Planning for Brexit related upheaval

An article in the Wall Street Journal (February 1, 2019) titled “Secret Truck Routes and backup Storage”, describes plans by one UK company, Heller Maschinenfabrik GmbH. The company gets 60% of its components weekly from suppliers across Europe, assembles it product and ships it to Germany. The company has purchased additional storage space, has plans to stockpile components, has plans for a secret transport route to avoid congestion in Dover and plans for additional staff. But all of this is on hold until the potential Brexit scenarios become clearer as they involve additional costs of over 150,000 pounds. Given the inability to pass on these additional costs, is Heller’s decision to stockpile components and remain in the UK the optimal decision or should the company make plans to move its assembly operations ? Should the company postpone any capacity expansion plans in the UK, as is has done in the past, until uncertainties are resolved ? Should Heller create an alternative source for assembly in Germany immediately and thus have other options to supply customers ?

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19 Responses to Planning for Brexit related upheaval

  1. Kyle Harshbarger says:

    This problem is a good candidate for network optimization. If they make a decision that it is optimal to relocate, I can see needing inventory to wade through a transition. Maybe the stockpiling is being done because they expect to need to relocate, and they don’t want to miss sales during a move.

  2. Sounak says:

    In my opinion, stockpiling the components and staying in the UK is not an optimal decision for Heller. No matter how many components the company stockpile, soon or later the
    company will face the impact of Brexit once the stockpile depletes completely. Also, the impact of Brexit is unknown. There is a possibility that Germany may import these
    components from a different supplier based outside UK. In such scenarios, the extra amount spent on purchasing additional storage space, or having additional staff is a complete loss.
    As the company gets 60% of suppliers across Europe, it could move its assembly operations outside UK, maybe in Germany itself. This action will reduce the company’s lead time
    in supplying the materials to Germany, as well as Heller can have better inventory management planning.

  3. Ryan Ma says:

    For the immediate time, Heller should stockpile as much material as they possibly can. Other companies are following suit in this endeavor and realize the potential threat that Brexit poses to trucks along the border. In the long term, if no negotiations can be made, Heller should consider relocating to another member country within the EU and concentrate efforts in emerging markets like China. The absolute last resort would be to close its operations in the UK and sell its remaining assets to recoup the losses sustained due to Brexit.

  4. Srijan Saurabh says:

    With the new Prime Minister, Boris Johnson, Britain is moving towards hard Brexit. The worst impact is going to be on the transportation industry as the import tariffs are going to be imposed on goods produced or assembled in Europen Union or any other country. In my view, considering 80% of the financial activity of the EU was happening in Britain until the first quarter of 2019, Heller should continue the expansion of their projects in Britain and try to make sure that its headquarter is in European Union with a satellite company in Britain, giving it right to participate in voting of EU and at the same time enjoy British financial activity.

  5. Abhilasha Satpathy says:

    With the Brexit situation being very unclear at the moment, the company cannot be sure how any of it’s decisions will be impacted by new UK laws once Brexit goes through. To get out of all this volatility, the best thing to do currently would be to pull out of UK. It as is is takes 60% of its supplies from suppliers from Europe and ships it to Germany. Considering another location for it’s plant and moving out of UK seems like the right way, especially till there’s some clarity on how things will look post Brexit, especially for multi-national businesses.

  6. Li Yize says:

    It is depend on the cost trade off, if the holding cost is too high, the company should find some way to transport their product rather than holding it until the new way is clear. if there are some different specific product difference or requirements, it is better to do postpone in Germany rather than finish all in UK which is a risk pull and postpone method.
    Also, there are maybe some unclear cost of exploring an alternative source to assembling product in Germany.
    it is hard to make any decision according to current information and it should be determined by cost trade off.

  7. Dan Sun says:

    The company mentioned in this blog is actually the U.K. head of German machine-tool maker Heller Maschinenfabrik GmbH. In this case, the uncertain effect of “Brexit” should even be more seriously to be considered. The effect of “Brexit” on Heller mainly is on import/export perspective. Currently, the stockpiling strategy makes sense to me because it will wave additional costs mentioned in the case. However, if tariff/tax will be infected by “Brexit”, thus causing additional costs, then this strategy may be reconsidered. So, while watching for any changes regarding to “Brexit” among EU markets, Heller should also look for opportunities from other more stable or emerging markets, say China.

