Brexit means uncertainty and complexity for supply chains, but that shouldn’t stop us planning
We know the result, but not much more. The only certain conclusion we can draw from the EU referendum vote is that we’re in for a period of uncertainty.
In one sense, little has changed. The UK’s membership of the EU continues. David Cameron has said it’s up to whoever replaces him to officially notify the European Council of the UK’s intention to leave and that won’t be until September. Then there’s a two-year period to negotiate a “withdrawal agreement”. Even that may be extended.
The UK could remain in the EU into 2019 or longer.
So, on the one hand, nothing’s changed. On the other, everything is different. Whether you support Brexit or think it’s madness, it’s impossible to deny it’s a game changer.
Volatile supply costs
First, there’s the short-term uncertainty. Even the most optimistic supporter of Brexit would struggle to claim we’re not likely to see increased volatility. Big currency moves, for example, are likely to be a fact of life for some time to come. We’ve already seen a 31-year low against the dollar. One analyst has predicted it could fall to parity by the end of the year.
Whether that’s true or not only time will tell, but less settled currency markets will be here for the foreseeable future. The impact on costs of overseas supplies and raw materials could be significant.
Uncertainty also means investments are more difficult to predict, both for businesses themselves and for suppliers. That could affect plans to support growth.
Longer-term, though, the big questions are likely to be about access to markets.
Diverging Regulation and Standards
This is not always going to be simply about tariffs. There are other dangers in going your own way.
Before the advent of the single market, for example, it was often impossible to sell a product designed for one EU market in another due to different technical standards or regulations operating in each.
Manufacturers must keep an eye on these barriers creeping back in. Existing harmonisation in industries may be eroded over time by new regulations and developments in either Britain or the EU. Equally, they may be the result of intentional protectionist measures introduced by the remaining EU countries.
Like any change in tariffs, this will only become clear with time. There is one thing we can already bet on, though: increased complexity
Increased supply chain complexity
Any arrangement other than membership of the EEA like Norway’s is likely to see either a change in the UK’s terms of trade with the EU or the possibility to change its terms with those outside – and perhaps both.
That could mean opportunities, as well as challenges. But if it means sourcing from new markets or just navigating new rules when buying from existing suppliers, it will mean changes to the supply chain that have to be managed.
There’s no crystal ball, but there are things businesses can do to prepare now.
Most obviously, they need to look at anything they can do to make their supply chains resilient. Dual sourcing from suppliers both within and outside the EU could be one way businesses hedge their bets, for example.
Even before considering that, though, businesses need to make sure they really understand their supply chains, and have visibility across them. That will enable them to consider the impact the various possibilities may have and plan accordingly. It will also mean they can react faster and more intelligently to the dangers and opportunities Brexit brings when the time does eventually come.