{"id":25085,"date":"2017-11-15T19:23:44","date_gmt":"2017-11-16T00:23:44","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/associated-british-foods-mmmmm-brexit\/"},"modified":"2017-11-15T19:26:06","modified_gmt":"2017-11-16T00:26:06","slug":"associated-british-foods-mmmmmbrexit","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/associated-british-foods-mmmmmbrexit\/","title":{"rendered":"Associated British Foods: Mmmmm\u2026Brexit"},"content":{"rendered":"

June 23rd<\/sup> 2016: the UK voted to leave the EU, a pan-European political union and economic union with a single market (in which the EU is one territory without any internal borders or regulatory obstacles to free movement of goods and services) [1]. Since then, \u201cBrexit\u201d has become a divisive issue, hailed by some as the first step to improved economic growth and others as a destructive step away from globalization [2]. Regardless of political views, as the terms of Brexit are negotiated, a great deal of uncertainty exists regarding future trade relationships between the UK and the EU [3]. There is a wide spectrum of potential outcomes, from the UK continuing to stay in the single market to a situation of widespread tariffs and customs barriers [4]. It is in this environment that Associated British Foods (ABF) operates.<\/p>\n

ABF is a major producer of Grocery products, Ingredients (e.g., yeast), Sugar, and Agricultural products, and owns fashion retailer Primark (see image below for example of ABF products and Primark fascia).<\/p>\n

\"\"<\/a> \"\"<\/a><\/p>\n

As an international business, it operates in 50 countries, generating \u00a315.4bn sales (2017) with \u00a31.4bn operating profit [5]. Although the UK is ABF\u2019s primary market, operating factories across the EU and internationally and importing goods to the UK to supply retail customers (see map below showing location of factories), the company also exports goods across the EU and internationally with 2\/3 of sales and profit made outside the UK [6]<\/p>\n

\"\"<\/p>\n

Given its high dependence on trade, ABF is vulnerable to uncertainty around Brexit. In the short-term, as the value of pound sterling to euro has decreased, input costs have substantially increased for ABF [7]. In the longer-term, ABF\u2019s supply chain has been designed to work within the EU context, a borderless trade regime with little paperwork and no tariffs [8]. Depending on how Brexit unfolds, ABF may incur additional costs in navigating complex customs processes as well as possible import\/ export duties, impacting profit margins. In addition, the speed and flexibility of ABF\u2019s supply chain will likely decrease, as customs between borders becomes a bottleneck. Increased lead times reduces ABF\u2019s responsiveness to customers (key part of its customer value proposition), reduces its ability to accurately forecast demand, and may lead to requirement for additional costly inventory across its supply chain.<\/p>\n

To address uncertainty, ABF\u2019s management is currently focusing on two key short-term levers:<\/p>\n

    \n
  1. Minimizing exposure to non-UK suppliers. <\/strong>To offset increased raw material costs, ABF is re-examining its supplier contracts to understand their viability post-Brexit, consequently sourcing more from the UK. For instance, it is expecting to buy more British wheat, switching away from German suppliers [9].<\/li>\n
  2. Selectively pass on cost inflation to retail customers. <\/strong>Like many other packaged goods companies, ABF is also exploring how to increase prices of its products, sharing the burden of higher costs with retailers [10].<\/li>\n<\/ol>\n

     <\/p>\n

    Although levers above have been deployed in the short-term, they are likely to remain part of ABF\u2019s toolkit in dealing with Brexit longer-term. At the moment ABF is bearing the burden of much of the cost inflation, causing unsustainable losses in categories such as \u2018bread\u2019; in the future, it is likely that more of this burden will be shared with retailers [11]. However, in addition to the above, management is also focused on the following mid- to long-term levers:<\/p>\n