  8. Dan Sun says:

    The company mentioned in this blog is actually the UK head of German machine-tool maker Heller Maschinenfabrik GmbH. In this case, the impact of “Brexit” should be watched more closely since their business mainly locate in EU market, and UK is a critical place for them.
    Their current stockpiling strategy makes sense for me only for the recent time range. Because it can largely alleviate the labor cost burden as well as reduce the risk of out of stock. However, this strategy should be reconsidered if “Brexit” actually has impact on tax/tariff between the UK and other EU countries. Therefore, alternative source or opportunities should be considered for assembling in Germany. Those emerging/stable markets are potential targets. For example, suppliers from China.

  9. Dan Sun says:

    The company mentioned in this blog is actually the UK head of German machine-tool maker Heller Maschinenfabrik GmbH. In this case, the impact of “Brexit” should be watched more closely since their business mainly locate in EU market, and UK is a critical place for them.
    Their current stockpiling strategy makes sense for me only for the recent time range. Because it can largely alleviate the labor cost burden as well as reduce the risk of out of stock. However, this strategy should be reconsidered if “Brexit” actually has impact on tax/tariff between the UK and other EU countries. Therefore, alternative source or opportunities should be considered for assembling in Germany. Those emerging/stable markets are potential targets. For example, suppliers from China.

  10. Aanchal Narula says:

    Since most of Hellen’s suppliers(60%) are all across Europe and it ships it’s final product to Germany – a large portion of their demand and orders both upstream and downstream are outside the UK. Thus, remaining in the UK does not seem like an optimal decision and considering both geographical and assembly postponement for the parts and final product seems like an alternative which would depend on the final impact of Brexit on the taxes and tariffs imposed on their parts and product.

  11. Jilan Liu says:

    If the company has increasing demand from the market and the company does not have enough capacity to meet the demand, it will not be wise to postpone any capacity related decision. The question left is how to improve the capacity capabilities for the company to satisfy the demand. When seeking assembly opportunities or expand operations, the company needs to consider potential risk, cost and benefit. Local regulations, duties and taxations are some of the key things need to be considered in strategical level. Operations decisions should also take into considerations of initial installment factors including employees’ relocation, new hiring and training. From a supply chain structure perspective, if the company wants to open up an assembly plant in Germany, it needs to think about how this new facility could coordinate with the original plants, thus how should the company leverage its newly available capacity to the market demand. Another important factor would be quality assurance in the new facility.

    Opening up new assembly plant in Germany could actually save time and cost in transporting the components from Europe to UK and have quicker response to customers in Europe. If the company would like to keep components and remain in the UK, it should find a more efficient way to improve assembly capabilities and efficiency so that inventory won’t hold up in the warehouse for too long; however, given the current challenges in shortening the lead time in transportation, I think seeking an alternative source of assembly would be a better way to resolve the issue.

  12. I would divide this in two scopes:
    1) Short-term solution: Stockpile components while waiting for Brexit scenarios become clearer, promptly setting up sites elsewhere needs significant capital investment (which if cancelled later may cost the company even more comparing to the cost impact of Brexit) and time, it wouldn’t be done in a click of fingers, but to guarantee the case fill rate at the current moment, stockpiling components would be the ideal short-term solution. In the same sense, capacity expansion in UK plant should also be postponed until uncertainties are resolved.
    2) Long-term solution: Evaluate the impact (cost, time; which relates to batch size and safety stock level) on cross-border logistics including but not limited to duties, trade terms, transportation lead-time in the scenario of Brexit without a deal VS. the end to end investment impact on further decide on whether to expand UK plant or set up plants elsewhere. Heller Maschinenfabrik GmbH may also consider to more quickly and less costly set up sites elsewhere if they do joint venture with same industry entity in other countries that they ship their components to.

  13. Shubham N S (PUID- 0031787007) says:

    Given the uncertainties of Brexit, it would not be advised to stockpile the items right now in UK. Having more inventory would require reasonable investment and big financial decision should be based on proper analytical evidences, in this case which are not available. Thus, postponing of capacity enhancement seems more reasonable.
    Parallelly, company should be looking for alternate assembly location outside of UK. With provided data in the article, it can be assured that best alternative would be in Germany. Company can also look for the country where it is getting major supply from. That option would reduce the inbound logistic cost and with network optimization techniques we may find even more efficient path for the cheaper manufacturing.

