Series 12 - Back to Brexit Basics – the supply chain

Jul 03, 2018

Last week, in Series 11 of Back to Brexit Basics, we looked at how Brexit could give rise to an upfront VAT cost on trade between Ireland and the UK.  This week we look at supply chain management and what businesses could be doing now to prepare for Brexit.

By failing to prepare…..

Today, supply chain management is a key element of many business operations and for some it is critical for success.  The processes involved in the production and distribution of a product make up the supply chain.  Good supply chain management can reduce a business’s operating costs, improve its profit margins and keep customer satisfaction levels high.

Many businesses in Ireland and the UK manufacture products that are made up of various components which are sourced from both the UK and the EU.  This could mean multiple border crossings where parts are brought together to produce the final product.  The introduction of any customs checks and duties at borders after Brexit could make this practice time consuming and costly.

In addition to these customs and VAT costs that may arise for traders after Brexit, businesses should examine their supply chains to assess exactly where they could be potentially faced with delays and costs in the movements of their goods.  For example, depending on the outcome of the Brexit talks, familiar transit routes may not be as convenient or as accessible as they were before Brexit and traders may need to alter or establish new transit routes in order to remain competitive. 

The future trading landscape after Brexit is not yet clear and this makes it difficult for businesses to consider and substantiate the real impact of Brexit now.  Making changes to a supply chain at this stage in the negotiations may seem, and indeed be, premature.  However planning for some eventualities (such as a hard Brexit) is recommended and traders whose supply chains crosses UK and Ireland borders should consider undertaking a review of their business processes so that they are in some way prepared for any changes ahead. 

We have set out below some things businesses might consider when examining a supply chain.

Identify the stages of a supply chain

Companies should examine their entire supply chain operation from start to end. This will involve looking at where and how raw materials are sourced, where production processes take place, how goods are packaged and stored, loaded in lorries or other modes of transport and how they are shipped to their required destination.

Businesses will need to establish how and when goods move in and out of the UK and the EU and examine the points in the supply chain which may cause difficulties after Brexit. 

Assess the infrastructure

Traders should assess the road and seaport infrastructure that they currently use or is available to them. They should carry out cost and time comparisons between various transit routes.  Traders may need to switch from road to direct shipping routes to avoid border crossings.  This means that the cargo will go directly from the factory to the customer without first stopping at a warehouse or other facility and the ability of infrastructure to cope with this will need to be established. 

Examine product lead time

Product lead time is the amount of time that elapses between when a process to make a product starts and completes. Additional customs checks, new compliance requirements or different transit routes may result in longer product lead times.  Traders will need to work out the product lead times for each product in an after-Brexit scenario and if required may need to alter some components of their supply chain.  This may involve sourcing other component suppliers or taking a different transport route, or even changing the product.

Increase storage

Other traders who source product components from the UK to manufacture in the EU or vice versa may consider increasing the size of their storage facilities so that they can make fewer trips cross-border to deliver components.  

Monitor stock levels

Businesses will also need to monitor their stock levels carefully, particularly those who operate a Just-in -Time operating model.  Any delays at the borders could affect this model, resulting in low stock levels or delays in the production process.

The capacity of a business to deal with product lead time disruption needs to be examined and a cost analysis carried out.

Driving time

Companies may need to consider changes to current logistics patterns to optimise driving time for transporting goods.  The EU for example has common rules for maximum daily driving times as well as daily minimum rest periods for certain classes of drivers: extra customs checks may require a change to current timetabling and planning. 

Failing to prepare….

As noted above, it is difficult for businesses in Ireland and the UK to plan and adapt for Brexit given that we do not know the trading landscape that we will face after Brexit. However, it may be worthwhile for businesses in Ireland and the UK to examine their supply chains to fully understand how any Brexit outcome could affect them.  As the saying goes, by failing to prepare, you are preparing to fail. 

Read all of our Brexit updates and Back to Brexit Basics on the dedicated Brexit section of our website.