Challenges facing supply chains because of Brexit
- 23 Oct 2018
- Supply Chain Management
As the end of Britain’s notice period for leaving the European Union (EU) looms closer, procurement teams who deal with the EU and Britain, must take measures to prepare for the raft of changes that are imminent.
At this stage, it is difficult to identify specifically, what Brexit will look like with many versions of the deal being openly discussed by political leaders. Some are calling for a Soft Brexit, Hard Brexit or even, no deal. Either way, Britain’s relationship with the EU is set to change and, in this article, we’ll discuss some of the ways this partnership will change the way supply chains operate.
Time is almost up
As we approach 29th March 2019, time is rapidly running out for the UK and EU to come to an amicable agreement regarding Brexit. At the time of writing, in October 2018, both the EU and the UK are some distance away from agreeing on the overarching principles of how Brexit will operate.
This is why Japanese carmakers Nissan and Honda have called for transparency on the details of a final deal. In addition to securing unfettered access to the single market, the car manufacturers need to know what is happening with Brexit to plan on the changes they’ll need to make to ensure their respective supply chains continue to function properly.
It isn’t just about freedom of movement
The UK government has made it clear that freedom of movement must end when it leaves the EU and Michel Barnier, European Chief Negotiator has categorically stated that to retain access to the single market and all the benefits it affords, the UK must accept freedom of movement. These contrasting points of view illustrate the crux of the disagreements between both parties.
Freedom of movement goes hand-in-hand with tariff-free access to the single market as well as other perks such as:
- Access to a visa-free pool of skilled and unskilled labor
- Tariff-free access to commodities across the EU
- Lower production costs because of scale economies
- Cheaper prices for goods because of lower costs and increased competition
How Brexit might impact your supply chain
As mentioned earlier in this article, it is still difficult for us to understand the gravity of Brexit and what it is set to entail until details of the final deal emerge. However, as the deadline looms closer, we can speculate on some likely outcomes:
#1 – Britain and the EU create a new European economic area (EEA)
In this scenario, like countries such as Norway and Iceland, Britain ceases to be a member state of the European Union and instead, becomes an EEA country. The UK retains access to the single market and places some restrictions on freedom of movement. It might be possible for the UK to negotiate trade deals with countries outside of the EU for improved import rates.
However, it is likely the UK will impose restrictions on freedom of movement because of political pressure for the sitting government to curtail immigration.
As such, this will lead to employment issues for EU citizens seeking to work in the UK and vice-versa.
In addition, this will almost certainly mean there will be some changes to Taxation and legislative measures. This could cause issues in logistics lead times and import/export duties could be impacted.
#2 – New free trade area (FTA)
Sometimes referred to as the FTA fudge, this Brexit scenario centers around the UK relinquishing most of its access to the single market. It secured a deal for free trade but enforces its own borders.
The consequence of this is that EU goods can no longer flow freely through the UK, and instead, at the border, customs will process any goods. This will create administrative challenges for both the UK and the EU as they seek to move goods between states. It will certainly increase costs associated with moving goods between the UK and the EU, and therefore, make supply chains more complicated than before.
Finally, because of relinquishing access to the single market, ending freedom of movement and enforcing its own borders, UK businesses will find it difficult to employ EU workers – and vice versa.
#3 – World Trade Organization rules (WTO)
This scenario, the hard-Brexit scenario, the UK leaves the single market without a deal in place. It defaults to WTO tariffs when trading with the EU, resulting in more expensive trade costs associated with non-EU states.
The UK would be free to negotiate deals with non-EU countries, but this process can take many years to complete.
The uncertainty in the aftermath of Brexit as Britain moves to secure trade deals would likely result in supply chain volatility – meaning goods may take longer to acquire and would be more expensive. In addition, a hard border between the UK and the EU would increase administration and tariff costs for supply chains.
Finally, using EU workers in the UK and vice-versa becomes complex.
How can we help you get your supply chain ready for a post-Brexit Britain?
As a software provider for organizations across the globe, we’re well-placed to tackle the Brexit-related challenges associated with supply chains.
Flexibility and integration are two fundamental components in our approach to developing our eProcurement solution. As such, we’re taking measures such as helping public sector organizations adapt to transitioning away from OJEU to the UK equivalent being developed by the British government, should the nature of our Brexit deal require it
In addition, we’re seeing lots of our client’s transition from suppliers operating within the EU, to UK-based suppliers. Functionality within the Supplier Relationship Management module of our spend management suite helps organizations evaluate existing suppliers, and to make data-driven decisions about the quality of alternative suppliers.
Got any supply chain tips?
We’re always interested in hearing from procurement professionals, here at Medius. Do you have any tips or tricks on you’ll be preparing your supply chain for Brexit? Let us know on our Twitter and LinkedIn channels.
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