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Using suppliers in the EU? What next?

FAREWELL: A split from the EU proper is not far away

IF YOU buy goods or services from within the EU, or you rely on cheap EU labour then you need to prepare your business for the impact of Brexit - here’s how...

Start by mapping the possible impacts, and from there you can mitigate the risks;

1. CATEGORISE YOUR SUPPLIERS INTO THE FOLLOWING:

• An EU company supplying goods or services from an EU country

• A company, which is reliant on significant raw materials or components from the EU. Segmented by % of price of the goods supplied

• A company, which is reliant on the availability of low cost labour from EU. Segmented by % of price of the goods supplied

• Identification of items sourced from outside of the EU but which transit via land through the EU, including goods transiting through Rotterdam.

Each organisation’s knowledge of its suppliers will be fully tested and likely involve liaising with suppliers to establish the latest cost assumptions and supply chain challenges.

2. ORDER THE LIST:

The list needs to be sequenced in order of importance. This will identify the supplier with the biggest impact on costs escalation for the goods and services you sell onto your customers, either as finished goods or larger sub-assemblies and components.

3. ANALYSE THE LIST:

Look at each supplier in turn. Dependent upon the challenges faced there are a number of strategies and remedies, which can be applied to reduce the impact of Brexit cost increases and, ideally, identify some of the cost saving opportunities.

4. CONSIDER PRICE CHANGES:

For each supplier, each of the mitigation options, should be priced, as an increase or decrease to the unit cost. The benchmark to measure each contingency against is to: stay with the same supplier, transacting in the same way but applying WTO tariffs rather than Single Market trading.

Completing the first pass of this work will enable companies to identify the biggest cost increase, risk and opportunities available to them and focus scarce resources on managing them appropriately.

Once completed this analysis will give managers:

• An understanding of the impact of Brexit on your suppliers and inbound supply chain with expected
costs, both increases and decreases

• An understanding of the options available to buyers and suppliers to offset some, or all, of the costs and impact of Brexit under the worst-case scenario

• Ability for buyers and suppliers to start contingency planning and mitigation actions

• A clear view of which suppliers are already mitigating the risks and costs of Brexit

• Identification of new suppliers from outside of the EU, which were previously not competitive

• Ability to work with new suppliers to take advantage of improved pricing once Brexit is completed

• A document that can focus and support involvement with trade bodies to resolve and minimise the negative impact of Brexit on your business and sector

• A working document that you can evolve and be updated as the negotiations proceed.

By taking action now, it is more likely you can mitigate the effects of Brexit, and perhaps even find ways to benefit from the changes ahead of us.

Nigel Ransom is from 528 Advisory, which works with CXOs and their direct reports to set the foundations, direction and governance for a successful acquisition and/or company transformation. For more information, click here or Follow Nigel on Twitter or LinkedIn.

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