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The Dreaded ‘B’ Word and your Supply Chain

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There is so much uncertainty about what will happen with a Brexit deal (or no deal) and therefore it is likely that you may have concerns around the effect it may have on your business and on the other suppliers in your chain.

In these uncertain times, the future of your supply chain relies on adaptability. It is a difficult time for decision making and you may not want to incur huge costs in making changes to your business supply chain now if it later transpires that it was unnecessary to do so.

Instead, there are a number of basic steps you can carry out now to determine the likely risk to you or your supply chain post Brexit, including identifying potential issues that could arise and finding the best safeguarding measures.

Potential supply chain issues could involve:

  • Shortage of employees (skilled or unskilled) due to changes in freedom of movement
  • Increase in costs and time for EU border crossings for goods or people
  • Likelihood of your suppliers going insolvent
  • New import or export controls to get to grips with
  • Changes in exchange rates and the effect on overall cost of supply
  • Possibility of EU suppliers ceasing to trade with UK companies if the process becomes too complex, costly and time-consuming
  • Changes to the legal system – such as data protection and the costs involved with making appropriate changes or persuading EU suppliers that you are still able to comply with the EU provisions

Risk assessing your supply chain

  1. Determine which of your suppliers are your key suppliers

Consider which contracts are the most valuable to your business, either in terms of their monetary value or those which are most integral to your business operations. These are the supply agreements that you should focus your review and risk assessment upon.

  1. Where your key suppliers are based

Are they UK, EU or rest of the world? The effect is obviously likely to be greater if they are based in the EU. However, you should also look at who is within their supply chain group. Are they dependent upon one key supplier or is their risk spread across a small number of suppliers? Do they rely upon a supply chain which is EU based? This will help to inform you which of your key suppliers are least or most likely to be affected by Brexit.

  1. Current under-performance

Are any of your suppliers underperforming and not delivering as you would expect? The changes brought by Brexit may place them under greater strain so you may need to consider these contracts in more detail and consider taking legal advice on options open to you in terms of pushing performance or even termination.

  1. Examine the terms of your supply agreements with a particular focus on:
    1. Expiry – how many of your key supply contracts will continue past the Brexit transition deadline? Are any subject to rolling terms on which you may need to consider timeframes for serving termination notices if they are not going to be viable contracts past the Brexit deadlines?
    2. Restrictions – do any of the supply contracts restrict potential Brexit strategies such as restrictions on location, restructuring or early termination?
    3. What are the opportunities within the contractual terms for renegotiation?
    4. Are there any clauses dealing with changes to the commercial bargain such as increased business costs, pricing or performance indicators? – Even if your current contractual terms do not contain such opportunities, this does not prevent you from considering the relationship with your supplier and the extent to which they may well be prepared to negotiate new contractual terms with you, particularly if this means that you are both more likely to be able to continue the business relationship post-Brexit.

Darwin Gray will be taking part in an event to discuss Change Management. To find out more, click here.