This article is part of the FERMA/AIRMIC joint Brexit Newsletter which is designed to give risk professionals unique insight into Brexit related risks and mitigation strategies.
Brexit is causing many a sleepless night for corporate risk managers and indeed their insurers. An area of serious concern is the impact of Brexit on supply chains. However, Suki Basi of the Russell Group says it could bring opportunity as well.
Over the last decade or so, many organisations across numerous sectors have developed “global supply chains”, which are spread out across different countries. Many organisations took this as an opportunity to develop “just-time-in” manufacturing processes. This where an organisation, for example, in the Aviation sector, will not store key components used in the production process but rather will have them delivered on the day they need to be used.
Now, Brexit could have the potential to undermine all of this. This is reflected in the concerns of many large-scale organisations. Therefore, it is no surprise that Airbus CEO Tom Enders warned in June 2018 that a no-deal Brexit could halt aircraft production. However, the issues in the supply chains are not just confined to goods and parts. There are legal ramifications too. Without a deal in place, in the aviation sector, for example, Britain could exit the European Aviation Safety Agency (EASA), which means that many aircraft including Airbus would be grounded, as they lack certification.
The nightmare Brexit scenario for risk managers is the image of queuing lorries at the border. Lorries contain not just vital production parts, but food and vital supplies so delays will negatively impact an organisation financially, with falling share prices and investors pulling out.
Supply chain risk management can, however, benefit from big data and analytics to collect, analyse and monitor supply chains. Due to the increasing complexity of supply chains, more attention should focus on the processing and analysis of data, and the interaction between businesses that are connected within their internal and external networks.
As the exit negotiations enter the final phase, international exchange rates will be volatile, which makes it difficult to predict what will happen to different currencies. It is those risk managers with supply chain insight and agility that will have the best mechanisms in place to respond. Other strategies such as dual sourcing of key components and distributed manufacturing will also help, building flexibility and resiliency.
Internal transparency as well as clear visibility of inbound supply chain will help to correctly assess risks and determine the best mitigation. For instance, if an organisation through data analysis is better able to measure the size of its presence in China, could it not focus its marketing activities on that region to de-risk its supply chain challenges in the local European market?
Risk managers need to work now to build a big picture idea of their exposures across a range of deal or no-deal scenarios so a data led approach should underpin any activities undertaken to mitigate potential losses.
Brexit brings uncertainty but also carries opportunity. Data-powered analysis can better help businesses to understand their market risks, turning this potential crisis into an opportunity.