United Kingdom businesses awaiting the outcome of Brexit negotiations must start planning their responses now and work through potential scenarios to reduce any Brexit-related supply chain disruptions that may be ahead.
Procurement and supply chain leaders, especially, have a unique and important role to play as it concerns the mitigation of potential supply chain risks and building stronger networks. “Procurement and supply chain professionals need to act like the suppressors of panic and not the creators, as there are opportunities, as well as threats,” says Trudy Salandiak, who is with the Chartered Institute of Procurement & Supply (CIPS).
To get a clearer understanding of what measures procurement and supply chain leaders in both the United Kingdom and European Union are taking to manage the potential effects of Brexit, CIPS surveyed more than 3,000 supply chain managers from across the globe who were asked about their views and responses to Brexit. The highest number of respondents were in the manufacturing, banking, retail, and energy sectors.
One clear finding from the survey is that many procurement and supply chain leaders said their companies are making plans to dissolve their supply chains. Thirty-two percent of U.K. companies who use EU suppliers said they are looking for British replacements, while 46 percent of European companies similarly said they expect to reduce their use of U.K. suppliers.
Asked how they are preparing for Brexit, most procurement and supply chain leaders across all sectors said they are currently performing a risk analysis exercise, cited by 44 percent of respondents. When performing a risk analysis, CIPS recommends considering the following pertinent questions:
What are you sourcing from inside the European Union, either directly or further down the supply chain?
Do any of your suppliers receive EU funding and would the subsequent loss pose a risk?
What possible scenarios might arise, and what are their possible impacts? For example, if a tariff of X percent was imposed on one of the company’s core goods, how would that affect the bottom line?
Would any border controls increase business costs?
Are some of your maintenance or support services dependent on EU suppliers, and how might that affect the business?
Are any contracts in a potential monopolistic situation that could be exploited by a supplier?
Could you contract with any local suppliers and bring activity closer to home?
Among U.K. businesses, other proactive measures currently being performed include “looking for alternative suppliers in the United Kingdom” to in-shore supply chains and bring them closer to home, and “mapping the potential costs of new tariffs.”
Priorities, however, varied by sector. In the retail sector, the fourth most important activity was “consolidating relationships with existing EU suppliers,” cited by 39 percent of respondents. In the manufacturing sector, 22 percent said they were looking for suppliers outside the European Union, whereas 27 percent said they were making efforts to get closer to their EU suppliers.
Some sectors said they were looking to increase their prices to offset their own costs. This response was cited by 11 percent of respondents in manufacturing and 22 percent of respondents in retail and wholesale.
“Prudent companies are looking at their supply chain now and trying to automate where they can. If they don’t look at … techniques to help automate the analysis they need to do leading up to the final Brexit, it’s going to be a real challenge for them. It’s going to be quite costly.”
Tom Cosgrove, Global Head of Strategy, Supply, and Compliance, Dun & Bradstreet
One concerning finding was that 24 percent of procurement and supply chain leaders said they had not yet done any work to prepare for Brexit. For companies that don’t know where to begin, “immediate steps can be taken to mitigate any possible risks and demonstrate the best value that procurement can contribute to a business,” Salandiak says.
The first step is to get a good handle on what you are spending, where, and who your suppliers are across the supply chain, not just at the first and second tiers. “You need to look at the movement of goods,” says Carol Lynch, a partner in the Customs and International Trade Services department at BDO Ireland. “What is coming from the U.K., and what is going to the U.K.? Who is moving it? How are goods to arrive?”
“I recommend mapping this out with the key players in your company,” Lynch adds. This cross-functional team should include, for example, procurement, risk management, compliance, finance, legal, and operations.
The biggest issue most U.K. businesses said they’re facing is currency fluctuation, cited by 65 percent of respondents. Across all sectors, currency fluctuations overwhelmingly topped the list of concerns that are most worrisome to supply chains. In the banking and finance sector, for example, 58 percent of respondents said that supply chains had become costlier. As such, several banks—including UBS, JPMorgan, and Standard Chartered—have announced plans to move to Europe.
