Are there hidden Brexit traps in your supply chain?

13 Mar 2019
Article by Achilles

The overriding narrative of Brexit has been one of uncertainty. With the departure date of 29 March only a matter of weeks away, many businesses are being forced to prepare for a period of potential disruption throughout their supply chains.

Despite the lack of concrete guidance on the eventual relationship between the UK and the EU, there are steps that businesses should take now to prepare themselves with information and insight. By getting to know your supply chains better, and building better relationships with your suppliers, you will be better placed to deal with any disruptions.

Assessing your Brexit risk

The uncertainty around the UK’s EU departure has led to a sense of paralysis in some parts of the economy. A September 2018 survey conducted by the Chartered Institute of Procurement and Supply found that 48% of respondents were waiting for more clarity before taking action. For many companies though, waiting is simply not an option, and many are actively exploring alternative sources of supply or building new relationships in preparation.

This is particularly true in sectors like construction where capacity is already constrained, and suppliers often find it difficult to be flexible. Reliance on easy cross-border movement of labour and materials only further complicates matters. Usually, tight supply chains would encourage investment in order to increase their resilience, but the atmosphere of uncertainty is leading many companies to delay investment in their UK supply chains.

So, just how exposed to Brexit-related risks are you?

The latest Business Continuity Institute Supply Chain report highlighted that the problem may not always be in Tier 1 suppliers. While 65% of respondents had suffered at least one major supply chain disruption in 2017, less than half (44%) had originated from Tier 1 suppliers. In our experience, companies can often have trouble identifying the Tier 2 or 3 dependencies that can be the source of damaging disruptions. Identifying, and mitigating, these potential risks further down the supply chain is becoming especially important as Brexit looms over the horizon.

But, as big as Brexit undoubtedly is, it is not the only potential source of disruption that supply chains may need to weather in the coming years. Other factors that could affect supply chain resilience are the ongoing fallout from the US/China tariff disputes, extreme weather events and the continuing shifts in the Chinese economy that are impacting its exports and capital spending.

Let’s look at a specific example to help illustrate the point. Consider the product category of ‘Abrasive Surface Treatment Services’. In our Automotive community, there are two suppliers of this specialist product. One is based in Hungary; the other is based in China. For automotive buyers based in the UK, there is the potential that customs delays or tariffs could impact trade with both suppliers in the network, as the UK would need a new trade deal with both the EU and China, as current trade relations between the UK and China are governed by its membership in the EU. It’s clear in this scenario that sourcing new pre-qualified suppliers as a backup would be a good plan B.

While you might not be surprised about your exposure to Brexit, you may be surprised by the way other global trends might limit your ability to manoeuvre. Finding cost-effective alternative suppliers that won’t expose you to additional risk could be more difficult than you think.

Preparing for disruption

As we don’t yet know the size and shape of any disruption caused by Brexit, supply chain resilience planning is going to be important in the next few months. Knowing your risk exposure is one part of the puzzle, but there are four other areas you should be focusing on.

  • People – One of the main areas of change after Brexit could be the availability of labour, particularly of people with the right skills and qualifications. What are the skills that are critical to the success of your operation and will you be able to secure them if access to EU labour is restricted for a period of time?
  • Flow of goods – A lot of supply chains, particularly construction, oil and gas and automotive, operate across borders using lean processes and a just in time model. This means that delays can quickly ripple through entire supply chains and have significant financial effects.
  • It is important to try and work out exactly how much extra delays to clearing customs at Dover or the Eurotunnel your operations can tolerate. Companies have been exploring the idea of stockpiling materials and parts to avoid major disruption, although this could represent a significant additional cost and undermine any ‘Just In Time’ initiatives.
  • Flow of information – There could be big changes ahead for regulations and customs. An example is REACH (Registration, Evaluation, Authorization and Restriction of Chemicals), which was set up in 2006 and is currently comprised of 500 individual licenses for the registration of chemicals. Until UK equivalents are established, companies which rely on EU regulations and organisations could be impacted.
  • Financial flows – Cashflow could be a major issue for small suppliers and larger companies alike. According to the Society of Motor Manufacturers, 66% of companies in the UK automotive supply chain currently employ less than 10 people. This means that the effect of having to take on more inventory or take actions that negatively affect their working capital have the potentially to quickly impact these companies’ ability to operate.

 

We can help you make your supply chain more resilient. We can pre-qualify new suppliers and provide up-to-date supplier mapping so that you have the best possible picture of any supply chain risks. With so much uncertainty surrounding the UK’s departure from the EU, we can help you establish more resilient supply chains and prepare for any eventuality wherever you are based in Europe.



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