Brexit heralds shake-up of supply chains for UK firms

Just under one in three British businesses that use European Union suppliers are looking for UK replacements as they move through the Brexit trade talks, a new survey says.

The Cips survey found European companies plan to reduce their use of UK suppliers as a result of Brexit. Picture: Claudia Gazzini/AP

UK businesses also view Britain’s “weak negotiating position” as the biggest obstacle in the talks, said the report from the influential Chartered Institute of Procurement & Supply (Cips).

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The survey says that 46 per cent of European businesses expect to reduce their use of UK suppliers as a result of the UK quitting the single market, while 36 per cent of UK businesses say they plan to respond by “beating down supplier prices”.

Cips chief executive Gerry Walsh said: “Diplomats either side of the table have barely decided on their negotiating principles and already supply chain managers are deep into their preparations for Brexit.

“Both European and British businesses will be ready to reroute their supply chains in 2019 if trade negotiations fail and are not wasting time to see what happens.

“Fluctuations in the exchange rate or the introductions of new tariffs can dramatically change where British companies do business. The separation of the UK from Europe is already well underway even before formal negotiations have begun.”

The survey of 2,111 supply chain managers found that 32 per cent of UK businesses working with suppliers on the Continent are actively looking for alternative suppliers based on this side of the Channel as an initial response to the referendum.

It added that, with exit negotiations in their early stages, “the most pressing supply chain challenge” for UK businesses has been identified as currency fluctuation.

Almost two-thirds (65 per cent) of UK businesses said they had seen their supply chains become more expensive as a result of the slump in the value of sterling since the referendum vote last June. Nearly a third (29 per cent) had renegotiated some supply contracts as a result, the Cips report said.

Walsh added: “We have already seen high-profile disputes between British retailers and their suppliers as a result of currency fluctuations. We now know that this pattern is being replicated across the UK and is likely to escalate.

“The re‑shoring of British supply chains in advance of Brexit could provide an excellent opportunity for small businesses looking to win new contracts, but it also comes with significant challenges.”