In this feature, Head of Trade Origination & Advisory, Rowan Austin, explains why 2021 is the year businesses need to boost their resilience by strengthening their supply chains, setting out four key steps to take.
Brexit impact on UK-EU trade – the hidden costs
While the “free” trade deal the UK recently brokered with the EU is tariff-free, there are still significant non-tariff barriers to trade. UK goods no longer benefit from free movement into the EU, creating more red tape for businesses. Hurdles businesses now face include customs formalities & checks and an increasingly complex web of rules for different countries within the EU.
This has already resulted in considerable disruption to trade for businesses of all sizes. The British Chamber of Commerce has found that almost half – 49% – of UK exporters are facing difficulties in adapting to the changes in how goods are traded with the EU. And this has already led to a big dip in UK–EU trade, with a 41% drop in monthly exports from the UK to the EU in January1 – the sharpest fall since these records began 20 years ago.
There are more hurdles to overcome, and now is the time to prepare
UK businesses heavily reliant on EU imports also need to beware of further disruption. The UK government is phasing in border controls on imports of goods from the EU, giving UK importers until the end of 2021 to adapt to the new rules, rather than subjecting them to a hard landing. But few expect the transition to be seamless. EU firms are unlikely to have been made aware of the potential implications of Brexit to the same degree as UK businesses have (for instance, through years-long government campaigns). Many European firms also trade exclusively with other EU nations within the single market and may not fully realise the impact of additional customs challenges and new paperwork requirements.
From our conversations with clients, particularly those who export exclusively to the EU and are less familiar with navigating heterogeneous regulatory landscapes & customs regimes, we can clearly see that greater preparedness led to less disruption. So how can you prepare for the next big disruptive event: getting EU supplies into the UK once our border controls are up and running? We believe the answer lies in thoroughly reviewing and adapting your supply chain.
Supply chain management has traditionally been driven primarily by cost considerations, but in the post-Brexit, post-pandemic world, and as the full impact of both become clearer, costs need to be balanced with resilience.
While Brexit is affecting different sectors and businesses in different ways, we believe there are four key steps that every business should consider taking to make their supply chains more resilient.
1. Thoroughly map your supply chain
As mentioned earlier, European suppliers into the UK have so far seen limited disruption because the imposition of the border checks has been delayed. This situation won’t persist forever, which means it’s vital that UK companies review their supply chains as soon as possible.
Switching to local suppliers or identifying near-shore or secondary sourcing locations, warehousing or distribution facilities may help consolidate supply chains. However, it’s important to remember that switching to local suppliers doesn’t mean your supply chain is truly local or that there is no risk of disruption: for example, a retailer may rely on a wholesaler down the road, but that wholesaler could have many suppliers from the EU.
That means it’s important to engage with every link in your chain now to understand how ready your suppliers are for the new trading environment, and help you identify where potential gaps could appear if any unforeseen events occur.
2. Enhance your supply chain’s transparency and visibility
In the current environment, having visibility on every link of your supply chain is critical – and digitisation of supply chain management can be a really important way to enable this transparency. Supply chain management systems help to manage and track every aspect of supply chains – from sourcing to final delivery.
According to McKinsey, only 12% of UK enterprises have adopted supply chain management software to date. The need to embrace technologies that can enhance transparency and performance visibility is likely to be accelerated by the unfolding realities of Brexit.
Use of application programmable interfaces (APIs) and other technologies to rapidly and efficiently transmit data between suppliers will add value as they will enrich the flow of information across your whole supply chain.
3. Identify opportunities for changes in stock management & delivery procedures and put in place contingency plans
With just-in-time delivery approaches potentially at risk from extra customs processes, firms may need to consider holding more inventory and stock and revisit their delivery times.
Even if your just-in-time processes are robust, it’s still crucial to make contingency plans. As a starting point, ask yourself questions like: what would you do if a supplier couldn’t deliver for a month – do you have alternate sources? How ready are you to switch suppliers if necessary? Full scenario planning will help you prepare in the event of the unforeseen.
4. Invest in staff awareness & training
Much of the Brexit-related disruption experienced by businesses has been down to a lack of understanding about what needs to be done and how to do it.
While there are still many unknowns in forthcoming post-Brexit customs arrangements, there is information out there to help up you understand and prepare. Trade advisors, peer groups and trade finance partners can provide the insight needed to help train employees on new rules.
Once in hand, all employees and partners across your supply chain need to be fully aware of the new rules and trained correctly on how to implement them This will be particularly important in helping avoid further disruption when new controls are implemented on imports from the EU to the UK.
Beyond Brexit, investing in supply chain resilience can position your business to withstand heightened uncertainty. Black-swan events have the power to determine whether a firm can still get its products to market – the recent case of a ship blocking the Suez Canal and the havoc wreaked on global supply chains is a good example. Businesses need to be prepared to handle, for instance, a ten-day interruption in their supply chain. Without a resilient supply chain in today’s disrupted, changing world, your business could suffer.
Ultimately, greater supply chain resilience will help businesses thrive in a post-Brexit environment. The lessons that UK exporters learn as they adapt to the new EU-UK trade paradigm should embolden many with greater confidence to seek out new opportunities & supply chain arrangements in familiar and new markets alike.
Exactly what you need to consider and do as your firm prepares for the UK’s new future outside the EU depends on the nature of your business, so get in touch with us if you have any questions about the steps your business should take.
1 Source: the Office for National Statistics