Top tips for preparing your business for Brexit – operations and supply chain
Brexit will create a new relationship between the UK and the EU and a set of circumstances that will present both challenges and opportunities for companies’ supply chain operations.
It is possible that free trade agreements could allow access to new markets, but there is also potential for lead times to be increased for goods in transit.
It is necessary for businesses to understand and review operations, from suppliers right through to end-users. This will ensure that you identify where the flow of goods to and from the EU may affect your company.
Whatever the outcome of Brexit, a greater understanding of your operations and supply chain will increase efficiencies in business operations and improve competitiveness.
It is likely that CRM and ERP systems will need to be updated after Brexit so businesses are able to handle additional information related to the transit of goods, tax reporting and customs declaration data.
You should ensure that business systems are flexible enough to manage enhanced and new data requirements, alongside budgeting for builds and modifications from software suppliers and external consultants if required.
If you are in the process of implementing a new system, it is worth finalising the build when the outcome of the Brexit negotiations is known. Doing so will likely be more cost-effective and will ensure that systems are fit for purpose.
- Ensure that your existing systems are flexible enough to cope with short-term fixes.
- If considering a new CRM or ERP system make sure that it can capture enhanced information relating to goods in transit and customs data.
- Factor in system upgrade costs into forecasts.
The possibility of a slowdown in the movement of goods caused by border checks, and increased custom and compliance costs, make it a necessity for businesses to conduct a full audit of their supply chain.
Businesses should engage in open conversations with their existing suppliers to understand how Brexit could impact each supply chain, and how to jointly work together to resolve potential challenges. For example, if new tariffs are introduced it will be important to understand who is responsible for these increased costs or whether they can be shared.
Even businesses that only have UK-based suppliers will still need to approach them to discuss whether they have EU dependencies in their own supply chains, and how this could affect potential pricing and supply following Brexit.
Based on the outcome of these discussions, businesses running a just-in-time inventory system might need to consider alternative UK-based suppliers or the need to build inventory stocks to ensure continuity of supply.
Using alternative UK sources of supply may prove more competitive in the future if new tariffs are introduced or less disruptive if customs delays emerge between the UK and EU. Switching to UK suppliers will also remove the likelihood of currency volatility, and will offer more certainty around the cost base of products and services.
- Identify all EU based suppliers/those with EU dependencies in your business.
- Ensure that you have understood potential impacts on the supply chain of both your own business and your supplier base.
- Consider alternative UK suppliers for key components.
- Quantify the impact of increased costs and a delay in the movement of goods on company operations.
Businesses should review contracts with suppliers in the context of Brexit, and pay particular attention to areas where Brexit may result in increased costs (eg, tariffs) or risks (eg, liability for delays). Focus on provisions that may allow long-term contracts to be terminated early because of Brexit, such as “force majeure” or “change in circumstances” clauses. Assess how any references to the “EU” or equivalent may be interpreted after Brexit eg, where exclusive sales areas are defined by reference to the EU.
In some cases, the position may be unclear particularly if Brexit was not a consideration when the contract was entered into. Businesses would then need to consider renegotiating or clarifying terms with the supplier, or run the risk of potential disputes regarding costs and future uncertainties. Businesses should assume that their suppliers are doing the same exercise and should also consider similar issues in relation to their customers (if they are also suppliers themselves).
- Review all material EU supplier contracts to assess the potential impact of Brexit.
- Consider putting in place contingency contracts with alternative suppliers to mitigate risks of termination or dispute by suppliers.
- Consider your rights of termination and supplier rights, particularly if the contract may have adverse financial or risk implications for one party.
- Consider renegotiating terms to address any areas of uncertainty or where the commercial result appears unfair to either party because Brexit was not foreseen (to avoid potential disputes).