Following Theresa May’s speech this week outlining a move towards hard Brexit, buyers will need shrewd contingency and risk planning.
A recent report from Credit Suisse, examining trade relationships between the UK and EU countries, highlighted that many of the existing supply chains crossing the channel are designed to function within a single market. Breaking that single market, it warned, may mean the end of many of these supply chains. As a result, a number of companies based in Europe and the UK may look to new suppliers.
The same report highlighted that many businesses simply did not plan for Britain leaving the EU, as the prospect had seemed unlikely. Almost half (49%) of the FTSE 350 boards in the FT–ICSA Boardroom Bellwether survey conducted last May, admitted to not having a contingency plan in place.
Finally, it is possible that British exports to the EU will be penalised in some form – especially in the financial sector. The impact of this could be huge, as service sector exports account for 4.5% of the UK’s GDP.
How should the Supply Chain plan?
Contingency planning to minimise the risk of a break in the supply chain is now the business-critical priority of 2017 for many organisations.
Businesses that invest in planning, risk modelling and future proofing supply chains can gain a competitive advantage in their sector.
The challenge is not to invest too many resources in developing contingency plans for situations that may not arise. While this determination is a difficult one to predict, it is important not to overlook its significance to differing sectors.
Various sectors will clearly face more or less disruption, dependent on the anticipated level of tariffs that may be applied following the conclusion of negotiations.
We can see from OECD data that the UK is likely to be disproportionately affected by disruption to its supply chain because almost half of its intermediate imports and exports are with other European countries, whereas only 10% of all net imports and exports are with the UK.
Now that hard Brexit is likely, certain sectors will need to plan accordingly because the WTO Most Favoured Nation Tariffs schedule may make them particularly vulnerable. Motorcars are an example of this as the sector could face tariffs as high as 10%. Although this not the only element to consider, the sector contributes roughly 4% of GDP, making it particularly important because of the level of employment it delivers to the UK economy.
Determining the level of supply chain planning for individual businesses will remain difficult until Article 50 has been served and the likely outcomes of negotiations become clearer.
What we can see however is that by modelling out different scenarios and planning accordingly we can put in place longer term contingency plans to alleviate as wide a range of situations as possible.
Milan Panchmatia is managing partner at procurement consultancy 4C Associates.