Exclusive from Wax Digital: A cautionary supply chain tale for turbulent financial times
For any UK business with a global supply chain, access to suppliers post-Brexit is a major concern . Business owners are being forced to safeguard trading with no clear view on how Brexit will unfold.
We’ve seen companies begin to stockpile commodities, while others are upping sticks and moving the entire business or its supply chain out of the UK to prepare for whatever happens. However, if you think preparing for Brexit is a challenge, cast your mind back to the early 90s, when PepsiCo found itself in financial turmoil as the USSR collapsed in 1991.
In 1972, PepsiCo became the first American product to be sold across the USSR. With a worthless and untradeable currency outside of the region, the Kremlin and PepsiCo had to be creative in their trading agreements. This approach saw PepsiCo become the sole supplier of Stolichnaya Vodka to the country; PepsiCo take ownership of various of the country’s naval battleships; and then commission the USSR to build ten oil tankers for $1bn of Pepsi.
However, eventually catastrophe struck for PepsiCo when the Soviet Union collapsed. It now faced massive supply chain turmoil and instead of having to deal with just one state, it now had to deal with 15 separate nations.
Gripped by massive supply chain issues, it spent the next few years frantically trying to reclaim its assets. It also had to deal with Coca-Cola taking advantage of the situation and trying to claim its stake as the nation’s favourite cola. As Russia went through a rapid privatisation process, Coca-Cola steamed in and bought up factories, bottling facilities and other infrastructure at low cost, and quickly managed to usurp PepsiCo’s posiiton as the leading soft drink brand in the process.
The lessons learnt by PepsiCo act as precautionary tale for any business trading overseas. So, as concerns over trading conditions with overseas suppliers grow amid Brexit uncertainty, what lessons can we take from the lessons learned by PepsiCo in the 90s?
- Learn to recognise if your supply chain is under threat
All the signs were there for PepsiCo that it had left itself in a very vulnerable state. Be aware of the geopolitical situations facing the countries you trade with and have a business continuity plan in place for those that may arise which are beyond your control.
Today, our supply chains are becoming increasingly global and while this approach typically offers best value, it does come with the chance of unexpected obstacles, making risk management a key strategy for businesses.
- Keep an eye on critical spend categories
If your suppliers are based overseas, consider how you would access those supply chains if trading agreements with other countries became difficult or untenable.
Businesses need complete visibility into their supply chains to ensure control. When engaging with suppliers, assess the political situation in that country, its stability and trade conditions. Sourcing a list of alternative suppliers if trading relationships are no longer possible can help ensure business continuity in the event of trading difficulties.
- Be prepared
Lots of businesses remain concerned about a no deal Brexit and some businesses are taking steps to stockpile goods to ensure continued service. Retailer Pets at Home for example, reportedly increased its stockpiling capacity for the goods it sources from Europe by £8 million. This was in anticipation of diminished availability, logistical challenges, tariffs and any other complications that could alter their existing transactions within the single market in the case of a hard Brexit. Also, a recent survey from the Institute of Directors of over 1,000 business leaders showed that almost a third of UK companies already had relocation plans or were actively considering a move.
While leaving the UK may seem extreme, preparing for worst case scenario can sometimes feel like the only way forward.
PepsiCo was lucky and thanks to its diverse portfolio, survived the supply chain battle it faced in the 90s. In 2017, it recorded a turnover of $63bn and today is almost double the size of Coca-Cola with sales of Pepsi accounting for less than a quarter of the firm’s total revenue.
We can all learn a lesson from PepsiCo’s cautionary tale and be more aware of supply chain risk by putting plans in place to mitigate against them as soon as possible.
Grupo Espinosa: 70 years of constant evolution
Founded in 1952, Grupo Espinosa has been relentlessly supporting the publishing industry with producing more than 100 million copies every year – whether its books, magazines, catalogues or single-order custom prints. No project is big or small for Grupo Espinosa, as the facility can scale up on demand and their turnaround times are highly competitive. Grupo Espinosa works with on-demand digital press or offset press, in paperback with glued softcover binding, PUR softcover binding, stitched paperback binding, binder’s board, hardcover, saddle stitched, Spiral or Wire-O. Equipped with the experience needed for a product to leave the plant ready for distribution, Grupo Espinosa delivers anywhere inside or outside Mexico. Traditionally starting off as a black and white printing press, Grupo Espinosa has experienced transformation first hand – from colour to digital offset printing. Currently, Grupo Espinosa is also looking at making capital investments into audio books to match with the increasing demand.
So how did a seemingly local operation in Latin America become a world-renowned printing facility trusted by hundreds of clients? As Rogelio Tirado, CFO of Grupo Espinosa for the last six years says “It all comes down to our market experience and our dedication to quality”. With nearly 70 years behind them, and located in Mexico City, Grupo Espinosa has two major locations – one spanning 75,000 square metres and the other about 45,000 square metres. Both locations are controlled by a single ERP (Enterprise Resource Planning) system ensuring speed, consistency and quality of work. Tirado says this isn’t their only competitive advantage. He adds “Our competitive advantage is the relationship we have with customers and the trust they put in us with their intellectual property”. Speaking of trust, global publishing giant Macmillan Education exclusively partners with Grupo Espinosa for their Latin America operations, as part of Macmillan’s decentralized hub strategy. Having a facility that offered the full spectrum of service – from storing digital content to printing and distributing – was one of the major requirements for Macmillan, and Grupo Espinosa was recognized as the leading printing hub for providing this 360 infrastructure. Another factor that has led to success for Grupo Espinosa is the absolute focus on quality and time. The staff are committed to providing the best quality in the best possible time, without causing wastage of resources. Sustainability is a huge factor playing into Grupo Espinosa’s operations, and they’ve created a healthy environment with the sustainable use of paper and energy resources as well as keeping their employees – most of them associated with the organisation for over 10 years – happy. He adds, “In order to be truly successful, you need to be good to the environment, employees, suppliers, and your customers. But most importantly, you need to be sustainable, you need to have proper working conditions, pay proper salaries, proper prices for paper, source the paper from sustainable sources, pay your taxes, basically be a good global corporate citizen and that's probably one of the biggest achievements that we have.”