in production, with additional labour overtime and costs then followed by reduced hours and reduced efficiencies in the following months while de-stocking. There may also be a need for businesses to finance working capital in the short term, which can be expensive.
Managing increased inventory
If you increased stock in preparation for the end of Q1, what should you do now before the next possible pinch point in Q4?
Reduce stock slowly over the next few months back to normal levels
Keep hold of your Brexit plans in case there is a ‘no deal’ in October 2019. Refine them, learning any lessons and making the necessary adjustments
Work with your supplier and customers to decide where/how it is best to hold the stocks: what are the most efficient and effective points and processes in the supply chain to build stock (rather than stockpiling across the supply chain as a whole)
Check your suppliers and customers are financially strong enough to take on more inventory
Look for ways to extend the shelf life of your products. This will help reduce any ‘churn’ and should keep costs down
Protect the items with the best margin – if you cannot hold all ranges, prioritise the most profitable products
Include any cyclical factors that may impact plans. For example, many retailers will be bringing in stock prior to Christmas in August and September. There is a risk that increased stocking and preparing for Christmas compound the problem
Around 90% of the work we have done with mid-market clients to prepare for Brexit covers areas that will strengthen the business regardless of the Brexit outcome.
In a time of widespread and intense uncertainty, we can help you identify products with the greatest margin, make better use of your working capital and identify points of weakness in your supply chain. We can develop plans for risk mitigation, operational change and transformation projects across your business to minimise the Brexit risk in your supply chain.