An alternative supply chain solution in a no deal Brexit threat with a leading sports retailer
We know just how important it is for our clients to get the products and fixtures they need on time and in budget to support their store development ambitions. That’s why we supported a leading sports footwear and clothing retailer to develop a mitigation strategy to make sure that amidst political uncertainty in the UK surrounding Brexit, we can maintain European-wide supply and fulfilment with minimal disruption to the end-to-end supply process.
Our client is a leading athletic footwear and apparel retailer with over 2,500 stores across the globe, the majority of which are based in the UK and Europe. This sporting giant has been working with Sigma for many years for the purchase, manufacture and supply of its store fixings as part of its long-term strategy to refresh old stores or open new units as part of its continued growth.
As a result, maintaining continuity of its GNFR (goods not for resale) supply throughout its European network of stores is absolutely critical.
So much so that in the face of continued Brexit uncertainty, this global retailer approached us to create a contingency strategy in the event that a no-deal Brexit takes place, to ensure we can still deliver the fixtures and fittings needed to allow it to maintain its growth strategy during a time of political and commercial instability.
In 2016, the UK signalled its intent to exit the European Union following a public referendum mandating it to do so. As a result of the process that follows such a decision, Article 50 was invoked and a provisional date of 29 March 2019 agreed as the point of departure. During the two years between the referendum and the point of exit, however, there has been little clarity available as to how this will affect cross-EU trading and the import/export of goods across national borders. The date of exit is perhaps the greatest unknown factor as the UK struggles to garner agreement between all political parties about the terms of exit. The approach to EU-wide trading is of significant importance to us and is the determining factor in our ability to continue to supply as we currently do, versus the need for an alternative approach.
For this sports retailer, which relies on open trade regulations to allow the free movement of stock and goods to and from their European stores, this continued uncertainty led to significant concerns about their ability to continue to store refreshes and refurbishments as they grappled with the very real possibility that they would no longer be able to undertake such activity without increased red-tape, cost and time implications. This combination of factors would present an unacceptable level of risk to the business and so to safeguard our ability to ensure continuity of supply, we were approached to prepared a number of solutions to ensure frictionless trade within the EU, whatever the outcome of Brexit.
Preparing for a solution
In order to understand the level of risk, it was firstly important to understand the possible outcomes of Brexit and the subsequent impact to the free movement of goods and trading. While a likely outcome, and one that had been agreed in principle between the UK government and the European Commission, is that there would be a continuation of all trading arrangements required to facilitate our ability to supply, this has by no means been guaranteed.
In a further complication, a number of amendments are currently being proposed and voted on in government, including the possibility of a second referendum, with the option to remain within the EU. There are three likely outcomes:
Remain in the EU:
Article 50 is retracted, ending the Brexit process and the UK retains all access as a member state of the EU.
Outcome: no risk and supply continues as per current process
The UK departs the European Union with the same level of access to the single market and customs union.
Outcome: no risk and supply continues as per current process
The UK leaves without any post-Brexit trade arrangements and reverts to WTO rules.
Outcome: high risk requiring implementation of mitigation plan
Although it is unlikely, should no ratification be granted and no extension to Article 50 be agreed, there is a possibility that the UK would exit the EU without a deal. This is the only scenario which could pose a risk to our supply arrangements and trigger the need to implement alternative arrangements to protect supply.
Using our extensive knowledge of logistics and supply/demand management, we began to explore a range of options that would allow us to provide a continuous supply of goods for our client’s stores in Europe should our current arrangement prove unworkable. This allowed to us to create a bespoke plan with options that could be scaled up or down depending on the ultimate impact of a no-deal exit. Timing was a critical factor and so this detailed proposal was designed and presented within a 2-week timescale.
Option 1: Increased stockholding levels
Increasing the levels of stock we hold will increase the level of time available should inbound deliveries become affected by slower transit at port. Although there may be slightly increased stock holding costs, this would be offset by the creation of valuable additional planning time for each individual delivery.
Option 2: Partner storage options in Europe
This option involves leveraging our relationships with other third-party logistics partners within the EU, which would allow us to store stock in Europe rather than the UK. This would mitigate the risk of delays at ports for deliveries, however there would be a period of integration for a new partner that would require additional set-up and training as well as increased costs relating to inbound shipments. We would also need to factor in a potential uplift in charges from any partner we collaborated with.
Option 3: Delivery time allowance
In anticipation of backlogs and slower customs transit between the popular Dover to Calais route, we can plan for additional time for delivery by despatching earlier from our consolidation facilities. We can also explore the use of the other ports and shipping routes to maximise available delivery windows and ensure we can stay aligned to our client’s build plans.
Option 4: Trade facilitated through an alternative Sigma subsidiary
As a global organisation, there is an option to work with one of our subsidiary organisations to ensure trading can continue should it become overly-challenging through the UK.
Having identified these options, we presented our strategy to provide a significant degree of reassurance that in the event of increased political and commercial instability within the UK as a result of a no-deal Brexit, that their supply and our quality of service will in no way be diminished.
The Chosen Solution
Option Two was the preferred route to explore and consequently we have now established a working partnership with a global logistics supplier with facilities in Germany, meaning we now have a non-UK base ready to utilise. There have been some challenges with getting this set-up established quickly, such as the lack of immediate systems and processes in place to support the necessary ways of working, but we have collaborated in an open and constructive way to remove these barriers.
As an example, we have prepared batches ready for delivery to specific store requirements and sent these over to Germany in bundles so that they have up to 3-months’ worth of stock ready for dispatch to our client’s retail stores. This allows us to maintain continuity of supply whilst giving our partner time to implement the technology and processes needed to maintain this level of service.
Whilst we are still waiting for a Brexit outcome, our client is now in a much more comfortable place of assurance that we can not just maintain our current level of service, but that we can flex in a number of areas to make sure their expectations of product delivery are maintained.
There is a recognition that there will be a small impact in the initial weeks following a no-deal Brexit outcome but we have been able to evidence that this will be properly managed with a stress-tested solution that is both practical and sustainable.
Benefits of our approach:
Timeliness – able to create and mobilise a bespoke strategy with multiple options in just two weeks
Agility – despite a multitude of factors that could affect the end requirement, we collaborated across our own organisation and with partners to create a flexible offering
Commercial control – we worked with our client to manage risk and costs within acceptable parameters in a climate of great uncertainty
Over 20 Years Experience
With over 20 years’ experience of transforming commercial space, Sigma provide a true end-to-end service; from fixtures and consolidation, to construction, projects and M&E.
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