In order to guard against the potential problems that both coronavirus and Brexit might have on your supply chain, you must first understand the supply chain risks that would have the biggest impact on your business.
Over many years, international supply chains have become more and more complex, with efficiency being the primary driver. The problem that many UK businesses are now finding is that these supply chains are only efficient if every element works perfectly.
Being overly reliant on one geographic region or supplier can cause a huge problem should that business or place be impacted, in the current conditions, this is happening regularly.
There are also inevitable consequences in the shape of Customs and VAT implications for those that make any changes to international supply chains.
So how can you better understand your supply chain risks?
Access to key materials and components
Establishing where the potential breaking points might be within your supply chain can be challenging, but there are some key steps that we would recommend taking.
- Gain a thorough understanding as to what your key components and materials are
Establishing which materials and components are the most crucial enables you to take the necessary steps in order to prioritise access to them and minimises the risk of operational disruption.
- Identify any geographical regions that you heavily rely on
Diversifying your supply chain geographically is advisable given the unpredictable nature of the pandemic. Even in the wake of the current vaccine rollout supply chains will need to be robust enough to deal with outbreaks and subsequent lockdowns. Over reliance on one region or country will increase the risk of a major disruption.
- Identify the key suppliers
The immediate impact of the coronavirus pandemic has meant many businesses have struggled with maintaining cash flow. Although the Government has stepped in to help protect some businesses, we must be braced for a continued increase in insolvencies and the subsequent supply chain risks. Staying aware of concerning activity and keeping up to date with market intelligence will be key. Developing relationships with new potential suppliers may help to minimise disruption further.
- Establish the extent to which cross-border arrangements can continue
The need for new documentation could add an additional cost as a result of delays or in extra staff and management processes. Consider the strategic positioning of inventory to guarantee lead times while remaining aware of any additional filing obligations this may bring.
Customs and VAT implications
Understanding the indirect tax implications before making any final decisions on supply chain changes is going to be vital over the coming months. But there is one key thing to always have in mind…
- Minimise the need for goods to cross borders and mitigate the impact when it’s necessary
Coronavirus has only exacerbated the exposure to VAT and customs duty risks by forcing many UK businesses to adopt entirely new supply chains. With Brexit in mind, businesses must evaluate the impact on customers and suppliers in the UK, the EU and the rest of the world.
A thorough review of these implications before making any final decisions will be vital to gain the full picture and avoid unexpected costs such as overseas import VAT and Customs Duties because of changes made to existing arrangements or new agreements with suppliers and customers. Identifying a clear strategy is essential.
An advisor with a strong international network and a global reach will help ensure risk-mitigation strategies will function across multiple jurisdictions and will be well placed to source new suppliers, assess their performance, and ensure they deliver your requirements from the start.
Balancing the commercial requirements of the business whilst considering the indirect tax implications of any operational changes made within your supply chain will be challenging, but the right advisor can help to ensure the impact of any disruption is minimised.
If you would like a strategic review of your current supply chain management, please contact