Uncertainty abounds but firms are getting creative with their strategies
A third of UK businesses are drawing up plans to sever cross-Channel supply chains to avoid post-Brexit tariffs – and almost half of European firms are doing the same, CIPS research shows.
A survey of more than 2,100 supply chain managers found they are not waiting for the outcome of trade negotiations, but are “deep into their preparations for Brexit”.
Gerry Walsh, CIPS interim CEO, said: “Both European and British businesses will be ready to reroute supply chains in 2019 if trade negotiations fail, and aren’t wasting time to see what happens.”
Firms are using a number of strategies to deal with Brexit uncertainty, including renegotiating contracts to deal with currency fluctuations, which have raised supply chain costs. For evidence of this look no further than Premier Foods, which blamed a drop in sales and profits on factors including a weak pound and high commodity prices. Nescafé, Marmite, Birds Eye and Walkers have all raised prices as a result of the falling pound. Other products, such as Toblerone and Maltesers, have been reduced in size.
Laura Magee, principal consultant at consultancy Crimson & Co, told SM: “Uncertainty over Brexit will persist beyond the general election as the complexity of negotiations with Brussels takes hold, so we can expect this difficult business environment to persevere.”
Firms are also responding by pushing supplier costs lower, though the CIPS survey found that 11% of respondents admitted part of their operations may no longer be viable.
Magee said: “Fortunately, there are actions that many organisations, whether FMCG or not, can take in their supply chains to mitigate the damage. They can enter negotiations with suppliers to keep prices low – this is easier for big organisations that wield more clout, although there is the potential for smaller ones to cooperate in their negotiations.
“Any organisation that sources commodities can hedge pricing to insulate themselves from fluctuating exchange rates and provide a degree of pricing certainty. There is, however, a degree of risk associated with this.”
Matt Roper, CEO of the consultancy Buying Support Agency, said: “Buyers dealing with EU-based suppliers can turn negative into positive by engaging fully with them to both reassure and protect the supply chains.
“Conversely, even if relationships with EU suppliers sour, buyers may be unaware of some highly innovative and value-add supply chains in the rest of the world, including the UK itself. Positive consequences may result in switching to non-EU suppliers, but only if buyers can develop the alternative supply strategies.”
There’s also a degree of uncertainty for the public sector. A report prepared for the European Parliament said without a solid deal in 2019 there was a risk the UK would need to rejoin the WTO’s Agreement on Government Procurement (GPA) in order to maintain access to EU public procurement markets.