BUSI1625 Logistics Technologies: Impact on Your Business's Upstream
You own a company based in Liverpool (UK) that assembles and manufactures starter motors for the major automotive manufactures with factories domestically and in Europe. The European division of your business accounts for 74% of your annual revenue and employs 300 of your 420 strong work force. To manufacture your starter motors you source 68% of the components from Europe, the balance is sourced locally. You have been trading in the UK for the past 18 years and have become very successful based on the European free market philosophy. Your starter motors are deemed to be an essential requirement by the factories you supply and you focus on the JIT philosophy to supply your customers so that they have limited inventory holdings and this reduce their investment in stock. To service your customers’ requirements more efficiently you have bought a fleet of 26 trucks (40 foot trailers and tractors). To bring stability to you and your customers relationships you have 5 year contracts with your customers and all contracts are supplemented by service level agreements that define the service level you are to adhere to, most importantly there are severe penalty clauses applicable with respect to lead and delivery times of components by your company.
In June 2016 the UK voted to exit the European Union (Brexit) – the way forward is not yet clearly defined however it would appear almost certain that the UK will lose the access to the EU free market in the next 24 months, a huge game changer in your existing business model:
- Identify4 key factors that will have a direct impact on your business’s up stream / downstream supply chain should the UK not have free access to the EU Markets (40 marks : 20 marks a & 20 marks b).
Please mention about the hard objectives like (Quality, Cost, Time, and Supportive Capabilities)and how it will impact on your business’s up stream / downstream supply chain should the UK not have free access to the EU Markets.
- Discuss2 of the factors above you have highlighted taking into account; the overall impact to your business, your production and landed cost, your customers, your suppliers, your staff, the local economy, the risk, the mitigation strategy you will deploy to offset the impact.
Choose any two of the hard objectives that you have mentioned in question 1 and talk about it in how it will impact to your business, your production and landed cost, your customers, your suppliers, your staff, the local economy, the risk, the mitigation strategy you will deploy to offset the impact.
- Define and discussthe skills sets that your company will have to develop to manage the changes effectively that might occur if you lose access to the EU Markets and you retain your current customers in terms of production levels and delivery schedules.
Here you can talk about facing the Immigration/everybody needs to speak in English Language/ Changing in structure & Management & maybe need to add a new department like (Legal department).You can add some other skills that might retain current customers in terms of production levels and delivery schedules.
- Evaluatein terms of your supply chain the possibly of seeking new markets to both source components from and supply finished motors to. Can you expand your supply chain into new markets and if so what will be required? (20 marks).
Do you think that you can expand your supply chain into new markets and if so what will be required and is it worth to do so, is it good or bad, you think it is and what are the advantages and disadvantages you think it is to go in new market and try to give a solution for that.(You can get it from the hard & soft objectives)
- Will it still be viable to given your small domestic market to operate your business from the UK given the customers reliance on the JIT methodology? Justify your argument based on your findings to stay or relocate your factory in terms of the logistics challenge.
Do you think you need to have a Head Quarter for your small market in UK to operate your business or you think it’s not necessary to have within UK and you can move it somewhere let say in Asia as its lower cost and why, please justify the argument based on your findings to stay or relocate your factory in terms of the logistics challenge.
Answer:
Introduction
The exit of the UK from the European Union will be a huge game changer in the existing business model for the companies (Greenfield 2018). This assignment highlights an assembling and manufacturing company based in Liverpool of the UK who is the main automotive manufacturers of the starter motors with the domestic factories and the factories in Europe. For the manufacturing of the starter motors the company sources 68% of the components and the raw materials from Europe and has been trading in both the countries on the basis of the European free market philosophy.