Swiss banking giant UBS, for example, recently said in its annual report that it intends to move forward with plans to merge its U.K. entity into UBS Europe, its German-headquartered European bank ahead of the United Kingdom leaving the European Union on March 29, 2019. UBS said it is making these “significant changes” to its operations and legal structure “in the absence of adequate transition relief being agreed and passed into law by the United Kingdom and the European Union.”
To reduce the blow of currency fluctuations, many said they’ve started to renegotiate their contracts with suppliers to either mitigate any cost increase or to ensure surety of supply should a break in the supply chain occur, according to the CIPS report. In the retail and wholesale sector, for example, 46 percent of respondents cited contract renegotiations with suppliers as a top concern, as did 24 percent of respondents in the manufacturing sector.
In the energy and utilities sector, 20 percent said they’ve already had to renegotiate contracts with suppliers, whereas 12 percent said they’ve had to postpone or cancel contracts due to uncertainty. Another 12 percent believed they had neither experienced any impact, nor expected any.
Prioritizing contract renegotiations will also be important. “There will be a lot of demands on your time as the situation develops, so rank all contracts according to importance and what impact on your business that particular product or service could have if it fails,” Salandiak says.
One way in which U.K. and EU businesses can mitigate risks in the supply chain is by employing a data-driven analytics approach “to increase transparency, optimize cost efficiency, and help to quell fears of complications and disruption to their operations,” says Chris Laws, head of product development, compliance, and supply solutions at Dun & Bradstreet. “Procurement professionals can harness supply chain intelligence to manage the uncertainty around Brexit and navigate the increasingly volatile market,” he says.
“Data and analytics should be used to gain a better understanding of suppliers, to investigate alternative suppliers, or evaluate existing supplier relationships to identify cost savings and opportunities,” Laws adds. A supply chain solution like the one offered by Dun & Bradstreet, for example, enables companies to evaluate suppliers’ financial health and stability across corporate families to help mitigate risk, ensures that the business is choosing diverse, compliant partners, and sets up alerts to notify the business of changes in a supplier’s financial condition or issues of non-compliance.
Many firms still manually manage their supply chain, says Tom Cosgrove, global head of strategy, supply, and compliance at Dun & Bradstreet. By using data analytics, companies can realize cost savings by gaining insight into their supply chains in a more effective and efficient way, and in real time, he says.
“Prudent companies are looking at their supply chain now and trying to automate where they can,” Cosgrove adds. “If they don’t look at … techniques to help automate the analysis they need to do leading up to the final Brexit, it’s going to be a real challenge for them. It’s going to be quite costly.”
Movement of workforce
Another major, but relative, consideration cited by supply chain and procurement leaders in the CIPS survey was ensuring the free movement of people between Europe and the U.K. “Changes in the law about employment, immigration, and the free movement of EU workers need close monitoring,” Salandiak says. “Any staff affected need support and guidance on how they can continue to work under any new rules.”
Supply chain and procurement leaders can provide support by looking closely at which activities, operations, and contracts rely on EU labor, and what mitigation strategies need to be in place if key workers are lost. “What skills and labor could be utilized if the worst scenario happens? Could there be training and additional support in place?” Salandiak asks.
From a broader, global perspective, when asked about the impact of international trade deals on supply chains, most supply chain and procurement leaders said that uncertainty surrounding Brexit negotiations was making long-term plans difficult. On a positive note, however, most also expressed certainty that global supply chains will still be essential after Brexit negotiations are final.
Moving ahead, prudent companies will want to delve deep into the survey results and see what impact Brexit is likely to have in their relevant sector, said CIPS CEO Gerry Walsh. The survey will help companies navigate how they “can understand this brave new dawn” for their supply chains and how they “can mitigate against possible disruption.”