Supply chain risk tends to conjure up images of natural disasters, terrorism or bankruptcy, writes Malory Davies
The direct impact of a disastrous political decision is not that common but we are seeing one at work now.
Latest motor industry figures show that registrations of diesel cars in November were down 31 per cent on a year ago. And that, says the Society of Motor Manufacturers and Traders, is the result of on-going anti-diesel messages from the government.
Of course, it is not that many years ago that diesel engines powered only a small percentage of cars on the road in the UK. It was a change in government policy driven by the desire to meet CO2 targets that led to the dramatic growth of the diesel car market.
In the first 11 months of 2016, diesels accounted for 1.2 million registrations – some 48 per cent of the total market.
This year that figure has fallen to one million – just 42 per cent of the market. And, as the November figures show, the rate of decline is increasing.
There has been some increase in sales of petrol and alternative fuel cars, but even so the overall market has fallen five per cent.
Not surprising then, that SMMT chief Mike Hawes complained: “An eighth month of decline in the new car market is a major concern, with falling business and consumer confidence exacerbated by on-going anti-diesel messages from government. Diesel remains the right choice for many drivers, not least because of its fuel economy and lower CO2 emissions.
“The decision to tax the latest low emission diesels is a step backwards and will only discourage drivers from trading in their older, more polluting cars. Given fleet renewal is the fastest way to improve air quality, penalising the latest, cleanest diesels is counterproductive and will have detrimental environmental and economic consequences.”
The rapid switch from diesel to petrol has clear supply chain implications for manufacturers, who also face particular challenges from Brexit. In fact, Tony Walker, SMMT president, recently called on the government to make quicker progress on agreeing a transition period following Brexit.
He told guests at the SMMT annual dinner that the lack of progress over Brexit was already having an impact on the automotive sector: “We have huge challenges. Consumer confidence has fallen leading to a downturn in sales. Uncertainty about Brexit – and market confusion over diesel – are taking their toll.”
The diesel debacle is one political decision having an impact on automotive supply chains, but there is no avoiding the fact that the outcome of the Brexit negotiations could have a devastating effect on the industry.
The agreement on the divorce bill reached between the UK and the EU before Christmas has thrown the spotlight on the trade negotiations. Pauline Bastidon, head of European policy at the Freight Transport Association, warned: “The urgency is now to provide clarity to businesses, and that’s why a transition and implementation phase is so crucial. Businesses should only have to adapt to one set of changes and should be given enough time to do so, once new arrangements and rules become clear.”
The SMMT has calculated that WTO tariffs would add at least £4.5 billion to the motor industry’s annual overheads. Not only that, the industry would also be penalised by the imposition of customs checks, red tape and fees on goods that currently move friction free across borders.
The SMMT calculates that every day more than 1,100 trucks for UK car plants cross into the UK from the continent – the vast majority without being checked at customs – to deliver some £35 million worth of components to UK vehicle and engine plants. And every day, these components help build 6,600 cars and 9,800 engines – the bulk of which are then shipped back to EU customers and assembly plants.
“We will never stop striving to be competitive. But we ask government to help provide the conditions in which we can compete. Like every other industry, we need certainty now,” said Walker.
It was also revealed last month that the UK government has carried out no assessments of the impact of Brexit on different industry sectors. David Davis, the Brexit secretary, told a committee of MPs that formal assessments were not needed to know that regulatory hurdles would have an impact on UK industries.
Although the government might not feel the need to assess the impact of Brexit on industrial supply chains, it has put forward a blueprint for the post-Brexit world.
In her introduction to the 250 page Industrial Strategy white paper, published in November of last year, prime minister Theresa May talks about “a new approach to how government and business can work together to shape a stronger, fairer economy.”
“At its heart it epitomises my belief in a strong and strategic state that intervenes decisively wherever it can make a difference,” she says.
Not surprisingly, supply chain concerns figure strongly in the document. A core concern is the productivity problem – the fact that the UK lags so badly behind all its major industrial competitors.
In his forward to the white paper, business secretary Greg Clark says: “For all the excellence of our world-beating companies, the high calibre of our workforce and the prosperity of many areas, we have businesses, people and places whose level of productivity is well below what can be achieved.
“So this Industrial Strategy deliberately strengthens the five foundations of productivity: innovation, people, infrastructure, places and the business environment.”
The white paper sets out four “grand challenges”:
l Become a world leader in the way people, goods and services move.
l Put the UK at the forefront of the artificial intelligence and data revolution.
l Harness the power of innovation to help meet the needs of an ageing society.
l Maximise the advantages for UK industry from the global shift to clean growth.
Specifically, it sets out plans to launch a new Supply Chain Competitiveness programme “that will target areas where key businesses need to improve to match the best in Europe and beyond, supporting training and enhanced business processes”.
The white paper was warmly welcomed by the Confederation of British Industry which urged the government to move quickly from strategy to action.
And it is clear that there are new opportunities opening up for organisations to take advantage of government support to strengthen their supply chains.
Brexit and the diesel issue both highlight the potential for governments to seriously damage your supply chain.
And the “grand challenge” for the government going forward is to create the conditions in which automotive supply chains can thrive.
This article first appeared in Logistics Manager, January 2018