It’s been a month since the end of the Brexit transition period and SM has gathered the views of experts to examine the issues procurement teams are facing and, more importantly, what they should be doing about them.
1. Border problems
Unsurprisingly border disruption is high on the agenda, with firms experiencing trouble importing and exporting goods. Consumers have also experienced problems with EU firms not prepared to deliver to the UK due to red tape.
“The flow of goods between the UK and the EU has been severely disrupted despite the UK government having secured a non-tariff trade deal just prior to the end of the Brexit transition period, and things are likely to get worse before they get better,” said Nick Harrison, partner and industrial products sector specialist at consultancy Vendigital.
“Containers are being held up at ports, sometimes for several days, due to a simple error in their customs declaration.
“A lack of capacity among hauliers and freight forwarders is also adding to the problem, as in some cases 4PL solutions are being redirected away from manufacturing to keep food and pharmaceutical supply chains flowing.”
Sam Tyagi, CEO and founder of customs clearance software platform KlearNow, said: “It’s abundantly obvious that as of right now, there simply aren’t enough staff employed at UK borders to handle the increase in workload brought about by Brexit. UK borders are short-handed to the tune of about 50,000 staff and there will be an anticipated five-fold increase in customs entries with Brexit leading to as many 200 million extra customs entries.
“Our fear is that this will quickly lead to a two-tier system with priority given to larger importers who spend more on landing their goods at the expense of smaller business and their customers.”
Tyagi added: “Non UK businesses are already declaring their intention to stop importing to the UK as they discover the extra cost and workload required to land their goods. It is simply not going to be viable for a lot of smaller and medium-sized businesses to land their goods in the UK.”
Firms are having to develop new processes, and while large organisations put resource into this ahead of the deadline, smaller companies “basically made a decision to really sort it out when it happened”, according to Richard Wilding, professor of supply chain strategy at Cranfield School of Management.
“The first thing we need to recognise is we’re in a time where we’re having to develop new processes,” he said. “We’re having to actually reflect on infrastructure and equipment, and that also means from a supply chain perspective where we locate inventories and stocks as we move forward.”
Harrison said: “For OEMs and other businesses that rely on just-in-time deliveries, the situation is incredibly frustrating as they have little control over what is happening. However, the disruption could provide a force for good, particularly if it prompts them to re-evaluate processes and look for ways to improve transparency and efficiency.”
Simon Geale, senior vice president for client solutions at Proxima, said: “Essentially, many consumers and businesses have found out that no (or low) tariffs doesn’t mean no cost, no paperwork, no delay. This means that commercially, logistically and legally-easy trade with the EU (and vice versa) suddenly isn’t as easy as it seemed, and that needs to be reflected in our strategies, plans and decisions.”
3. Rule of origin
The rule of origin has emerged as a creeping threat to firms, from food manufacturers to fashion.
Geale said: “Whilst Percy Pig might be one of the highest profile casualties of the rules of origin regulation to date, the potential impact is actually serious, and draws established sourcing strategies and supply chain processes into question.
“The regulation implies that the origin of a single part or ingredient may impact the ‘origin’ classification of a finished product, and its tariff status. The logical conclusion is that firms may face tariffs that are unexpected, or that they perceive as unfair.
“But in the short term it means a lot of uncertainty and disruption whilst they figure out the rule and how these influence cost models, where components are sourced and pricing plus risk factors. Uncertainty invariably means disruption, waste and cost.”
4. Supplier relations
The experts have warned of a “chain reaction” as administrative costs rise for firms.
Alex Mutter, managing director of capital markets at Taulia, said: “We hear from a number of clients that the Brexit deal will result in incremental administration for their cross-border trade across all verticals. We could soon see a major chain reaction set off.
“With supply chain delays, delivery times will lengthen, warehousing times will naturally increase and the costs will tick up. This will have an impact on suppliers’ working capital and cost of financing, and ultimately there will be a knock-on effect on payment terms. Companies may not currently be set up to survive these liquidity stresses, so there will be a greater need for risk management and transformative technology that can ease the challenges.”
So what actions should procurement teams be taking?
The experts agree that a detailed understanding of what you buy and the supply chain behind it is fundamental – based on data analysis – with what Mutter called a “new normal model of collaboration with buyers and suppliers working in harmony”.
Geale said: “There has been a lot of stockpiling, scenario planning and process workarounds deployed to mitigate against shortages, delays and cost increases. We need to continue to do this and behave like it is a volatile spot market with all that brings.
“To address the problems caused by the current border disruption, procurement professionals should be aiming to ensure they have real-time, end-to-end visibility of the supply chain, from customer through to supplier. This transparency will help them to make the right decisions about how to use resources and keep supplies moving where possible.”
Harrison said it was important to get customs declarations right first time, with training provided.
“Complex supply chains can be an issue, but upstream processes should be in place to ensure documentation is complete and accurate before it arrives at the border,” he said. “As well as using data integrity to ensure the paperwork for each consignment is correct, businesses should be investing in training to ensure they are able to complete declarations quickly and accurately.”
Harrison said firms should be urgently reviewing supplier contracts and putting in place dynamic payment terms.
“For example, if the title on the consignment changes to that of the business once it leaves the supplier’s factory gates, this could be draining working capital. Replacing such payment terms with something more flexible could help to share the impact of any disruption more equitably,” he said.
“It may also be wise to renegotiate payment terms with hauliers and suppliers, to take account of the risk of disruption.”
d) Back to basics
Wilding emphasised going back to “simple, basic stuff”.
“Understand where your customers are located, understand where your suppliers are located and understand the flows going through the supply chain. As we’ve discovered, some organisations are heavily exposed to these things, but all organisations need to have a good understanding of what’s going on.”
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