1) 4 key factors that have an impact on your business's upstream
Four of the key factors that will affect the business largely due to the Brexit issue are the factors of Quality, Time, Cost and Supportive capabilities.
a) Factors affecting to your business
The scale of issues or problem in the manufacturing industry is of many folds. From uncertain situations in trade agreements, arrangements in contractual situations, rights of the workers and the movements for freedoms, the enforcement of Brexit will make it difficult for the manufacturing companies in the UK to make long-term plans and arrangements (Wadsworth et al. 2016). Two of the most important factors that have an impact on the manufacturing firm of the UK is the Cost and the quality (Holloway 2018). In the given scenario, the manufacturing company based in Liverpool of UK assembles and manufactures basic motors that are used for the majority of the automotive manufactures from the domestic factories and from Europe. More than 68% of the starters for the company are imported from Europe. Furthermore, the company is well aware with the European free market philosophy which enables the company to reduce their investment in their stocks. The Brexit will affect the free market access to the EU and this will result in numerous issues. Some of the common issues include raise in the rate of unemployment in the UK, impact in the cost price, the marketing structures and the quality and the quantity of the product materials (The Independent 2018). Targeting the costing structure of the company, the exit of the UK from the European Union will majorly impact the cost of the business. This is because, in the current scenario, the UK, and the EU share the same market of business in the same market philosophy. Both the countries share the same costing strategy for their product and their business and have the same chain of global market suppliers for the raw materials of their final goods. The exit of UK will impact largely on the shared costing strategy since both of the countries they will follow different strategies and cost prices which will differ widely and furthermore will result in a difference in the manufactured final products. The variation in the cost will furthermore impact on the quality of the product since the balance between the investment and the expenditure will get hampered (Colantone and Stanig 2018). The effect of Brexit on the manufacturing is thus a point of considerable importance for the economy of UK. The manufacturing firms are likely to be affected by the lack of the availability of proper basic raw materials and ingredients that have the tendency to give away the cheap imports from the other countries. Furthermore, while the EU currently overpowers the manufacturing market and the industry of UK, the particular sector has been enjoying an increase in the product amount sold outside. In the current scenario, the manufacturing products and components move freely across the countries of UK and EU states. As both the country has access to the single market, there exist no tariffs, taxes or quotas for the free movement of the products and the goods together with services, capital and people (Crafts 2016). With the Brexit, the government will have to negotiate multiple deals of trade with the UK based industries and companies who previously benefited from the trade agreements of EU. Brexit will, therefore, impose the UK to set its own investment and trade policies which will include certain costs. This includes UK's trade negotiating efficiency and strength that is actually uncertain outside EU.
b) Define and discuss the skills sets that your company will have to develop to manage the changes effectively.
The immigration policy is one of the most important and most arguable policy statements that the people are facing due to the decision of Brexit (BBC News 2018). Most of the employees and the employer of the organization are concerned about the relative potential complexity of the new immigration policies with the cost of checking the status of the worker’s and playing the role of the policy enforcers. While the relative decisions for the UK for leaving the EU have faced another major wave of complexity and volatility, the decisions and the actions for the company and the forms residing and operating in the UK should be framed in a long-term view keeping in mind the market instability. Some of the major ways or skills the manufacturing company should or can adopt for management of the possible changes that may occur due to Brexit are as follows.
Optimization of cost- The impact of Brexit can be kept in control by the means of reduced or frozen spending on the budget (Koch 2016). Identification of the not so essential projects and discussion regarding the postponed of dates for the completion of the projects with the proper allocation and import of the manufacturing raw goods from a cheaper source after the proper implication of the marketing and the management strategy should be ensured.
Talent and people- The nervousness of the employees of the organization and the uncertainty of their psychological thought due to the voting system is clearly inevitable. Hence clear communication with the employees with proper processing and guidance and support should be ensured post-Brexit.
Applications – There is the high tendency that Brexit will increase the complexity in the procedure of application and the portfolio of service delivery (Di Cataldo 2017). Hence proper collaboration with the users if the business for newer challenges such as the cross-border value-added taxes, tariffs and the management of tax are some of the factors that the company should look for.
