Building resilience into your supply base

Every Irish company needs a plan to deal with the impact on supply chains once the UK withdraws from the EU.This is the advice of Mike McGrath, managing director of specialist procurement consultancy ARVO.

 

“With the advent of Brexit the UK will become a third country in terms of trade with the EU,” he explains. There is a huge level of interdependence in the supply chains between the two countries, and with no Brexit deal done yet it is difficult for businesses to plan for what it will mean. It is not like Y2K, food and mouth disease or GDPR, where we had defined problems to deal with which meant businesses could prepare. Brexit is different.”

 

Understand your Brexit exposure

While some businesses will be less exposed than others to the impact of Brexit, he argues that every company still needs to understand it. “It is certainly the case that some sectors are more exposed, whereas IT and services are less so, as they do not have products crossing borders,” he notes.

 

Increased administration post Brexit

“There will be logistics issues, there will be customs declarations, there will be VAT and possibly duties, as well as a huge amount of bureaucracy to contend with,” he adds. “Businesses are busy at selling and generating profits but will have to make time for the increased administrative burden and the costs that will entail.”

 

Analysing your Brexit risk

McGrath warns against the concept of “Brexit fatigue”, the condition which first emerged as people became tired of the slow pace of Brexit negotiations. “Companies still need to make their own strategic arrangements and contingency plans. Every business should have a Brexit plan, whether that’s one page or 100. There is good support available from Enterprise Ireland for companies wishing to analyse their risk and regardless of the size of the business or the resources available, they should have a plan which prepares them for the worst while still hoping for the best.”

 

Planning for Brexit

McGrath advises businesses to go through everything, product by product, offering by offering and component by component to establish if there is a Brexit risk associated with any of them. “For example, UK suppliers won’t necessarily have a CE mark or REACH approval for chemicals anymore. You have to understand the risks and the cost implications for everything.”

Once the risk assessment has been complete, it is time to start contingency planning. “If there is to be an increase in costs, you have to ask if customers can take a price increase. Or can you reduce costs in other areas? Many Irish companies are currently going through this process.”

 

Supply chain

In some cases, it might be possible to secure alternative sources for products, but this may not always be possible. “The UK still has considerable strengths in particular industries, and it might not be possible to find an alternative supplier. Even if the supplies are coming from other EU countries, there could still be delays. The landbridge through Britain currently takes about 20 hours. After Brexit, that might be 40 hours and that could present problems for products with a short shelf life.”

The answer to many of these issues lies with the development of closer and better relationships with key suppliers. “We will still trade with the UK after Brexit, and if a product from the UK is unique, we will still need it. Building close relationships with suppliers and reaching formal agreements to secure future supplies is crucial.”

In cases where security of supply is an issue, there may be alternatives. “Companies need to look at their suppliers and see which are the most important and what the impact of Brexit might be on them if they can continue to supply. They might be able to find alternative suppliers elsewhere in the EU. If supplies are coming through a UK distributor, there is always the option for SMEs to come together to group buy directly from the source and bypass the Brexit risk.”

While companies may resent having to spend time on resources dealing with Brexit, McGrath contends that it is far from wasted. “Even if Brexit wasn’t happening, it is always good for a business to have the most resilient and efficient supply chain possible. Ash clouds, foot and mouth disease, Trump-inspired trade wars – these are all business risks that companies have to navigate their way through, and preparing for Brexit can only help with that.”

Mike Mc Grath has published an eBook Supplier Risks through Brexit. A copy is available here https://arvo.ie/go/ebook

 

Enterprise Ireland support

 

There are many supports available to Irish businesses, including Enterprise Ireland’s Act On Initiative which provides an independent consultant to analyse your business and develop a specific Brexit action plan.

Learn more about how Enterprise Ireland can support your business to strengthen its capabilities and best prepare for Brexit.

 

To learn more about building stability into your supplier relationships watch Mike’s webinar:  Building Resilience into your Supply Base.

Operations

Customs & Trade

Identifying the implications of an increase in tariffs is important in preparing for Brexit and the challenges it may pose to your products. The UK has announced its new tariff system which will apply at the end of the transition period to all countries, including Ireland, with which it has no free trade agreement. Known as the UK Global Tariff, it will be applicable from Jan 1st 2021. If a trade deal between the UK and EU is reached before this date the aim would be to avoid the imposition of all or most of the tariffs.

To see the import duty that applies to goods imported into the UK, enter your commodity codeinto the Tariffs Tracker tool on the UK government website.

Production

The potential impact of Brexit across the business will see increased pressure on margins. Companies can look to innovate, increase effectiveness and cuts costs out of their production process as a means to maintain or even increase profitability. This is one of the measures a business can take to plan against the negative impacts of Brexit but makes perfect business sense irrespective of Brexit.

Legal

Our current trading relationships with the UK has been governed by a vast number of contacts negotiated with suppliers, local employees, agents and customers. Any change in the trading arrangement could have an associated impact on the contracts that underpin it. Companies with UK contractual arrangements can start to manage their risks by reviewing their existing contracts and start to consider future contracts in light of what legal changes Brexit may bring.

Strategic Sourcing

The UK remains one of our largest trading partners. For years, Ireland has been both exporting and importing products and services from and to the UK and our supply chains have been built up around this trading history. The impact of Brexit has the potential of adding substantial disruptions to supply routes through tariffs, non-tariff barriers, custom delays and the additional costs of customs procedures. Companies can respond by analysing their suppliers to understand each supplier’s relative importance, how these products arrive into Ireland, where they come from and what borders they cross. Learn more.

Get tailored advice from a consultant with the Brexit: Act On Initiative