Supplier Management and Supplier Audit After Brexit
Malcolm Harrison, Group CEO of the Chartered Institute of Procurement & Supply (CIPS), talks to Daniel Moore about how Brexit will impact supply chains and logistics in 2021.
Daniel Moore: What threats and opportunities, related to Brexit and trade deals, are emerging in supply chain and logistics management?
Malcolm Harrison: Supply chains in the UK have been unsettled by what equates to the first fundamental change in trade for 40 years. We have become used to managing fast, frictionless, effective and barrier-free supply chains. The threat of a disruption in the supply of goods or scrabbling to find new suppliers or working out how to cope with additional administration is increasing some costs, and businesses are looking to protect their margins.
The trade deal as we know hasn’t covered all bases and there’s still much to be done depending on which sector supply chain managers are operating in. Issues around customs checks, new regulations and new administration have affected trade, though many businesses were prepared by resourcing the customs elements efficiently and ensuring they had sufficient stocks for the first few months of the year. It does seem that SMEs are being disproportionately impacted as they don’t have the resources that larger businesses do to manage these new barriers.
Given all this, our research in January showed a worrying picture emerging. We found that half of the businesses we surveyed had experienced delays since 1 January and a quarter said they’d run out of stock. The pandemic would also have played a part in this, as Brexit stocks were consumed in response to further pressures from lockdowns and restrictions on normal business.
When it comes to new administrative procedures, food supply chains appear to be hardest hit. The Food and Drink Federation has warned that what was a three-hour procedure to complete necessary paperwork is now taking five days and impacting on highly perishable goods. A lack of understanding what the new procedures should be appears to be the crux of the problem. This could take several months to iron out in the best-case scenario. If a business that is shipping short shelf-life goods can’t see this being resolved, then the only commercially viable option may be to stop supply. Northern Ireland, in particular, may experience greater disruptions if these difficulties are not solved quickly.
DM: What does the Brexit deal mean for the procurement profession and what are the main points that these businesses need to be aware of?
MH: Our Brexit guide highlights the key activities that supply chain managers should be managing, even at this late stage:
- Audit your supplier base
Any sudden change in key suppliers can have a severe impact on your business, and from January this has probably made itself abundantly clear for those firms that have been affected by border delays. We found over the last few years, some businesses were struggling to find suppliers closer to home, so either had to pay extra for tariffs and shipping costs or change their own business models to fit the new landscape. The UK is a nation of entrepreneurs, so new suppliers are coming on board all the time, though some will need to invest and will first want greater confidence of demand.
- Obtaining Authorised Economic Operator status (AEO)
This is an internationally recognised mark that demonstrates a company’s credibility in conducting international business with customs controls and procedures that are efficient and meet EU standards.
- Customs clearance
The government has provided customs guidance and businesses need to build in the extra time needed to complete the documentation within the correct timeframe. Almost a third (27%) of the supply chain managers we spoke to saw this as the top issue they were grappling with.
Brexit is a challenge, but it also an opportunity for many. Sourcing closer to home means that new supply options are being developed all the time. Our Irish counterparts, for example, are at the forefront of this innovative thinking with new shipping routes. It might just take another 12 months before disruption settles down for most and we move to more optimal, and lower cost, ways of working with this new barrier.
DM: What key uncertainties remain for the procurement profession now that a Brexit deal has been agreed?
MH: The flow of goods has been impaired despite the non-tariff trade deal, as it doesn’t cover all sectors and all potential trades. The challenge will be staying up to date with the latest details, knowledge and guidance. For instance, those working in the services sector don’t have the certainty that other sectors have and will have to keep a finger on the pulse to react to any changes as and when they happen.
Errors in customs declarations, however small, are resulting in delays when releasing containers. As well, there is a lack of capacity in shipping resources to the largest extent since the Purchasing Managers’ Indices started measuring supply chain efficiencies around three decades ago. A lack of customs agents and capability means businesses are not getting the advice they need and administrative costs will increase with more paperwork to complete.
As well as the key activities already highlighted, if borders continue to be disrupted then for some businesses the solutions will be to source more locally. As traffic builds up around ports, our research found that 18 per cent of firms believed that their goods would experience disruption and some detrimentally, such as those importing/exporting perishable goods. A lack of sufficient numbers of staff at the UK border could also result in big importers getting priority and SMEs struggling to get goods through.
