Brexit countdown – deal or no deal?
With the six month countdown to Brexit underway, we revisit Professor
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.
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.
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.
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.