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What is the impact of Brexit on supply chains?

11 May 2018
Brexit is a fact. Now that its consequences are becoming increasingly tangible, it’s time to have a look at it in the context of supply chains.

Brexit is a fact. Now that its consequences are becoming increasingly tangible, it’s time to have a look at it in the context of supply chains.

Non-EU companies: what is likely to change?

First, let’s discuss 8 ways in which the supply chains of non-EU companies might be impacted by Brexit.

1. More complex operating environment

Of course, the transition period until the end of 2020 gives companies some breathing room, but ultimately, the operating environment should be adjusted to both EU and UK situations. Although little direct impact will be felt in 2018, the uncertainty isn’t doing future contracts any good.

2. Restriction of EU founding principles

In the UK, there is talk of restricting free movement of people, one of the EU’s founding principles. This may result in EU-imposed restrictions of other principles, which include free movement of goods, services, and capital.

3. New trade agreements between UK and EU

Not only should the UK negotiate new trade agreements with the EU, it also needs to revise many of its laws and regulations. Among other things, border clearance procedures and taxes on goods require appropriate solutions.

4. UK may stop serving as a European home base for companies

For years, non-EU companies have relied on the UK as their home base for European operations. However, contracts that are based on EU laws are no longer valid, and they likely need to be reissued to comply with new UK laws.

5. Potential pro-global growth policies

Brexit may lead to pro-global growth world trade policies. In the short term, this can result in a debate on sovereignty and immigration policies.

7. More flexibility in the UK

As the UK may become more flexible regarding business, small and mid-sized foreign companies will potentially benefit from a more business-friendly environment in the UK.

8. Long-term supply chain concerns

Foreign small and mid-sized companies operating in Europe may not feel the effects of Brexit any time soon. In the long term, however, their shipments and supply chain operations could be affected significantly.

UK companies: what are important areas of concern?

UK companies also need to prepare properly for the impact that Brexit may have on their business. There are a number of elements they should consider, which we have listed below.

1. Review your entire supply chain

Do you have any hidden European suppliers? To answer this question, you’ll need to dig deep into your supply chain, unearthing strategic categories or suppliers. Don’t focus solely on direct relationships. Perhaps one of your services or products is subcontracted to a European organization.

2. Listen, communicate, reassure

Be the trusted advisor you’re expected to be. Listen to concerns within your organization, reassure people that the supply chain is safe, tell them where you stand, and avoid panic. For the next two years or so, it’s important to keep your business running as usual.

3. Start analyzing risks

Over the next year, there will likely be an increasing number of risks surrounding supply chains. It is wise to proactively identify and prioritize these now, adopting a segmented, risk-based approach.

4. Review current and future contracts

What legal jurisdiction are your contracts in? What laws do they (need to) comply with? What are the expiry dates? Review all your current and scheduled contracts, so you will be well prepared when Brexit comes into effect.

5. Stay up to date

Laws, regulations, and trade issues might all affect your supply chain. Therefore, you should devise contingency plans to address these. Stay abreast of what is going on and interpret every piece of news in terms of how it may impact your business.

6. Work in a transdisciplinary way

Most organizations suffer from a high level of uncertainty. For example, 20 percent of UK businesses with EU suppliers are having trouble securing contracts that continue after March 2019, and 8 percent have lost contracts because of Brexit. In this context, it is important to jointly discuss how you can minimize disruption. Involve others in the conversation and work on the challenges posed by Brexit in a transdisciplinary way!

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