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Supply Chain Management & Brexit Challenges

  • Posted: 27-02-2019
  • Commercial/Business

The “No Deal” Scenario

In the current state of flux that surrounds the Brexit negotiations, there are many possible outcomes. For most businesses, planning for any – never mind all – of these scenarios is simply not practical. However, if no arrangements are concluded for the withdrawal agreement and there is no transition period or alternative arrangement, then our article 50 notice expires at 11pm (midnight in Europe) on 29 March 2019, at which point we leave the EU. The UK will no longer be part of either the single market or the customs union. The four freedoms (of movement of goods, services, capital and people) will no longer apply.

At that point the UK will be treated by the EU in the same way that it treats any other non EEA country. World Trade Organisation (WTO) rules and schedules will set the baseline for UK trade activities.

Supply Chain Risks

All supply chains present a risk to businesses as they sit outside the organisation and so are not within your control. In cases of a particularly complex supply chain, your suppliers may not even be visible to you.

Food chains are often “just in time” in nature, with links within the EU and globally. Stock may be held for only a few days before being sold or used. As such, disruption for as little as a week can have a major impact.

What are the Risks?

Some or all of the following might apply to your business.

• Changes in freedom of movement may mean a lack of employees.
• Increased time and costs at EU border crossings are issues in themselves but might also lead to insolvency for some suppliers.
• Changing import and export controls may introduce uncertainty, costs and delays.
• An increased need to warehouse goods may lead to increased costs.
VAT complications
• Data sharing complications

How Serious are the Risks?

Once you have identified the risks that might apply to your business you need to consider the likelihood of that risk occurring and the impact that it would have if it did occur.

Your top priority should be those risks that are both high likelihood and high impact.

High impact but reducing likelihood risks should be tackled next, followed by lower impact areas.

Categories of risk to think about include:

• Contract value
• Strategic importance
• Geographical location
• Contract expiry periods/dates
• Currency exposure
• Suppliers who rely on EU grants or funding
• Under-performing suppliers
• Hidden suppliers

A due diligence questionnaire might help here, but beware of lengthy documents that may not give you much meaningful information. Time is short and you need to prioritise.

What Practical Steps can I take?

Review your communication strategy for the whole supply chain. How are problems notified? How are customers communicated with?

Review your sourcing strategies. Do you need to expand your supplier network? To consider the geographical spread of your suppliers? Should more be in the UK, or outside the EU?

Review the credit risk that your key suppliers present.

Review your contracts. Could you lay your hands on the relevant documents? Do you know what notice you need to give to bring the contract to an end? Or what happens if the other party becomes insolvent?

Review the status of any disputes you are currently engaged in. Would it be wise to settle to eliminate risk and uncertainty and to free up your time and attention to deal with a period of potential economic uncertainty?

Bright Solicitors’ Commercial Team work with clients to evaluate and manage the risks in their dealings with customers and suppliers, and to make sure that these are properly reflected in their commercial documentation. Please contact us for further assistance.