Posted by: Richard Walters Tuesday 6 December 2016 14.34

Part 2 of a 6 part Food and Drink Brexit series

It is too early to predict with any certainty how Brexit may impact businesses, particularly without clarity on exit terms. However, businesses can consider the emerging scenarios that may arise as result of UK-EU negotiations. The extent to which firms are affected by, and can react to these scenarios, depends on a number of factors including geographic scale, levels of existing investment in the UK, and industry sector. Until then, the UK will continue to have full access to the single market without any tariffs or regulatory restrictions.

This six part Brexit series examines some of the key focus areas that businesses should consider when looking at their supply chains and longer term growth strategies.

Part 2: Sourcing and supplier base

Increased cost prices has been one of the major discussion points since the vote. In most industrial sectors, the UK is a net importer of components, parts and services and a weaker Sterling has caused the cost of goods to increase for the majority of companies. Firms who buy more internationally will be exposed to this on a greater scale, but the global nature of most supply chains will mean this pressure is likely to be felt across the board. The ability to pass on cost increases to UK supermarkets is a moot point, although there is an expectation that some costs can be absorbed and also that inflation will rise. Soft commodity prices have also adjusted as most are priced in US dollars, so the long term balance between the pound, dollars and the euro is important. As the UK negotiates its way out of the EU, the effect on UK agriculture could be very significant which will present both opportunities but also many shorter term challenges.

What should businesses consider and what can firms do now?

• Protect your business against a weaker pound by moving sourcing back to the UK. Where are the real near-shoring opportunities? In reality, most supply chains are now global, meaning sourcing from a tier 1 supplier locally may not offer enough protection from a weaker pound as their input components are also globally sourced
• Explore opportunities to introduce or increase levels of dual supply to mitigate future risks. Several factors need to be considered in any dual supply decision, including cost price impacts and the implications on stock and working capital resulting from minimum order sizes.
• Mitigate your currency risks and protect trading profits by planning future currency income (‘hedging’) and expenses? Hedging alone will not solve all sourcing issues, however, and as currencies stabilise this window of opportunity will close.

Contact

To discuss how we can help your food and drink business, contact Richard Walters, Principal Consultant on 01442 872298 or by .

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Food and Drink Businesses Blog Series: The impact of Brexit of your supply chain

Part 1: The customer proposition

Part 3: Production and distribution networks

Part 4: Talent and skills

Part 5: Impact on profitability

Part 6: Capital investments