Partners and suppliers – Another important factor is that the private data rules can furthermore be hampered by the exit of the UK from EU market (Howard and Kollanyi 2016). Proper visibility of the potential issues and the identification of the future strategies are thus some of the essential factors that the company should be keeping in mind post Brexit.
Management of Data - It is not sure whether the UK will remain in the European economic area hence the proper security of the data should be ensured for compliance with the new data regulations until the availability of more information.
Analytics -The absence of proper clarity over the meaning of the Brexit will ensure immediate analytics of prediction and diagnosis of investment for the UK company.
Government and operating model changes - With the effect of the Brexit, it is important for the company to develop a legal entity subsidiary in the UK for minimizing any sorts of disruptions (Taylor-Gooby 2017). A detailed registration process must be operated for a paper-based arrangement for the benefit of the company after the Brexit.
Risk Management – It is important for the manufacturing company to review the current and the upcoming potential risks with the strategies and measures how the effect of Brexit can impaction the overall business and the profit margin of the company. Identification of risks emerging from the supply, skills, data, business continuity or from the regulatory perspectives is thus important and essential for the employers of the manufacturing unit for enabling provision to the insight of the business to decide the effect caused due to Brexit.
A large number of systems will get affected due to the occurrence of Brexit. Leading a change management plan and strategy leads the list of skills that are required to adopt the changes due to Brexit (Goodwin and Heath 2016). Some of the important lessons include understanding the uncertain changes due to the Brexit, riding the performance curve, upgradation for planning since failing to effective planning is similar to planning a failure, understanding the type of change, decisive and clear communication with the stakeholders of the business. In terms of production management and delivery schedule for the retention of the existing customers, it is essential for the manufacturing firm to recommend new systems and policies together with the development of the strategies of marketing.
2) Evaluate in terms of your supply chain the possibly of seeking new markets
The concept of supply chain management includes a series of interdependent and independent manufacturing, the upstream and downstream procedure that is mainly targeted towards the transformation of the raw materials in to end products for meeting the demand of the customers (Dhingra et al. 2016). In the above-stated scenario of the manufacturing firm, with the backdrop of the global markets, the increased level of competition and extended supply chain management and the relatively new form of challenges. The need to dispose of waste, grasp new innovations, better oversee stock, conform to control, enhance client relations and becoming more cost proficient is resulting to be more clear towards the accomplishment of the operational excellence. It is the tendency of the manufacturing companies to operate in the oligopolistic market where the necessity for the consideration of the competitive nature or behavior is important than the pricing strategy.
Brexit generally represents a new risk of the strategies for the business. The manufacturing firms thus need to identify the impact of the Brexit on the key activities of the business along with the effect in their profit margin.
Figure1; Issues and Opportunities Map
Source: (U.S. News & World Report L.P 2018)
The figure above illustrates the framework upon which the manufacturing company can identify the relevant advantages and the disadvantages and how actually these might impact the business. In case of the manufacturing company residing in the UK, the most pertinent issues include access to the free market of EU, customs regulations and duties, the migration of the laborers and the exposure of the foreign exchange.
The prospect of the Brexit, the exit of Britain from the European Union not only has the impact over the economy but also on the import, export and all the aspects of the supply chain that will undoubtedly get affected (Dhingra, Machin and Overman 2017).
The industrial strategy of the UK reflects the current approach of the government for the encouragement of the overseas companies for looking at the sectors and clusters in the UK. Expansion of supply chain in the new market post-Brexit will let the manufacturing company face a daunting list for the preparation of customizing, scrutinizing the supply chains, redraw of contracts, development of the contingency plans and more.
- The building of the corporate customs infrastructures
- Obtaining the authorized economic status of the operator
- The decision whether to make utilization of EU free trade agreement
- Mapping and auditing of the supply chains (Johnston and Buongiorno 2017)
- Auditing of all the international contracts and renegotiation of them
- Ensuring the cash flow for VAT and additional inventory
- Developing a contingency plan
It is important for the manufacturing firm to engage and encourage trade and management among the suppliers and the company within the UK. This will tend to recognize the chances and the opportunities that will help the company to maintain their current customers from EU by proper setting up manufacturing bases in the Europe post-Brexit and furthermore target the manufacturing procedure that can ensure the strengthening of the entire sector (Crowley, Exton and Han 2018). Another important factor that the company should consider is the target of the particular elements of the supply chains for ironing out the tangled logistics of the supply chain management.
