There is still a great deal of uncertainty about the shape Brexit will eventually take. This creates significant planning issues for buyers looking to prepare for the UK’s departure from the EU. One certainty is that businesses want to avoid unpleasant surprises and disruptions to their supply chains, whatever the outcome of Brexit. How is your supply chain currently positioned, and what risks are you exposed to? We are on hand to help with a new service to help you assess the readiness of your supply chain for Brexit. Here are some key questions you need to be asking.
Flow of goods and services
While there is a lot that is still unknown about Brexit, it does have the potential to affect the ability of companies to operate lean and just in time supply chains.
KEY STAT: in 2016, 20% of car parts installed in the UK were supplier by German manufacturers.
Reliance on a few key suppliers can limit your room to move. Looking for alternative suppliers could make disruption less likely, while helping you reduce costs. A survey by the Chartered Institute of Procurement & Supply (CIPS) found 46% of EU companies working with UK suppliers are looking to switch to EU suppliers. Being proactive is better than waiting until your supply chain is disrupted. There is no harm in approaching any alternative suppliers you have identified, to discuss the potential of doing business together. You don’t want to leave it too late and run out of options when push comes to shove.
Some of your suppliers might source the EU for components or parts. Only 44% of supply chain disruptions originate in tier one. More commonly, problems emerge from lower down the chain. The impact of unstable exchange rates, increased tariffs and more complex logistics is going to really impact smaller suppliers, many of which may only produce a single part or component. Your suppliers may also be significantly more exposed to EU companies than you are.
Research by Imperial College and the BBC found it currently takes between 30-40 minutes for a non-EU lorry to clear customs at Dover. This is compared to around two minutes for an EU lorry to clear. For companies operating a just in time supply chain, this increase in delivery time could have significant cost consequences and limit delivery capabilities. Having a complete understanding of how bottlenecks and disruptions in one part of your supply chain ripple out to impact the rest of your operations can help you limit the reputational damage of suddenly becoming an unreliable supplier.
Our new supplier Brexit readiness survey can help you get a better picture of how your key suppliers operate, and any risks they may pose to you.
Flow of information
One of the main factors adding to the uncertainty of Brexit is what is going to happen to the decades of information-sharing mechanisms that have built up to facilitate cross-border business. If these mechanisms cease to apply to UK businesses after Brexit, how can they seek assurance from EU suppliers?
In 2017, 75% of the EU’s chemical imports came from the EU, and 60% of UK chemical exports went to EU companies.
In the event of a no deal Brexit, the EU REACH regulation will be brought into UK law by the European Union (Withdrawal) Act 2018. This means that the regulations and any related legislation will be retained even in the event that no formal withdrawal agreement is reached. The UK and EU regulatory agencies would, however, operate independently from each other. This means that companies supplying and purchasing substances and mixtures between the UK and EU/EEA, will need to ensure they are registered with both agencies.
The EU has introduced a number of temporary measures designed to limit any disruption caused by a no deal Brexit in certain sectors. It is important that buyers assess whether any of these will affect their supply chains. Examples of these interim measures are proposals to ensure the provision of certain air services between the UK and EU for up to 12 months, or to temporarily add the UK to the list of countries for which general authorisation to export dual use items is valid throughout the EU.
Financial flows
Disruption can quickly lead to cash flow issues for both large and small businesses as they are forced to take on and hold more inventory or lay off employees. While it is hard to predict how the various possible Brexit outcomes may affect your working capital, you can start looking at how vulnerable you are to cash flow issues.
20% of EU businesses would push their UK suppliers for a discount after a 24 hour delay at the border. 25% would withhold payment until the goods arrive.
The amount of inventory you hold affects your working capital. Taking on more inventory means more of your working capital is locked up. This can be compounded if your supplier payment terms are not as long as those of your customers or your inventory turnover is not as fast as the payment term difference. Having more inventory could also affect the status of any current debt obligations. Having a warehouse full of unused inventory may give companies fewer options or leverage when it comes to securing a bank loan.
Testing your suppliers preparedness for Brexit can help give you an idea of how this could affect their ability to deliver the materials and parts you need.
Supply chains work better with clear communication. It is important to try and work together with your suppliers to improve the resilience of your supply chain. Effective and accurate supply chain visibility allows you to identify potential threats and reduce their risk. Having clear visibility means that you are less likely to get caught out by damaging surprises. It allows you to adjust your contracts, seek fresh reassurances or find alternative suppliers.
Cashflow is one of the main ways that market uncertainty can quickly begin wreaking havoc on small businesses. According to Xero, weak cash flow management is a major factor in 65% of small business failure.
As well as making sure that you are using the best tools, a key part of maintaining cash flow is visibility. For buyers, poor cashflow impacts the ability to pay suppliers on time, but an important part of business continuity is mapping your supply chain to assess your exposure to risk. We can help alert you to issues from particular suppliers before they become a source of disruption.
People
Your business is only as effective as the people you employ. Brexit has the potential to affect the employment rights of some members of your team. If you face losing some key players, you are going to need to start thinking about how to plug the gaps.
In 2018, 165,000 construction workers in the UK were EU nationals.
A full audit of your employees, to make sure they are legally allowed to work in the UK, could prevent a significant loss of staff in the run up to the UK’s departure from the EU. If you don’t have an accurate idea of the makeup of your workforce, you will not be able to accurately plan for business continuity.
Any business continuity planning needs to take into account the vulnerability of your suppliers in changes to labour availability and legislation. This is especially important for smaller suppliers with up to 20 employees. For these companies, losing a single important staff member could severely impact their operations until a replacement is found.
Next steps
You can’t control what you can’t see. Brexit has the potential to make your supply chain much more complex. Our supplier Brexit readiness solution builds a comprehensive picture of your supply chain, helping you identify and address potential problems posed by an unstable withdrawal from the EU. We can provide reporting and insights about how prepared your suppliers are to confirm to regulations in the event of a no deal or unstable Brexit.
With the countdown ticking, talk with a member of our team to get started.
