As much of the world is focused on managing the corona pandemic, negotiations on the future UK-EU relationship following Brexit have been moving slowly. Despite these ongoing challenges, the UK government has confirmed that it will not extend the transition period.
With limited time remaining, organizations are once again faced with a couple of potential outcomes:
1. The negotiations end inconclusively, so that the hard Brexit comes
2. There is an agreement, but it contains tariffs and other trade restrictions
3. There is an agreement with extensive free trade
4. The agreement already reached is denied because of the issue with the Northern Ireland
While companies have had some time to develop strategies for the first three scenarios, the fourth is a new option resulting in the British Parliament’s latest decision. It would include a hard Brexit and furthermore lead to a border between Ireland and Northern Ireland. If so, businesses must review which of their plans on
- Supply chain
- Contracts and terms
- Price mechanisms
- Stock levels
are affected by a possible unravelling of the contract concluded between UK and the EU nearly a year ago.
With the risk that a hard Brexit actually occurs and only few weeks remaining, companies with relations to the other shore of the channel – or the other side of a possible inner border of the Irish island – should identify critical materials and preliminary products. For the most critical material groups, procurement managers should develop solutions to avoid supply shortages because of newly established customs formalities after the 31st December, for example:
- Examination of an increase in inventories to cover extended delivery times and save money from potential tariffs
- Identification of and ramp-up with alternative regional suppliers
- Implementation of (digital) tools and methods such as analytics and supplier risk tools to improve transparency
Be prepared for the economic downturn with robust procurement
It’s difficult to determine the extent to which COVID-19 will have impacted the business fundamentals by the end of the Brexit transition period. However, regardless of what an agreement between the United Kingdom and the European Union ultimately looks like, companies should be prepared for the economic challenges ahead. These have already occurred, as the statistics on national growth show.
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