UK and EU firms prepare to sever supply chain ties
Companies on either side of the English Channel are preparing contingency plans that would allow them to sever supply chains between the UK and the European Union (EU) after Brexit, according to the Chartered Institute of Procurement & Supply (CIPS).
Its survey of more than 2,000 supply chain managers found that 32% of UK businesses that work with non-UK EU suppliers are actively looking for alternative suppliers based in the UK as a response to the UK’s EU referendum result and the UK’s apparent decision to leave the EU ‘Single Market’ when it leaves the EU in 2019. And businesses elsewhere within the EU are even more advanced in their preparations, with almost half (45%) of those that work with UK suppliers in the process of finding local replacements.
“Diplomats either side of the table have barely decided on their negotiating principles and already supply chain managers are deep into their preparations for Brexit,” claimed CIPS’ group CEO Gerry Walsh. “Both European and British businesses will be ready to reroute their supply chains in 2019 if trade negotiations fail and are not wasting time to see what happens.”
CIPS underlined that with exit negotiations in their early stages, the most pressing supply chain challenge for UK businesses thus far has been currency fluctuation. Almost two thirds (65%) have seen their supply chains become more expensive as a result of a weaker Sterling, with nearly a third (29%) re-negotiating some contracts as a result.
“Fluctuations in the exchange rate or the introductions of new tariffs can dramatically change where British companies do business,” noted Walsh. “The separation of the UK from Europe is already well underway even before formal negotiations have begun.”
In the long-term, European supply chain managers appear more confident about their ability to respond to any tariffs that result from the final negotiated settlement by re-shoring their supply chains within the EU’s ‘Single Market’, the survey revealed. Almost half (46%) of European supply chain managers expect a greater proportion of their supply chain to be removed from the UK, with just over a quarter (28%) intending to re-shore all or part of their supply chains to the European mainland.
While European and British supply chain managers agree that the number one priority for negotiations should be keeping tariffs and quotas to a minimum, the UK supply chain managers responsible for brokering international deals for their organisations believe negotiators face serious hurdles. When asked about the major challenges facing UK negotiators in the trade talks, 39% said the UK has a weak negotiating position and 36% believe there is a lack of time, but 33% believe there is a dearth of supply chain expertise and knowledge in the UK to draw upon.
This pessimism is also apparent when it comes to managing the financial costs of Brexit. More than a third (36%) of UK supply chain managers plan to respond by pushing supplier costs lower, while 11% admit that part of their operations may no longer be viable. Worldwide, 67% of respondents felt that the uncertainty surrounding international trade agreements were making long-term plans difficult to confirm.
Walsh added: “We have already seen high profile disputes between British retailers and their suppliers as a result of currency fluctuations. We now know that this pattern is being replicated across the UK and is likely to escalate.
“The re-shoring of British supply chains in advance of Brexit could provide an excellent opportunity for small businesses looking to win new contracts, but it also comes with significant challenges. Brexit is likely to bring considerable costs for businesses in the UK and Europe; these costs are then going to be passed on to small suppliers and eventually consumers.”
These findings were drawn from a survey of 2,111 supply chain managers from across the world, who were asked on their views and reactions towards Brexit. The survey, which consisted of 12 questions and ran from 31 March to 18 April 2017, included 904 UK businesses with European supply chains and 117 European businesses with UK supply chains.
Asked how UK supply chain mangers are preparing for Brexit, respondents indicated that:
28% are already mapping the potential costs of new tariffs;
23% are strengthening their relationship with existing European suppliers;
44% are performing a risk analysis exercise;
21% are looking for alternative suppliers outside of the EU;
32% are looking for alternative suppliers inside the UK;