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In June 2016, the United Kingdom voted to enact Article 50 of the Lisbon Treaty and initiate its removal from the European Union, a transition known as Brexit. The invocation of Brexit will have tremendous supply chain implications for companies operating in the UK. Although trade agreements remain to be finalized prior to the departure in 2019, thirty-two percent of the UK\u2019s businesses have already begun to relocate their supply chains domestically.[1]<\/a> Despite the challenges that Brexit presents to an industry that relies heavily on international trade, British specialist car manufacturer McLaren Automotive has began to make changes to its supply chain that may ultimately allow it to benefit from Brexit.<\/p>\n <\/p>\n McLaren should be concerned with Brexit because it has the potential to increase the company\u2019s costs to source and manufacture cars.[2]<\/a> Currently, the company manufactures all of its products in the UK although various parts are sourced throughout Europe. If a \u201csoft\u201d Brexit is negotiated, whereby the UK maintains a trade agreement with the EU, not much would change for McLaren\u2019s supply chain. If a \u201chard\u201d Brexit is negotiated, whereby new restrictions impose tariffs on goods leaving and entering the UK, McLaren could see a surge in its operational costs as well as it in production times, for tariffs are often accompanied by procedures and inspections that take time. For example, 10,000 trucks cross England\u2019s Port of Dover daily, and the average administrative time is two minutes per truck.[3]<\/a> Given that each of McLaren\u2019s products requires many smaller parts and about fifty percent of such parts are imported from Europe[4]<\/a>, the related import expenses and delays could severely impact its cost structure and business.<\/p>\n <\/p>\n In addition to increased supply chain costs on incoming car parts, McLaren may also face increased costs on finished cars exported to other countries. As the UK is no longer a member of the EU, McLaren will be subject to the result of the UK\u2019s trade agreements with not only the EU but also with other non-European states. It currently sells twenty percent of its cars to customers in Europe and the remaining eighty percent of its inventory is sold to the U.S., the Gulf States and Asia.[5]<\/a> These sets of negotiations may result in higher tariffs for McLaren if the UK does not secure favorable trade plans with countries such as China, for example.<\/p>\n <\/p>\n McLaren has attempted to address the challenges posed by Brexit by minimizing the physical distance of its supply chain. It recently invested \u00a350 million in a British carbon-fiber chassis supplier facility with plans to replace its current Austrian supplier by 2020.[6]<\/a> The carbon-fiber chassis is McLaren\u2019s new lightweight design for the frame and body of its cars that sell for \u00a31.4 million each. By consolidating the supply-chain distance between parts, this relocation serves both vertical and domestic integration. It will save the company \u00a310 million in costs and decrease the lead time for each cars\u2019 production.[7]<\/a> These savings will occur even if a \u201csoft\u201d Brexit ensues.<\/p>\n <\/p>\n The company\u2019s attempts to consolidate its supply chain address the concern of post-Brexit import tariffs on parts entering the UK, however, it does not solve the problem of expenses incurred on the export of finished goods. While much of McLaren\u2019s fate resides in the UK\u2019s ultimate trade negotiations, it should begin preparations for the increased costs it may face on the delivery of the product. If the UK is unable to negotiate low tariffs with the U.S., China or the Gulf States, McLaren will either absorb those import costs itself or pass them on to the customer. In order to cushion the increase in costs, it should prepare arrangements for cheaper transportation routes on which to deliver finished cars.<\/p>\n <\/p>\n Additionally, McLaren should consider the effects Brexit negotiations might have on its access to human capital. McLaren currently employs approximately 1,400 high-skilled workers[8]<\/a>, many of whom are not British nationals. As human capital is instrumental to its supply chain and Brexit may also result in a shortage of skilled labor, the company should also plan to recruit and adequately compensate the top international talent, if it intends to continue manufacturing high quality cars. McLaren\u2019s current intention to introduce twenty-two new models to the market by 2022 may also need to be revised given the unpredictability of Brexit\u2019s outcomes.[9]<\/a><\/p>\n <\/p>\n As various UK industries reconfigure their supply chains in light of Brexit, McLaren is strategically positioning itself to benefit from the transition. While it recognizes the need to consolidate its supply chain due to possible import tariffs, it has failed to take action in regards to delivering its finished products overseas. The UK automotive parts business has an estimated \u00a34 billion worth of untapped potential.[10]<\/a> Perhaps, Brexit presents McLaren with other advantageous domestic synergies it had not previously explored.<\/p>\n <\/p>\n <\/p>\n (796 words)<\/p>\n [1]<\/a> Chartered Institute of Procurement and Supply, \u201cBusinesses Preparing to Sever Supply Chain Ties Between the UK and the EU to Avoid Brexit Tariffs,\u201d May 15, 2017, https:\/\/www.cips.org\/en-gb\/news\/news\/businesses-preparing-to-sever-supply-chain-ties-between-the-uk-and-the-eu-to-avoid-brexit-tariffs\/<\/a>, accessed November 2018.<\/p>\n [2]<\/a> Impact of Brexit on Automotive OEMs in the United Kingdom, Frost & Sullivan, Frost Perspectives; accessed November 2018.<\/p>\n [3]<\/a> Motis Freight Services Limited, \u201cOperation Stack TAP and Dover Parking,\u201d Government of Dover <\/em>(Dover, United Kingdom), accessed November 2018.<\/p>\n [4]<\/a> Benjamin Katz, \u201c McLaren Moves Chassis Production to UK to Avoid Brexit Taxes,\u201d Bloomberg<\/em>, https:\/\/www.bloomberg.com\/news\/articles\/2017-02-09\/mclaren-moves-chassis-production-to-u-k-as-brexit-taxes-loom<\/a>, accessed November 2018.<\/p>\n [5]<\/a> Financial Times, \u201cProfitting from Brexit: McLaren Shifts Supply Chain Back to the UK,\u201d https:\/\/www.ft.com\/content\/b3d67800-9475-11e7-bdfa-eda243196c2c<\/a>, accessed November 2018.<\/p>\n [6]<\/a> Society of Motor Manufacturers and Traders Limited, \u201cUK Specialist Car Manufacturers Report 2017,\u201d https:\/\/www.smmt.co.uk\/wp-content\/uploads\/sites\/2\/SMMT-Specialist-Car-Manufacturers-Report-2017.pdf<\/a>, accessed November 2018.<\/p>\n [7]<\/a> Supra, no. 5.<\/p>\n