Effective account management of the company together with knowledge for growth strategies, challenges and exit (Dhingra et al. 2018). Hence to ensure the building of the new approaches and expansion of the supply chain, adoption of the sophisticated supply chain for the development of an empirical base of the business in the UK is necessary which furthermore will forward the economy of UK in post Brexit time.
3) Will it still be viable to given your small domestic market to operate your business
With more than 74% of the operations of the manufacturing business hailing from Europe, and more than 300 employees among 420 strong force of labors residing in Europe, the Brexit will have a huge impact over the manufacturing business unit. The uncertainty of Brexit has caused the business of manufacturing to go through the increased cost range due to the challenges in the supply chain for the customers (Watson et al. 2018). Furthermore, a major share of the UK business with the suppliers of EU has already increased the price range due to the uncertainty of Brexit, also due to the offset the potential costing of the Brexit (Ebell and Riley 2017). The starter motors supplied by the manufacturing firm are some of the important and essential needs by the EU factories that the company suppliers and thus it focuses or aims at the JIT methodology and philosophy for supplying the customers for holding a very limited holding of inventory which furthermore reduces the investment in their stock. The company has furthermore invested in buying a fleet of trucks around 26 in number for efficient customer services. These are tractors and trailers that are 40 foot in height. Though the market for the manufacturing of the company is small and domestic in nature, it will still be viable to operate the business from UK post Brexit. The company has generated 5-year contracts with the customers for bringing a stability among the business and the customers. These contracts are supplemented by service legal agreements highlighting the penalty clauses that are applicable with respect to the delivery time by the company.
It is thus important for the small-scale manufacturing business to note that falling off the line of production can hamper their business. In order to exist and survive in the market and in the UK the company needs to thrive a few challenges post Brexit. Some of the strategies and factors that will induce the company to thrive post-Brexit include the following.
The belief that the upcoming future holds exciting potential for the manufacturing industry- Since the manufacturing output in the UK is expanding at a fast rate from the year 2008, together with the support in the technology adoption across the sector, UK will soon emerge to be the industrial powerhouse. The manufacturing firm can thus take advantage of the export boom of post Brexit time.
The digital investment- AI will give the manufacturing firms of UK, the edge in the terms of productivity and up to date digital roadmap of the organization.
The health and safety at the product line- The second most confident sector after the financial services are the IT decision makers in the manufacturing sector for the post Brexit challenges.
A new batch of regulations for the UK firms- The manufacturing firms will adhere to new legislation for the financial and reputational norms
Maximization of output - There is the high tendency that the manufacturing firm will be at the top of their game. It is thus important for them to hold up their confidence in case of data protection, cyber-attacks, the wellbeing of their staff and more.
Equipped labor force – It is important for the leaders in the business to ensure that the team members are equipped with every upgraded skills and advantage which can drive the business forward towards the digital future.
Conclusion
Thus, it can be concluded that though there lies uncertainty in the Brexit, the companies can still survive and profit in their business with some of the strategies and measures in their mind. Having a headquarter for the small manufacturing business for the effective business operation can be profitable for the manufacturing firm since the UK is the next place for the business boom. It will be wise for the company to stay in the UK and expand their business and improve their marketing strategies for a long run.
References
BBC News. 2018. Where are Brexit impact assessments?. [online] Available at: https://www.bbc.com/news/av/uk-politics-42260350/david-davis-questioned-over-brexit-impact-assessments [Accessed 18 Aug. 2018].
Colantone, I. and Stanig, P., 2018. Global competition and Brexit. American political science review, 112(2), pp.201-218.
