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ASCM Insights

Brexit’s Unknowns Present Challenges

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British aerospace giants Airbus and Rolls-Royce are preparing for Britain’s departure from the EU – also known as Brexit. Reuters reports that as much as the big companies prepare, their business may suffer consequences resulting from their smaller supply chain partners.

“Manufacturing planes and engines requires components to be at factories on a just-in-time basis,” Sarah Young reports. “A disorderly or no-deal Brexit would threaten the smooth flow of parts across borders and prevent European regulatory approval for aerospace products.”

The British aerospace industry exports $39 billion a year and directly employs 123,000 people. It is the largest aerospace sector in Europe and second only to the United States worldwide.

The details of Brexit are still murky, with Britain due to leave the EU on March 29, 2019. Goods might require customs declarations and checks at borders, which create holdups when components can cross borders two or three times before products are finished. Reuters reports that Europe’s Airbus, which makes wings for the company’s commercial aircraft in Wales, is preparing for a “worst-case, no-deal scenario.”

However, of the 4,000 small- and medium-sized companies in Airbus UK’s supply chain, few have plans or teams in place to deal with the possible Brexit fallout, which will negatively impact the larger companies.

The Reuters article highlights a couple of those small-to-medium-sized companies. Meggitt, which has 11,000 global employees, produces wheels and brakes for planes. CEO Tony Wood says they have examined all the scenarios for Brexit, and they are committed to the extra administration if it is necessary. By contrast, Denroy, based in Northern Ireland, indicates extra staff and more administration would be problematic to absorb.

French company Dassault Aviation’s Chairman and CEO Eric Trappier recently implored Britain and the EU to define their new relationship quickly to avoid plaguing hundreds of suppliers.

The industry generally supports British Prime Minister Theresa May’s proposed plan outlining the U.K.’s relationship with the EU after Brexit. However, she must secure the votes at home, and the EU must agree to the plan before it moves forward.  

“Under her plan, Britain would share a common rule book on goods with the EU and continue to participate in the European Aviation Safety Agency (EASA), addressing a key worry for the industry which needs its parts to be EASA-approved to continue flying,” Young reports. 

If May’s plan doesn’t go through, companies with facilities in mainland Europe can use those for approving parts. However, that alternative doesn’t help many small-and-medium businesses, for which building operations in Europe might not possible.

Managing for the unexpected

Britain’s departure from the EU is creating significant challenges for small and large companies alike, especially as the aerospace manufacturing has embraced just in time. Consider the just in time definition as it appears in the APICS Dictionary: “A philosophy of manufacturing based on planned elimination of all waste and on continuous improvement of productivity. It encompasses the successful execution of all manufacturing activities required to produce a final product, from design engineering to delivery, and includes all stages of conversion from raw material onward. The primary elements of just in time are to have only the required inventory when needed; to improve quality to zero defects; to reduce lead times by reducing setup times, queue lengths, and lot sizes; to incrementally revise the operations themselves; and to accomplish these activities at minimum cost …” 

As the challenges of operating in a global business environment mount, it’s important to upgrade and hone your supply chain knowledge. APICS 2018, which takes place September 30-October 2 in Chicago, will include the panel discussion,  “Navigating the Unpredictable: Brexit, Hurricanes and Tariffs...Oh My!” Register by July 31, and you could save up to $400. Visit apics.org/conference for more information or to register.

About the Author

Abe Eshkenazi, CSCP, CPA, CAE CEO, ASCM

Abe Eshkenazi is chief executive officer of the Association for Supply Chain Management (ASCM), the largest organization for supply chain and the global pacesetter of organizational transformation, talent development and supply chain innovation. During his tenure, ASCM has significantly expanded its services to corporations, individuals and communities. Its revenue has more than doubled, and the association successfully completed three mergers in response to both heightened industry awareness and the vast and ongoing global impact driven by supply chains. Previously, Eshkenazi was the managing director of the Operations Consulting Group of American Express Tax and Business Services. He may be contacted through ascm.org.

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