Whilst it is unclear what the exact nature and repercussions of Brexit will be, it’s inevitable that OEMs and their suppliers throughout industry are taking urgent steps to mitigate risks. Disruption is, sadly, a given. So what can we do about it
Anticipate the extra material demands – and act!
We are noticing an increase in customer demand to mitigate the risk of supply shortage, which further absorbs more materials, and we understand this is true of wider industry. EMS companies are carrying more stock than they traditionally would which is creating unnaturally high demand for materials. We’re seeing that customers who have already reviewed their requirements with regards to Brexit have modified their forecasts and taken increased call-off offers to build their buffer stocks. When all the customers ask for more stock the net effect is that EMS companies get very busy!
However, we are telling customers there is still time to create some contingency. While this will not be in the form of Finished Goods Stock, we can still protect the supply of materials to get parts landed into the UK. We are doing whatever we can for customers who share this information, but it may be very difficult to find materials for project without upfront visibility.
Look ahead through the supply chain
Any products that are sourced from central Europe will suffer transportation problems, but who’s to say what the knock-on effects will be if ports are locked up? What if distribution centres come to a standstill because of the European content? When this happens, it won’t matter whether it’s been sourced through the US, Asia or Europe, so we remain cautious. We’re looking at scheduled deliveries of materials and making sure we’ve got the right sort of commitment from the supply chain. It’s about being intelligent and doing the appropriate thing. If a customer placed a significant order or an underwriting agreement, we could go out and secure all that stock and have it provisioned. However, this is dependent on the types of materials, value, volume and lead times. It may also be necessary to have an SLA (Service Level Agreement) and Brexit contingency plan with the supplier. The key is to proactively stay ahead of supply chain issues; a good EMS partner should be doing that.
Ensure your supply chain has landed UK stock
Bringing it into the UK is one of the easiest things they can do, providing they have space. Most of the big distributors and manufacturers are happy to do that. We say to them that we anticipate using X amount of material and they’ll build this into their planning and UK stock-holding. Typically, they will not demand a full commercial obligation. Affordability also comes into play here – some firms may not have the budgets to put large amounts of stock on their books. Ensuring the raw materials are available or that larger suppliers can carry the risk on their behalf will be crucial in this scenario.
Consider expediting new development projects and consolidate stock
It is more prudent to accelerate timescales rather than defer decisions; building robust solutions and supply chains is best done now. Delaying new projects sacrifices precious time in advance of an unknown situation. Bulking together new and existing projects also offers scalable costs benefits.
Look into Customs Clarifications
We are already considering what this change could do for the price of parts and components. Identifying customs clarifications, checking the World Trade Organisation (WTO) tariffs and potential EU import tariffs can give an idea of what is to come. In a no-deal Brexit, in time the UK will be able to move away from EU regulations, creating the potential to reduce and change them. With this in mind, we are looking at pricing arrangements to see if prices are fixed or if they can be reviewed. UK-based suppliers may be more competitive due to a weak pound and we can enter into trade agreements with new international markets.
Above all, the general precaution is to have some kind of contingency plan, engage with the supply chain, and start talking about taking some sensible decisions. If you have an absolutely critical process, you need to build in contingency, safety stocks and have a plan. A lot of our customers started doing that at the tail-end of last year but we’ve also heard of companies who only began doing this in February this year!
