As the prospect of a no-deal Brexit no longer appears an unlikely scenario, UK businesses are increasingly looking to move their supply chain outside the EU. While many UK businesses have developed complex supply chains within the EU that currently enjoy no tariffs and minimal border delays, the uncertainty ahead is about to bring about significant change. With no real clarity around how the world will look post-Brexit, many are now looking to forge relationships with suppliers from the rest of the world. It’s time to prepare for the challenges and risks of a global supply chain.
Customs and tariffs
Once the UK is no longer in the EU, there’s a potential for new duties and import taxes. Businesses need to be prepared for higher costs or start seeking alternative suppliers. Where supply chains operate across multiple EU countries, businesses need to consider if their existing model may expose them to paying duties more than once. For example, it’s not uncommon in the automotive industry for parts to be shipped back and forth between the UK and the EU several times. There’s also the implications for VAT once movements become classed as imports and exports; in short, more administration and again, higher costs.
Global product standards and regulatory requirements
Businesses face varying regulation and product standards in each region they operate in, and it can be difficult to keep up to regulatory changes as and when they occur along the global supply chain. There’s also the risk of materials and components not meeting UK regulations, and the associated reputational risksof using these when visibility along the supply chain is lost. This visibility is much harder to maintain for a global supply chain.
Logistically, the UK seems largely underprepared for a no-deal Brexit. Dover is fearing considerable post-Brexit congestion. Handling almost 3m units of freight annually, there are thousands of lorries currently able to drive goods away in a matter of minutes, but the post-Brexit picture is very different when paperwork for all these will require customs documentation to be checked. Particularly in the months immediately following Brexit, there could be significant delays experienced across Europe. The “Just In Time” manufacturing model may no longer be viable; the Honda plant in Swindon holds just an hour’s worth of parts at the production line, and every 15 minutes delay at customs could cost it up to £850,000. It’s likely this has been a significant factor in its decision to close the plant. With this in mind, businesses in the UK need to prepare new supply chain models that are resilient to longer lead times.
Finance and foreign exchange
As a supply chain spans multiple countries, so increases the risk of the fluctuation in currency affecting overall production costs. This is difficult to predict and complicated to prepare for, but it’s a risk that can’t be eliminated. Businesses need to understand their levels of exposure and aim for price stability over a reasonable time frame, as well as understanding the exposure of their suppliers. There’s also the consideration of the logistics of financial transactions outside of the UK and the EU, that may take longer and be more complicated to process. Delays in transaction time can impact the effect of the fluctuation in foreign exchange rates, and there may be requirements to hold accounts in foreign currencies.
Extreme weather and natural disaster can cause immediate and significant disruption to supply chains. Of the ten countries experiencing the highest number of natural disasters in 2016, none were in the EU. This is where business continuity management and supply chain modelling matters; the aftermath of these occurrences can continue for years, and the damage can be extremely difficult to rebuild.
Communication across a global supply chain
With so many factors affecting supply chains, a successful global supply chain relies on outstanding communication. While a global supply chain can be risky, the increased need for better systems and technologies to manage the supply chain could be the push some UK industries need, particularly UK manufacturing, to truly embrace and invest in digital transformation. Smart factories that collect and interpret live data to enable users to make better informed decisions could be crucial to ensuring the success of multi-tiered global supply chains. Managing communications effectively and automating processes of communications that can be distributed quickly to multiple suppliers could help ensure there’s a robust and dynamic global supply chain. Many of the risks of a global supply chain could be successfully managed by implementing the latest technology and software.
UK businesses may remain in the shadow of Brexit-related uncertainty, but preparing for no-deal Brexit by analysing current supply chains and modelling the impact of a new, global chain ensures they’re ready to make their next move. If UK businesses have carried out preparation and research to switch suppliers, renegotiate contracts and move into new operating territories, they can make the right decisions quickly when the post-Brexit picture finally becomes clear.