Procurement and supply chain teams are at the source of an import transaction. They are therefore the first impacted by Brexit. It is based on their decisions that the logistics department will move products for import or not. The challenge with Brexit is that Procurement and supply chain teams can’t be certain whether they current purchases might not end up being an import and what their total supply costs will be.
Here are some tips to prepare:
Review the supply landscape
Review the supply chain including suppliers further up the supply stream. Most companies rely on Tier 1 suppliers to manage Tier 2 and Tier 3 suppliers. Not having visibility of the entire supply chain could bring surprises. It would therefore be prudent to review the supply chain and question the activities of suppliers upstream.
Do some UK based suppliers relocate?
Some UK-based suppliers have been looking for alternative manufacturing locations closer to their end markets in the EU. As a consequence, for UK traders, what used to be an UK purchase might now be an import. This would affect not only finished products but most likely sub-assemblies and components. Most importantly, it could affect critical materials. Even if the import happens at the Tier 2 or 3 level and even if there is no import duty, import formalities will have to be carried out, compliance requirements met which will have a cost.
Do some UK based suppliers import under EU Free Trade Agreement?
UK manufacturers importing raw materials under an EU Free Trade Agreement would face the loss of free-trade privilege and be subject to import duties in the UK. This is not always a visible cost, but this would affect the bottom line. Any material or component sourced from these countries is likely to be currently free of duty or have a reduced duty rate. It could possibly be subject to import duty post-Brexit. Countries affected are for instance: Algeria, Canada, Egypt, Ghana, Israel, Kazakhstan, Mexico, Morocco, Norway, South Korea, Tunisia, Turkey…
How are your suppliers adapting?
Suppliers are likely to have to adopt new processes to make the transition. How are they preparing? Do they have the technical knowledge and capabilities to clear goods through customs? How long will it take them to make the transition? Months, or potentially years? Do they have the financial means to support these changes? Could this transition be affecting their viability?
â€¨What will be the impact on the total supply costs?
With a visibility of preparations (or the lack of it) happening upstream in the supply chain, it might be necessary to review the total supply costs. Can you estimate the transition cost: raw materials if sourced from outside the UK, additional transports and storage, import duties? Although, there might not be import duty on a product, there will still be the cost of import formalities, such as the agent fee for customs clearance.
How do we deal with current purchase orders and contracts?
It is extremely challenging to enter into any type of agreement at the moment. Some companies are adding clauses to their agreements to review with their suppliers the terms of the contract with 6 months or 1 year.