On 29 March 2019, the UK will leave the European Union. At the time of going to press, that is pretty much the extent of what we know will happen for sure when it comes to the topic that is Brexit.
Negotiations between the UK and the EU have been taking place for around two years now over what their future relationship might look like, with ‘red lines’ being laid out by both sides. There is still hope the parties will reach an agreement by November, which would give the UK and European parliaments time to ratify the deal. Right now, however, hope is all it is, with no certainty that a deal will be struck.
One thing that businesses and procurement executives, in particular, do not like is uncertainty and, as such, Brexit is creating more than a few headaches on both sides of the Channel.
During a recent virtual strategy roundtable (VSR) on Brexit and how functions are preparing for it, hosted by Procurement Leaders, it was clear that many are planning for the worst, but hoping for the best.
For procurement professionals, the worst-case scenario would see the UK fall out of the single market and customs union, and revert to trading with the EU on World Trade Organization (WTO)
terms, which would likely see the introduction of tariffs and the reintroduction of border checks.
Since the inception of the single market and the customs union, businesses have enjoyed relatively open trade as goods have moved freely between countries. The likes of Airbus and BMW have manufacturing plants both in the UK and mainland Europe and can send parts around their supply
chains unhindered by customs checks and tariffs. Take BMW’s Mini, for example.
The crankshaft used in the car crosses the Channel three times in a 2,000-mile journey before the car actually rolls off the production line. That is just one part of a vehicle comprised of many.
The best-case scenario for procurement would mean the UK remaining as close as possible to the EU, with a deal that ensures the fewest trade barriers, as well as the inclusion of an implementation period that sees the relationship remain as it is for at least two years after March 2019 to allow time for companies to get used to the deal.
Either could happen, but it is just as likely that a deal will be struck that lands somewhere in the middle.
When it comes to preparing for the possibility of a no deal, VSR participants are looking at three things: understanding their supply chains; stockpiling; and establishing planning committees.
Most participants said they are carrying out is a supply chain mapping exercise to help them understand where their products come from, where their key suppliers are based and where and when those products enter either the UK or the EU.
“We have mapped our supply chain to help us determine what the impact of a no deal might be,” said one procurement executive from the energy sector.
However, beyond just using this as an exercise to find out more about their supply chains, the participants said they were also using it to help determine whether suppliers were ready for any change and where they might be able to source goods locally in the event of a no-deal Brexit.
“We are looking at it from a supplier risk standpoint and are trying to determine whether suppliers will be able to continue in the same way as they do today after Brexit,” said a procurement executive from the energy sector.
One procurement chief from a major pharmaceutical company explained that they have been looking specifically at what they might be able to source from Ireland that does not have to come through the UK.
The big concern for procurement executives, here, was the impact no deal could have at major ports where goods currently flow unhindered. Chiefs at the Port of Dover, one of the UK’s busiest ports on the south coast, have estimated that just a two-minute delay in checking lorries at the port would cause 17-mile tailbacks on the motorways leading to the port.
For many of those based in the UK, this would not only impact the supply of products they source from Europe, it would also affect what they buy from Africa, Asia or anywhere else in the world.
The threat is that supply chains would literally come to a standstill.
One executive said that, logistics-wise, they only use ships and lorries so they were very concerned about the impact this could have. Others pointed out that while they could potentially import goods through other ports, or by air, everyone else would be doing the same thing.
The free and open markets created by the inception of the EU have meant that many firms have employed Just In Time (JIT) supply chains, whereby they receive goods the moment they need them rather than having to hold stock in costly warehouses or other storage facilities.
But the threat of a no-deal Brexit has led many procurement executives to look at their options for stockpiling before the UK officially leaves the EU.
“We will be stockpiling in order to keep our plants going,” said one of the procurement executives from the energy sector, but added they could only do this for a limited amount of goods.
Essentially, it is only a short-term solution. For others, warehousing is something they are actively pursuing.
The procurement chief from the pharmaceuticals industry said they were “stockpiling drugs” at the same time as ramping up production to ensure a supply is available for people who need them, in
the markets they are needed.
While machine parts and drugs have a long shelf life, which means they are easier to store, stockpiling is not a viable option for everyone, however.
One procurement executive from the food and beverage industry said they were hamstrung by the fact that food is perishable so, instead of warehousing, they are looking into their local sourcing options.
Planning committees or Brexit working groups were also popular among the VSR participants. Most of these are cross-functional, bringing together stakeholders from legal, finance and manufacturing, among others, to collectively discuss the impact Brexit could have on the business
depending on the shape it takes and the organisation’s plans to mitigate any risk.
While these groups do not receive any extra funding, they report to the board and there was wide agreement that they were highly effective in coming up with solutions to potential company-wide
issues that Brexit could create.
With British International Trade Secretary Liam Fox recently saying that the chances of the UK leaving the EU without a deal are “60-40”, the threat is real. Right now, planning for the worst and
hoping for the best is the most effective strategy procurement teams can employ.
Procurement chiefs should understand where they might be affected and how they could mitigate that. It is difficult to plan for every eventuality, but doing nothing is not an option.
While uncertainty continues, the only way to contend with it is to take what we know in terms of dates and potential outcomes and prepare as best you can.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.