      \n
    1. Reducing manufacturing costs. <\/strong>With slimmer profit margins, ABF is in the midst of deploying long-term cost reduction programs across its manufacturing facilities [12]. While many of these programs were initiated before Brexit, implementation is significantly more important in a post-Brexit environment.<\/li>\n
    2. Increasing focus on its retail business (Primark). <\/strong>Primark is less impacted by Brexit uncertainty, as it sources products from outside the EU. Primark has continued to be identified as critical to ABF\u2019s long-term strategy [13].<\/li>\n<\/ol>\n

       <\/p>\n

      In addition to above, I believe ABF should also consider potentially more radical changes in its business model in supply chain to drive further cost savings:<\/p>\n

        \n
      1. Move to a \u2018direct to consumer\u2019 model. <\/strong>To remain competitive, ABF needs to deliver products to end-users at low prices. By circumventing retailers and offering products directly to consumers (e.g., via an ecommerce model), ABF can offer low prices to consumers (avoiding the margin taken by retailers) while also increasing their own margins.<\/li>\n
      2. Work with suppliers\/ customers to minimize costs through supply chain. <\/strong>On the other hand, ABF can also enter agreements to share financial and forecast data with suppliers and retail customers \u2013 moving to \u2018activity based pricing\u2019, whereby behavioral changes can result in cost-savings realized by both parties.<\/li>\n<\/ol>\n

        there are two questions I would like to ask. Firstly, should businesses be allowed to lobby government decisions and is it always right for businesses to do so? Secondly, what responsibility does ABF have to its workers, as it reorganizes its supply chain?<\/p>\n

         <\/p>\n

        (800 words)<\/p>\n

         <\/p>\n

        [1] European Commision. \u201cThe European Single Market\u201d. Europa. https:\/\/ec.europa.eu\/growth\/single-market_en<\/a><\/p>\n

        [2] Noack, Rick. \u201cA year after a divisive vote, doubts are mounting in a town that went overwhelmingly for Brexit\u201d. Washington Post. (June 23, 2017). https:\/\/www.washingtonpost.com\/news\/worldviews\/wp\/2017\/06\/23\/one-year-after-a-divisive-vote-doubts-are-mounting-in-a-town-that-voted-overwhelmingly-for-brexit\/?utm_term=.d7862e56d428<\/a><\/p>\n

        [3] \u201cThe long-term cost of uncertainty on Brexit.\u201d Financial Times. (August 3, 2017). https:\/\/www.ft.com\/content\/5e330540-784a-11e7-90c0-90a9d1bc9691<\/a><\/p>\n

        [4] \u201cSupply Chain: Your Brexit Competitive Advantage\u201d. PWC. (February 2017). https:\/\/www.pwc.com\/gx\/en\/issues\/assets\/brexit-supply-chain-paper.pdf<\/a><\/p>\n

        [5] \u201cAssociated British Foods: Annual Results Announcement. Year ended 16 September 2017\u201d. Associated British Foods. (September 16, 2017). https:\/\/www.abf.co.uk\/documents\/pdfs\/arcr-2017\/annual_results_announcement_2017.pdf<\/a><\/p>\n

        [6] Thompson, Jennifer. \u201cPrimark boosts profits at Associated British Foods\u201d. Financial Times. (July 6, 2017). https:\/\/www.ft.com\/content\/b887a174-ecf5-330c-967b-ff88cee4e75b<\/a><\/p>\n

        [7] \u201cCost of British grocery brands to rise due to fall in value of sterling\u201d. The Guardian. (November 8, 2016). https:\/\/www.theguardian.com\/business\/2016\/nov\/08\/british-grocery-brands-sterling-associated-british-foods-jordans-twinings<\/a><\/p>\n

        [8] Bain Insights. \u201cHow will Brexit Affect Your Supply Chain\u201d. Forbes. (March 30, 2017).<\/p>\n

        https:\/\/www.forbes.com\/sites\/baininsights\/2017\/03\/30\/how-will-brexit-affect-your-supply-chain-infographic\/#3046ec7e7e11<\/a><\/p>\n

