CSCMP's Supply Chain Quarterly
July 16, 2019
Forward Thinking

Brexit is already disrupting European supply chains, says U.K. procurement organization

A survey of U.K. and European supply chain managers found that many are re-examining their relationships with suppliers.

Nearly two-thirds (63 percent) of European Union (EU) businesses that work with suppliers located in the United Kingdom (U.K.) expect to move some part of their supply chains out of the U.K. as a result of that country's decision to leave the EU, according to the results of a new survey conducted by the U.K.-based Chartered Institute of Procurement & Supply (CIPS). This is a dramatic shift from May, when an earlier survey found that 44 percent of EU businesses were expecting to move out of the U.K., CIPS said.

In June of 2017, U.K. voters chose to leave the European Union, a move that's popularly known as "Brexit," or "British exit." Since the vote, business leaders have been scrambling to understand what this will mean for their supply chains.

During the month of September, CIPS surveyed 1,118 supply chain managers in the U.K. and Europe and found that 40 percent of U.K. businesses with EU-based suppliers have begun searching for domestic suppliers to replace their EU partners, up from 31 percent in May. Just over one-quarter (26 percent), however, are taking the opposite approach and are investing in strengthening their relationships with suppliers on the European continent.

The shift comes as Brexit negotiations between the EU and the U.K. government appear to be deadlocked. Half of U.K. businesses that responded to the survey said they are becoming less confident that the U.K. and EU will secure a deal that continues to offer "free and frictionless trade." More than one-third (35 percent) of U.K. businesses reported that they have been unable to prepare for the split due to the lack of progress on a future trade relationship.

This uncertainty has meant that one in five U.K. businesses with EU suppliers has found it difficult to secure contracts that extend past March 2019, when the island nation is scheduled to depart the European Union. Indeed, although a formal separation is still some time away, 8 percent of U.K-based respondents said their organization has already lost contracts as a result of Brexit. Fourteen percent believe that part or all of their organization's operations will no longer be viable once the division occurs.

"The Brexit negotiating teams promise that progress will be made soon, but it is already too late for scores of businesses who look like they will be deserted by their European partners," said Gerry Walsh, group chief executive officer (CEO) of CIPS, in a statement. "British businesses simply cannot put their suppliers and customers on hold while the negotiators get their act together."

The survey also found that 73 percent of supply chain managers believe that keeping tariffs and quotas between the U.K. and Europe to a minimum should be the main priority for the negotiations.

Brexit has already taken a toll on company finances, according to respondents. One-fourth of U.K. businesses with more than 250 employees said they have already spent at least £100,000 preparing their supply chains for the split. These costs come in addition to the daily impact of currency fluctuations, with 64 percent of U.K. businesses saying this has made their supply chains more expensive to manage.

The survey results indicate that in the wake of all this uncertainty, business leaders are still struggling to figure out their next move. Only 14 percent of U.K. businesses with EU suppliers said they feel like they are sufficiently prepared for Brexit.

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