Crafts, N., 2016. The Growth Effects of EU Membership for the UK: a Review of the Evidence. University of Warwick CAGE Working Paper, 280.
Crowley, M., Exton, O. and Han, L., 2018. Renegotiation of Trade Agreements and Firm Exporting Decisions: Evidence from the Impact of Brexit on UK Exports.
Dhingra, S., Machin, S. and Overman, H., 2017. Local economic effects of Brexit. National Institute Economic Review, 242(1), pp.R24-R36.
Dhingra, S., Ottaviano, G., Rappoport, V., Sampson, T. and Thomas, C., 2018. UK trade and FDI: A post?Brexit perspective. Papers in Regional Science, 97(1), pp.9-24.
Dhingra, S., Ottaviano, G., Sampson, T. and Van Reenen, J., 2016. The impact of Brexit on foreign investment in the UK. BREXIT 2016, 24.
Di Cataldo, M., 2017. The impact of EU Objective 1 funds on regional development: Evidence from the UK and the prospect of Brexit. Journal of Regional Science, 57(5), pp.814-839.
Ebell, M. and Riley, R., 2017. Introduction: Globalisation: Local and Sectoral Impacts. National Institute Economic Review, 242(1), pp.R1-R2.
Goodwin, M.J. and Heath, O., 2016. The 2016 referendum, Brexit and the left behind: An aggregate?level analysis of the result. The Political Quarterly, 87(3), pp.323-332.
Greenfield, P. 2018. Airbus plans UK job cuts amid fears of hard Brexit impact. [online] the Guardian. Available at: https://www.theguardian.com/politics/2018/jun/22/airbus-plans-uk-cuts-amid-fears-of-hard-brexit-impact [Accessed 18 Aug. 2018].
Holloway, T. 2018. Don’t fall off the production line: how manufacturers can thrive in post-Brexit Britain. [online] Manufacturingglobal.com. Available at: https://www.manufacturingglobal.com/leadership/dont-fall-production-line-how-manufacturers-can-thrive-post-brexit-britain [Accessed 18 Aug. 2018].
Howard, P.N. and Kollanyi, B., 2016. Bots,# StrongerIn, and# Brexit: computational propaganda during the UK-EU referendum.
Johnston, C.M. and Buongiorno, J., 2017. Impact of Brexit on the forest products industry of the United Kingdom and the rest of the world. Forestry: An International Journal of Forest Research, 90(1), pp.47-57.
Koch, T., 2016. Before a Potential Brexit: European Immigration to the United Kingdom, its Relative Benefits and Politico-Economic Implications (Doctoral dissertation, PhD Thesis, Johannes Gutenberg University Mainz).
Taylor-Gooby, P., 2017. Re-Doubling the Crises of the Welfare State: The impact of Brexit on UK welfare politics. Journal of Social Policy, 46(4), pp.815-835.
The Independent. 2018. UK population rising by slowest rate in a decade as EU nationals leave after Brexit vote. [online] Available at: https://www.independent.co.uk/news/uk/home-news/brexit-uk-immigration-workers-employment-2018-latest-updates-a8420781.html [Accessed 18 Aug. 2018].
U.S. News & World Report L.P. 2018. UK Lawmakers Ask Hammond and Carney for Brexit Impact Studies. [online] Available at: https://www.usnews.com/news/world/articles/2018-07-02/uk-lawmakers-ask-hammond-and-carney-for-brexit-impact-studies [Accessed 18 Aug. 2018].]
Wadsworth, J., Dhingra, S., Ottaviano, G. and Van Reenen, J., 2016. Brexit and the Impact of Immigration on the UK. CEP Brexit Analysis, (5), pp.34-53.
Watson, D., Yap, S., Pandi, S., Husband, J. and Tekelas, F., 2018. BREXIT and the Implications of Food Safety Cultural Compliance in the Food Manufacturing Sector. Acta Scientific Microbiology, 1(4).
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