        [9] \u201cCost of British grocery brands to rise due to fall in value of sterling\u201d. The Guardian. (November 8, 2016). https:\/\/www.theguardian.com\/business\/2016\/nov\/08\/british-grocery-brands-sterling-associated-british-foods-jordans-twinings<\/a><\/p>\n

        [10] Ibid.<\/p>\n

        [11] Butler, Sarah. \u201cAs sliced bread sales fall and costs rise, are UK\u2019s leading bakers toast?\u201d. The Guardian. (November 11, 2017). https:\/\/www.theguardian.com\/business\/2017\/nov\/11\/are-uks-leading-bakers-toast-bread-sales-fall-costs-rise<\/a><\/p>\n

        [12] \u201cAssociated British Foods: Annual Report and Accounts, 2017\u201d. Associated British Foods. (2017). https:\/\/www.theguardian.com\/business\/2016\/nov\/08\/british-grocery-brands-sterling-associated-british-foods-jordans-twinings<\/a><\/p>\n

        [13] Bradshaw, Julia. \u201cPrimark owner ABF sees bright side from Brexit but warns sterling could hit margins\u201d. The Telegraph. (November 8, 2016). http:\/\/www.telegraph.co.uk\/business\/2016\/11\/08\/abf-shares-jump-on-unexpectedly-sweet-profits\/<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

        Impact of trade isolationism on Associated British Foods<\/p>\n","protected":false},"author":9873,"featured_media":25219,"comment_status":"open","ping_status":"closed","template":"","categories":[3230,430,3922,33,1815,3239,16],"class_list":["post-25085","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-brexit","category-cpg","category-fmcg","category-food","category-food-and-beverages","category-isolationism","category-retail","hck-taxonomy-organization-assoiated-british-foods","hck-taxonomy-industry-food-and-beverage","hck-taxonomy-country-united-kingdom"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nAssociated British Foods: Mmmmm\u2026Brexit - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/associated-british-foods-mmmmmbrexit\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Associated British Foods: Mmmmm\u2026Brexit - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Impact of trade isolationism on Associated British Foods\" \/>\n<meta property=\"og:url\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/associated-british-foods-mmmmmbrexit\/\" \/>\n<meta property=\"og:site_name\" content=\"Technology and Operations Management\" \/>\n<meta property=\"article:modified_time\" content=\"2017-11-16T00:26:06+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/04453dd4-8093-11e4-b5cf-00144feabdc0.jpeg\" \/>\n\t<meta property=\"og:image:width\" content=\"2048\" \/>\n\t<meta property=\"og:image:height\" content=\"1152\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/associated-british-foods-mmmmmbrexit\\\/\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/associated-british-foods-mmmmmbrexit\\\/\",\"name\":\"Associated British Foods: Mmmmm\u2026Brexit - Technology and Operations Management\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/associated-british-foods-mmmmmbrexit\\\/#primaryimage\"},\"image\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/associated-british-foods-mmmmmbrexit\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2017\\\/11\\\/04453dd4-8093-11e4-b5cf-00144feabdc0.jpeg\",\"datePublished\":\"2017-11-16T00:23:44+00:00\",\"dateModified\":\"2017-11-16T00:26:06+00:00\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/associated-british-foods-mmmmmbrexit\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/associated-british-foods-mmmmmbrexit\\\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/associated-british-foods-mmmmmbrexit\\\/#primaryimage\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2017\\\/11\\\/04453dd4-8093-11e4-b5cf-00144feabdc0.jpeg\",\"contentUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2017\\\/11\\\/04453dd4-8093-11e4-b5cf-00144feabdc0.jpeg\",\"width\":2048,\"height\":1152,\"caption\":\"A customer carries his purchases in a shopping basket as he browses oriental foods displayed for sale inside a Tesco Metro store, operated by Tesco Plc, in London, U.K., on Wednesday, Oct. 16, 2013. 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