Has Covid masked the impact of brexit on supply chains?

By QBE Director of Underwriting David Jones

As the end of the UK's transition from the EU coincided with a national lockdown and drawn out government restrictions, has Covid masked the impact of brexit on supply chains?

Many businesses saw economic activity slow, or in some cases grind to a halt, during lockdowns over the course of 2020/21. In the midst of this, the transition period of the UK leaving the European union came to an end on 31 December 2020 and the UK left the EU single market and customs union.

There had long been talk about the impact on supply chains the end of the transition period would have and while we have certainly seen plenty of shortages reported this past month, I wonder is this just the tip of the iceberg.

Many businesses stockpiled ahead of the December 31 deadline, aiming to have enough product to draw down on to see them through the first quarter of this year. Life stalled again because of Covid so these stockpiles have lasted a lot longer than originally anticipated. For many businesses, they are only now having to deal with post-EU logistics.

UK SMEs have had to battle on many fronts this year and for the first half, their biggest challenge was Covid. Ironing out post-brexit supply chain kinks was not the priority it might have been. As the economy opens back up the reality of operating outside of the customs union is starting to bite.  

Recent QBE research has shown that companies can expect to encounter a significant supply chain shock once every four years on average, with the average business typically losing more than half a year’s net profit during significant shocks. Already reeling from Covid, many SMEs can't afford another setback, just at the point when they are emerging from the first.

Recruitment difficulties are also playing havoc with SMEs. The ‘pingdemic’ aside, many of our customers are struggling with a much smaller bank of talent. A great number of EU nationals have left the UK in the years following the brexit referendum and businesses are struggling to fill many of the jobs they would have done.

Six ways to strengthen your supply chain and avoid disruption

From an insurance perspective, understanding your downstream and upstream supply chain vulnerabilities is vital but where do you start?

1. Understand your critical suppliers and the critical items or services they supply – what do you need, how much, by when and from whom?
2. Focus attention on the supplies and services that drive your productivity and profitability, or those that help you service your priority customers – be ready to accept reduced or no deliveries of less critical supplies or services.
3. Ensure you have triggers in place from your Procurement team if a supplier tells you they are no longer operating or deliveries will be delayed or will arrive with a shortfall – also make sure your Goods-In team raise a red flag when deliveries don’t arrive or arrive with a shortfall.
4. If you expect or experience delays or shortfalls, take action straightaway to research and arrange alternative sources for key supplies or services if possible.
5. If staffing is an issue, do not compromise safety or your operation by assigning tasks to non- qualified / untrained personnel. consider how you can move multi-skilled staff between tasks to maintain critical maintenance and safety activities. If maintenance and safety staff numbers can’t be kept to minimal required levels, re-schedule production and service levels to match availability. Don’t skimp on quality control, safety, maintenance, and cleaning as this is likely to lead to undesirable outcomes.
6. Your suppliers may also be suffering from the same challenges you are. Maintain an open dialogue with your key suppliers to ensure you know where their pressure points are.

For more information, read Building supply chain resilience and Getting to grips with the financial strength of your supply chain.