As the year began, we found around 17 per cent of the firms we spoke to were importing or exporting far less than usual to avoid any teething problems. As border disruptions ease, businesses will begin to reach normal trading levels and navigation around the new rules will improve.
What I hope is not forgotten, however, is ethical approaches to procurement and supply management as businesses look at their strategies for survival. We should not take our eye off the ball in respect of paying suppliers promptly or ensuring there are no slaves in the supply chain or investing in sustainability initiatives. These are all such important activities that neither Brexit nor the pandemic should derail, as these initiatives will strengthen business for the future, meeting the increase in ethical consumer buying and focusing on issues that are really important to society.
DM: What challenges has the Brexit deal posed to CIPS and how does the organisation plan to overcome them?
MH: We are a global professional body, here to support our members and other professionals in procurement and supply in all sectors in the UK and internationally.
For CIPS, the challenges of Brexit are the challenges for the profession. CIPS has to ensure we are providing relevant information and guidelines to support our members in navigating the supply chain challenges resulting from the new Brexit barrier.
DM: How is CIPS helping its members to deal with the challenges posed by Brexit and Covid-19 respectively?
MH: The pandemic and Brexit have publicly heightened the importance of procurement and supply, and the management of supply chains, in a way I have never experienced in my career. Also, the reputation of those professionals with an agile and resilient approach to procurement, mitigating against the impact of such extreme challenges, has soared because businesses are keen to employ the best talent.
CIPS has developed a range of resources to support the challenges of Brexit, but also Covid with guidance from the Intelligence Hub, with the latest news affecting the profession. Our ‘pulse’ Brexit surveys will provide a timely snapshot of the experiences of procurement and supply managers ‘on the ground’.
Our products, training and qualifications at CIPS are the core of what we offer as best practice in procurement such as the Procurement Excellence Programme, an assessment of people, processes and procedures and where over 300 organisations have achieved awards from standard to platinum levels. We always look to update these and advance them in line with the changes faced by procurement in the outside world. We encourage our members to keep learning, undertake continuing professional development (CPD) and to become chartered procurement and supply professionals. Through constant learning and development our members will manage disruption more effectively and will be better equipped to make the most of potential opportunities too. Some companies have changed their operating models and their supply base for new and innovative ways of managing business as it continues to evolve.
DM: How can the purchasing profession help?
MH: You need to have trained, qualified professionals in place. The focus should be on value and not just cost savings and the quality professionals’ ‘know how’ to support the delivery of their organisations’ strategy.
There should be end-to-end transparency across the supply chain, simplifying and shortening supply chains and finding alternative supply options where risks are the highest. Transparency reduces fraud, corruption and helps to eliminate slavery in supply chains. Good procurement is committed to sustainability goals, addressing climate change and protecting the environment. Diversity is also key and supporting SME development is a great way to bring innovation and a wider range of expertise into the supply chain. Good procurement professionals thrive on finding solutions which reduce inefficiencies and costs so there is clearly a need for this expertise in the “post-Brexit” world.
DM: What advice would you give to organisations that are currently trying to navigate through Brexit and Covid-19?
MH: I can’t stress enough that understanding all the tiers in your supply chain – from end to end – is of vital importance. Keep up to date with the latest developments and keep in regular contact with your suppliers – they make or break a business. Treat suppliers responsibly, by paying on time and offering support if they are struggling.
Sole sourcing strategies have caught out many during the pandemic, so multiple sourcing, onshoring and offshoring are all considerations. If you had a very cost-effective supply chain in the old world, it might well not be so cost-effective in the new one, and that will impact your business and your customers.
Both Brexit and Covid-19 have created new barriers and disruptions to traditional supply chains. There will be options to optimise your supply chains, to mitigate any disruptions or costs. My advice for any organisation is to deploy your procurement expertise to ascertain what the best supply options are for your business.
Attribute to original publisher/ publishing organization: Malcolm Harrison, Group CEO of the Chartered Institute of Procurement & Supply (CIPS), https://www.quality.org/knowledge/managing-supply-chains-post-brexit