Brexit supply chain concerns

Bracing for the possibility of a hard Brexit (the United Kingdom leaving both the EU and its single market), UK businesses who work with outside suppliers are taking efforts to manage risks related to Brexit uncertainty.  

Such efforts include renegotiating vendor contracts, offering additional training to employees about customs issues and investing in tech solutions to increase supply-chain efficiencies.

Unfortunately, these procurement professionals might lack an in-depth understanding of the scope of the risks and problems they face.

UK businesses that work with outside suppliers need supplier-contract renegotiation advice, risk management advice, and current news updating about Brexit to help them manage risks and threats related to the withdrawal of the UK from the EU.

Customs checks, where there had not been checks before, and lengthy wait times at UK ports of entry are some of the potential ramifications UK procurement managers and inventory managers are grappling with. This is just one of the many problems, known and unknown, facing UK businesses should there be no agreement between the UK government and the EU prior to Brexit, set for March 29, 2019.

The UK Chartered Institute of Procurement & Supply (CIPS) has been publishing an annual survey of UK and EU businesses about Brexit, offering valuable insight about the sentiments of UK and EU procurement professionals.

The 4th annual survey, published October 2018, details responses from UK supply chain managers of the dire financial implications for their organizations of goods being delayed at the UK border:

“One in ten UK businesses believe they would go bankrupt if goods were delayed by just 10-30 minutes at customs borders once the UK leaves the EU”.

UK businesses responding to Brexit risks by renegotiating contracts, upskilling staff, investing in tech

According to CIPS survey responses, UK businesses are responding to Brexit risks in several ways:

• “Expertise around managing customs and delays was of concern to UK companies as 14% were already upskilling their staff to understand any new arrangements”.
• Procurement managers are trying to “build in wriggle room,” with 21% working to “build more adaptability into their contracts with suppliers to enable agile decisions once an agreement has been reached”.
• “Technology also featured highly (in response planning), with 12% surveyed saying they are “spending precious budget on digital supply chains and technological solutions to increase efficiency”.
• 8% of respondents have “added new (contract) clauses to allow prices to be re-negotiated following currency fluctuations”.

However, many UK businesses don’t understand key planning metrics such as how long goods take to go through customs, and what the implications of such delays would be:

“A high proportion of UK businesses were unclear about how long their goods and raw materials took to go through customs (56%) which makes planning more difficult”.

UK government heavily depending on companies to upgrade systems, comply with processes to make for a smooth Brexit

In October the UK National Audit Office (an independent agency that studies public spending issues for the parliament) released a report, “The UK border: preparedness for EU exit,” to understand how ready government departments are for changes required at the border after EU exit.

The government has said it will “prioritize security and flow of traffic” over full customs checks if Britain leaves the EU without a deal, which means effectively leaving borders open for products. However, it has also said the government was “heavily dependent” on companies making changes to their own systems and on their “complying with new processes.”

The NAO report offered sobering insights with implications for UK businesses managing cross-border shipments:

• 11 of 12 critical systems to manage the border after a no-deal Brexit were “at risk of not being delivered on time and to acceptable quality”.
• New infrastructure to “track and physically examine goods cannot be built before March 2019”—apparently suggesting that compliance will be impossible from day one.
• An additional 581 border and customs staff are being recruited, but training and security clearance will prevent them all from being deployed by the Brexit start date.
• 260 million customs declarations will need to be processed each year after a no-deal Brexit, a figure almost five times the current 55 million.

Proactive steps companies can take to manage Brexit risks

The CIPS survey offered these suggestions for UK procurement professionals grappling with uncertainty related to planning for Brexit:

• Look closely at your organization’s supply chain to find “hidden” EU suppliers. Look for strategic categories or suppliers such as sub-contracts with Europe-based companies.
• Adopt a risk management approach by identifying and prioritizing potential problem areas.
• Know your contracts thoroughly before Brexit starts. Review supplier contracts and understand which legal jurisdictions those contracts operate in, and in what currency.
• Beyond looking at contracts, stay current with developments by monitoring news about any deals on the horizon. Monitor news to follow negotiation developments—have contingency plans for legislation that might influence the supply chain.
• Within your organizations, share knowledge across departments and functional areas, not just among procurement staff. Know that other departments are working through similar uncertainty—value cross-functional knowledge sharing.  

Although law firms have always been leaders in finding and using information in support of clients, with the extent of uncertainty surrounding Brexit, lawyers will need to rely on research, news-monitoring and knowledge management services and support to help them stay well-informed about Brexit developments.

LAC Group information management professionals have advanced training and experience in law, business and government. Law firms that run with leaner teams and might have limited internal staffing and support but a great need for competitive intelligence and other information, can dependably turn to LAC Group for research support.