Understanding your supply chain is perhaps the most Brexit-critical action facing your business in the run up to the UK’s exit from the EU. The almost unique nature of the Customs Union and Single Market has allowed complex and expansive supply chains that criss-cross Europe to flourish, with goods moving free of tariffs, regulatory checks kept to an absolute minimum, quotas removed and friction at the border all but eliminated. Such is the complexity that the process of mapping these supply chains (let alone understanding the effect of Brexit on them) will be a challenge for most businesses, and even those with limited direct exposure to imports and exports may suffer the after-effects of Brexit felt by suppliers and customers.
Supply chain mapping
Identifying these effects now will help you model the impact of Brexit on your business, identify areas or risk and plan for organisational changes. Carrying out a supply-chain mapping exercise will help, and with just a few weeks to go until March 29, businesses should start now.
Absent a full and deep free trade agreement, a key difference in our future relationship with the EU will be the imposition of tariffs on goods imported from Europe. What are the cost implications on your supply chain, and can these be absorbed? If not, can you source alternative suppliers, and at what cost? Do you need to re-shore parts of your supply chain? Will European suppliers import direct to Ireland, rather than using the UK as a jumping-off point, and so avoid incurring unnecessary UK tariffs at the borders? And will businesses in the US and further afield choose Ireland, the Netherlands, France or another EU country as their point of entry to the EU market for the same reasons? What will be the effect on your exports, and will your customers be able (or willing) to absorb any price rises in the price of your products? And taken together, will this affect your business model in the event of a no-deal exit?
A lack of clarity over the trade rules that will be in place with non-EU countries post-Brexit is another factor lost in the scramble for a new deal with Europe. Goods shipped now to and from the UK that currently have the benefit of an EU free trade deal – with Canada, South Korea, and Japan, for example – will no longer benefit if we leave the EU with no deal, raising the possibility of goods stuck at ports whilst customs officials decide what tariffs apply.
IT changes, pressures on warehousing, delayed delivery leading to breaches of contract, cash-flow issues, stockpiling, administrative fees, lack of capacity at ports and amongst logistic providers, the possible imposition of quotas – in a worst-case scenario, all may lead to pressures on you and your suppliers. Key to your mapping process will be to factor in what plans your suppliers have made to cope with these and other possibilities, to better understand whether they’ll be able to continue to deliver the goods in the event of a no-deal exit.
Mapping your supply chains will help your business to spot some of these issues before they become a business-critical problem, will help identify opportunities to build in contingency plans for alternative suppliers, rationalise supply, cut lead times, identify weak links, create new contractual relationships, identify new markets and understand the steps that your business will need to take to prepare for life outside the EU.
For help with preparing your business for Brexit please contact Luke or one of the team.