The weakest link: How to Brexit-proof your supply chain
Type in “How will b” into Google and the search engine will start to complete the question for you. The top suggestion: “How will Brexit affect my business?”
This isn’t another article to terrify you on how much data Google has on you. No, the point here is that you’re not the only one asking this question – we all are. And it doesn’t take long to scan through the search results to see that no one has a clue.
Even David Davis has admitted that the government has done little modelling of the impact of Brexit.
It’s worth considering why no one has really done that already.
A model needs a set of assumptions – you enter an input to get an output. The problem is that there are too many unknown factors, so no one is able to decide on the framework of inputs to use, let alone make some sensible assumptions.
The room for error is too large, so no one wants to even attempt making predictions in fear of looking stupid when things don’t turn out as expected.
Everything is up in the air, but for that reason, it makes sense to plan for the known unknowns.
It is the responsibility of every business to manage their risks. This means planning for uncertainties by building options into your business model.
When things change – whether in your favour or against you – you want to be able to act swiftly and decisively, and the more options you’ve got, the better. You don’t want to be the one caught swimming naked when the tide goes out.
How do you build in optionality? In financial markets, it’s simple – you buy them. Options are risk management tools that allow traders to capitalise on an opportunity, or get out of a position if the market doesn’t go their way.
In the City, liquid markets mean traders can exercise their options quickly. Speed is key here – the ability to respond to events outside of our control makes all the difference.
In the logistics market, we can’t move as fast as the traders due to the real-asset nature of our business. But you can improve your options.
Warehouses require long-term commitments, so they are the weak link in a supply chain. They are therefore the single most important focal point for building optionality.
Flexible warehousing is a solution to this, allowing businesses to transact quickly, and giving the customer the option to end the contract at any time, rather than being tied to servicing a lease.
This is game-changing because what you’ve done is financial wizardry: you have turned the fixed, long-term cost of a lease into a short-term variable cost. Not only have you given yourself options to hedge against uncertainty, but you will dramatically improve your underlying economics because the variable model is so much more efficient – you only pay for what you use.
When traders build their models, they backtest assumptions against historical data to understand how those assumptions would have played out with the luxury of hindsight. We can do the same in the warehouse market, looking at the impact of flexible warehousing on your business.
So how will Brexit affect your compnay? Who knows. But preparing your business to deal with uncertainty means you’ll be in far better shape when the ups and down do come.