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The Dreaded ‘B’ Word and Your Supply Chain
July 29, 2019
In these uncertain times, the future of your supply chain relies on adaptability. It is a difficult time for decision making and you may not want to incur huge costs in making changes to your business supply chain now if it later transpires that it was unnecessary to do so.
Instead, there are a number of basic steps you can carry out now to determine the likely risk to you or your supply chain post Brexit, including identifying potential issues that could arise and finding the best safeguarding measures.
Potential supply chain issues could involve:
Shortage of employees (skilled or unskilled) due to changes in freedom of movement
Increase in costs and time for EU border crossings for goods or people
Likelihood of your suppliers going insolvent
New import or export controls to get to grips with
Changes in exchange rates and the effect on overall cost of supply
Possibility of EU suppliers ceasing to trade with UK companies if the process becomes too complex, costly and time-consuming
Changes to the legal system – such as data protection and the costs involved with making appropriate changes or persuading EU suppliers that you are still able to comply with the EU provisions
Consider which contracts are the most valuable to your business, either in terms of their monetary value or those which are most integral to your business operations. These are the supply agreements that you should focus your review and risk assessment upon.
Are they UK, EU or rest of the world? The effect is obviously likely to be greater if they are based in the EU. However, you should also look at who is within their supply chain group. Are they dependent upon one key supplier or is their risk spread across a small number of suppliers? Do they rely upon a supply chain which is EU based? This will help to inform you which of your key suppliers are least or most likely to be affected by Brexit.
Are any of your suppliers under-performing and not delivering as you would expect? The changes brought by Brexit may place them under greater strain so you may need to consider these contracts in more detail and consider taking legal advice on options open to you in terms of pushing performance or even termination.
a. Expiry – how many of your key supply contracts will continue past the Brexit transition deadline? Are any subject to rolling terms on which you may need to consider time frames for serving termination notices if they are not going to be viable contracts past the Brexit deadlines?
b. Restrictions – do any of the supply contracts restrict potential Brexit strategies such as restrictions on location, restructuring or early termination?
c. What are the opportunities within the contractual terms for renegotiation?
d. Are there any clauses dealing with changes to the commercial bargain such as increased business costs, pricing or performance indicators? – Even if your current contractual terms do not contain such opportunities, this does not prevent you from considering the relationship with your supplier and the extent to which they may well be prepared to negotiate new contractual terms with you, particularly if this means that you are both more likely to be able to continue the business relationship post-Brexit.
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