  14. gokulsidd says:

    There could be potential upsides to staying in Britain after Brexit. Given the situation that Britain will become a separate entity while trading with the EU, there could financial incentives the government could offer to retain business in the nation. The government would do its best to retain existing businesses and not form laws that turn them away.

    Also note that even after Brexit, Britain will have few years until it starts operating independently of EU trade laws. So there is time for the company to invest and probably even recoup that money, if the financial analysis shows the investment can be made soon. This is a different angle to look at the situation. The company should analyse best and worst-case scenarios before making the decison to go or not go.

  15. Archit Bimal Shah says:

    Stockpiling the raw materials is the trend most companies in the UK are following who have their supplier base across Europe. It is a good decision for short term, but it should prepare to move its assembly operations out of UK, or develop a supplier base in the UK. It should hold its expansion plans until Brexit situation becomes clear and the new rules which will be effective are clear. It should evaluate its capacity and options to get new suppliers in UK, or evaluate the cost of new facility in Europe, close to its suppliers and customers.

  16. Krishnajit Bhattacharyya says:

    If the capacity augmentation and other upgradations come as immediate business requirements, it makes sense to find alternatives outside of the UK given the Brexit uncertainties. 60% of the components is a big chunk of the inventories Heller handles. Adding capacity at this stage in the UK is not an optimal choice given the costs involved. An immediate solution to add assembly capacity in Germany appears as a better choice, eventually as the products reach Germany. This will reduce in-transit inventory costs of finished goods and make room for better service (reduced lead times). However, this must be complemented by finding local suppliers in Germany to take care of the otherwise increase of sourcing costs.

  17. Nikhil Nan - 0031367922 says:

    Heller is a global company. It has five production locations: Germany (Nürtingen), England (Redditch), USA (Troy/Michigan), Brazil (Sorocaba), China (Changzhou). With these assembly plants, they are covered for the Brexit risk. They should work to expand capacities of the plants outside UK to support contingencies instead of stockpiling inventories and finding the so called secret truck routes(how long these secret routes are going to be secrets!)
    This problem should be looked at the corporate level rather than at the country level and plan.

  18. SIDDHARTH SOURABH says:

    The company’s workforce is in offshore site in UK and the work force is highly skilled and unique in what they do. The other machines required for production are in UK. The company has already rented out extra storage space and worked out expensive but faster transportation routes in case of a no-deal Brexit. From the article, the only major operation that takes place from Germany is global shipping. So, as general as it may sound, the article is not enough to recommend a solution. It depends. It depends on the deal of the exit, whether sourcing raw materials from other European countries is cheaper in UK or Germany, whether UK offers lucrative deals and economic policies for companies after losing businesses from Brexit or if Germany, who recently slumped to negative growth rate, offers better deals for businesses to boost its economy. One other major information necessary to analyze this decision is why the company had its distribution set up in Germany in the first place. I believe just as no one can predict terms of Brexit months from now, it would be incomplete on our end to predict solutions for the company in question without answering all of the above questions.

  19. Akshara Anand says:

    The initial impact of Brexit can be seen not only within Europe, but across the world. Brexit has specially impacted supply chain in the UK – with immigrant workers moving out, price increases, and a general difficulty in sourcing parts and products from outside the UK. The UK automobile manufacturing industry has been specially impacted, since while the assembly and manufacturing operations are in the UK, most parts like assembly line robots, body control modules, etc. are procured from countries in the EU that have a competitive supplier base like Germany, Hungary, etc.
    Taking a risk and investing in the UK at this stage would involve a tremendous amount of market risk calculations due to government led decisions. Instead of stockpiling components, Heller should not make further investments in the UK until things are clearer on the Brexit front and until it has a clear idea about the future taxes imposed and any regulations formed which could increase its overall costs of assembly and procurement.
    As for the final product, the company should chalk out a plan, calculate the costs and study the feasibility of moving operations and component storage to Germany itself, rather than investing in the UK and then shipping the final product to Germany.
    Heller should definitely look for suppliers in Germany that could provide competitive prices as compared to its current suppliers, so that if due to higher post-Brexit costs the company does decide to move its operations to Germany, they have approved suppliers ready for sourcing.

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