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Brexit and supply chain challenges

21 June, 2017

What should Irish businesses do now?

Companies that trade with the UK, or transport goods via the UK, are starting to review their operations and supply chain networks. They need to ensure they remain competitive in an evolving market landscape as Brexit negotiations begin.

While the full impact of Brexit on Irish-based companies is uncertain, there are likely to be both opportunities and challenges in supply chain.

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Brexit: What’s next? – Supply chain

Disruption to supply chains after Brexit is a major concern for Irish business. PwC Ireland partner Garrett Cronin outlines how you can secure your supply chain and ensure it’s robust and ready for Brexit.

Sourcing and procurement

In the short term, the drop in the value of Sterling has allowed Irish organisations to procure goods and services from the UK at a reduced cost.
In the longer term, however, EU-based buyers may look to limit their exposure to any potential tariffs imposed on UK imports. This may specifically apply to items which attract high tariffs such as agricultural products.

This could benefit Irish producers. They may see a rise in local or EU demand in a post Brexit marketplace. Conversely, organisations which import goods or services into the UK have seen their costs increase. This in turn has driven demand in the UK for domestic produced goods and services.

For Irish organisations, this has begun to impact on exports from Ireland to the UK. This could have a significant impact, considering the UK is one of Ireland’s largest trading partner with ~15% of all Irish exports destined for the UK.

Local or dual sourcing operations could also increase in both the EU and UK. Organisations will try to take advantage of increased ‘going-local’ consumer sentiment.

The supply of goods or services involving the physical movement of staff may also be impacted by restrictions on the free movement of people between Ireland and the UK.

Trade, contracts and Brexit supply chain challenges

In the event of no mutual agreement being reached during negotiations, World Trade Organisation rules would regulate EU-UK trading. The UK would be one market, and the EU another.

VAT and other duties or charges may be applied in future which would drive up costs and take time for companies to manage.
The customs requirements and resulting bottlenecks could increase lead times, and in turn impact service levels.

Existing and new supply chain contracts will need to be assessed. UK contracts making reference to EU law or the need for access to the EU may require re-negotiation or amendment. Trade credit insurance and in-contract currency fluctuations clauses should also be considered.

Products like medicines which are subject to regulatory requirements governed today by EU regulation may require alternative registrations and labelling should UK and EU regulations diverge in a post Brexit environment.

Supply chain networks and hubs

UK-based service centres and supply chain hubs may become unviable, in particular for those who transit goods destined for the EU through the UK. There is an opportunity to redesign and consolidate networks into Ireland. For example, if procurement is done in the UK for EU production, the function could in the future be relocated / centralised in a hub located in Ireland.

In addition, where UK production activities exists for EU markets, there may be an incentive to relocate production, or at least the process of finishing goods, to an EU location. Setting up warehousing and distribution networks could also be considered.

Distribution may see volume shift from orders going via the UK to the EU, US or other markets, potentially creating an impact on freight rates.
Systems may need extensive work to reconfigure information such as raw materials, transport options, supplier, invoicing, duties or VAT.

What can organisations do to address supply chain challenges of Brexit?

Immediate actions:

  • Focus on the initial consequences (e.g. change your sourcing approach to benefit from exchange rate fluctuations).
  • Set a baseline set of assumptions to inform your Brexit planning.
  • Analyse your business and assess your assumptions to highlight the areas of greatest risk.

Medium-term actions:

  • Scenario plan based on ‘what if’ or on statements coming from negotiations (e.g. develop a cost-benefit analysis of a network review).
  • Develop action plans to mitigate or reduce any risks or impacts.

Longer-term actions:

  • Act on the basis of what emerges from negotiations (e.g. update supply chain strategies or implement network changes).

Contact us

Garrett Cronin

Partner, PwC Ireland (Republic of)

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