Prepare European Supply Chains for Brexit’s Impact

Beyond Supply Chain November 30, 2018
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The clock is ticking.

On Dec. 11, the United Kingdom parliament will decide whether to accept or reject the terms agreed between the U.K. government and the remaining 27 European Union countries as to how the U.K. will exit the EU.

Regardless of that decision, the exit date of March 29, 2019, is set in stone, leaving supply chains with a less than ideal notice period to prepare themselves for setting up post-Brexit operations.

Yes, the transition period, now set to last until December 2020, brings some comfort, since between now and then it will be business as usual for most companies with U.K. and EU operations.

However, most commentators expect the U.K. parliament to reject the agreed deal, raising the likelihood of the U.K. leaving next March with no trading arrangement with the remaining EU countries in place.

Despite all of this uncertainty, businesses can, and must, still make preparations for various potential scenarios, even if some may not materialize. Much of the activities that businesses need to make immediate progress on are not dependent on the final outcome of withdrawal negotiations. Businesses need to accelerate their preparation and planning with a high degree of urgency.

Attendees at the Gartner Supply Chain European Conference in September were asked about how their companies felt about the impact of Brexit on their business models. Ninety percent expressed a recognition of an impact but an uncertainty as to its timing and nature. Notably, no attendees stated that they would not be impacted.

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So, with all of this uncertainty surrounding companies, what are they supposed to do and how do they plan for the unknown?

Well, the one thing that they must not do is to wait for clarity on the exit deal. Yes, Dec. 11 is only a short time away, but the U.K. will be leaving the EU in 17 weeks, and so every day counts at this stage in terms of the benefits to be gained from acting decisively. In any case, due to the rejection of the deal by the U.K. parliament looking more likely than acceptance, companies need to take control of their own destinies and that of their supply chain partner networks.

Here is my key advice:

  • Chief Supply Chain Officers should grab hold of the company’s Brexit strategy, most likely creating it if one doesn’t exist.
  • They should set up a research and advisory team — a Brexit war room — pulling the right cross-functional individuals away from their day jobs, at least on a temporary basis, to monitor the ever-evolving Brexit news. This team should act as internal advisers to the business, allowing it to function as normal while being directed by their latest advice.
  • Internally, they need to work cross-functionally to ensure that “Brexit-solving” silos don’t take root within individual functions inside the business.
  • Externally, they need to reduce the risk of the weakest link of an extended supply chain bringing the whole partnership crashing down. This may mean taking on responsibilities not formally recognized within the extended supply chain, but someone has to do it to avoid each company feeling that they’re individually OK without checking with everyone else.
  • Crucially, the research and advisory team should orchestrate the investigation of the extent to which their extended supply chain incorporates U.K. sourcing, much of which may be unknown today. This applies to all companies, whether based in Europe or not. Here’s an example of what I mean. An Italian company sources product from a manufacturer in France, knowing that that manufacturer is supplied by a partner in Spain. This is all within the EU, unaffected by Brexit. Today, the Italian buyer may not be aware that the Spanish supplier is sourcing raw materials or components from the U.K. The Spanish supplier may not even know of the existence of the Italian company as their customer is based in France. Worst still is that the U.K. supplier may in turn be sourcing some of their supply from a partner in Germany.

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  • Post-Brexit, this extended supply chain now looks very different than its operation today. Post-Brexit, the Italian buyer will be hit with additional costs from the French supplier, due to two EU/U.K. border crossings included in their extended costs.
  • Finally, it is likely that most businesses have existing contracts with partners extending beyond March 2019. They may also consider new contracts starting before that date. Be aware that the implications of Brexit will potentially affect the terms of those arrangements. Include within the scope of your research and advisory team responsibility for ensuring that finance and procurement departments work cross-functionally to identify and review existing and planned contracts. Take a segmented and risk-based approach to focus on contracts that are most important to your ongoing business operation. Proactively identify potential problem areas and prioritize those contracts.

 

Tom Enright, Gartner Research Vice President, Global Retail Supply Chain

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