Discussion of supply chain risk tends to focus on problems with suppliers, or wars and natural disasters, but the biggest issue for supply chain strategies in the UK at the moment is likely to be the government’s efforts to renegotiate British membership of the European Union.
The Tory victory in the general election, combined with the strong showing by anti-EU party UKIP, mean that the pressure on David Cameron to come up with a new deal is greater than ever.
Broadly, what Cameron wants is a free trade agreement without the closer social and political integration that is at the heart of the EU project for the French and Germans. The difficulty of finding a deal that both sides are happy with cannot be over-estimated, and it is not surprising that there is now discussion of the possibility of the UK leaving the EU.
In fact, it was revealed last week that the Bank of England has set up a working group to assess the impact of the UK leaving the union.
And that is ringing alarm bells across industry. CBI president Sir Mike Rake told guests at the organisation’s annual dinner last week that businesses must speak out early in favour of remaining with a reformed European Union.
“The question is not whether the UK would survive outside the EU, but whether it would thrive. No-one has yet set out a credible alternative future to EU membership. The current alternatives are not realistic options – little or no influence and the obligation to comply with EU principles while still paying most of the costs,” he said.
And CBI director general John Cridland pointed to some of the supply chain issues in an article in last week’s “Sunday Telegraph”. “Take Airbus, which has raised its concerns about leaving the EU,” he said. “It does extensive trade in Europe, and has a UK supply chain worth £2bn. The company’s Broughton site employs 6,500 people directly and 2,000 in the supply chain, making it one of the biggest private-sector employers in Wales.”
There has been a massive amount of investment in the UK based not only on access to the European market but also the supply chain benefits. These global corporations will be looking very hard at whether those benefits will still apply in the future.
This is just the start of a process that is going to take the best part of two years, and no-one knows what kind of deal, if any, will be on offer when it comes to the referendum. The Bank of England was embarrassed that its plans had been revealed, but no-one would argue it was wrong to plan ahead.
In fact, it makes sense for companies to follow the Bank’s example and consider the potential impact of any change in the UK’s relationship with the rest of Europe in their supply chain planning.