How manufacturers can prepare for Brexit even with no political agreement

Mark Overfield

As part of TheBusinessDesk.com’s ‘What Yorkshire Is Made Of’ roundtable coverage this week, sponsored by Grant Thornton and Progeny Corporate Law, Adam Jackson, Brexit lead for Grant Thornton, and Mark Overfield, Partner and Manufacturing leader for Grant Thornton in Yorkshire, consider how manufacturers can prepare themselves to face the Brexit outcome – whatever it may be.

The range of possible outcomes for Brexit are actually increasing the closer we get to 29 March. But, with a further vote pencilled in next week and with the Prime Minister giving no details away on what a new deal could look like, as well as refusing to rule out a no deal ‘crash-out’, we’re currently headed for just that.

Adam Jackson

After developing Brexit plans for many businesses, our overwhelming message is not to wait for politicians to reach an agreement. We’ve heard the warnings that Brexit could be the economic equivalent of 2008 but unlike 2008, you have the opportunity to prepare.

Listening to those around the table, we’re optimistic that with the right level of preparedness, Yorkshire manufacturers are resilient and innovative enough to weather the uncertainties that lay ahead.

Most mid-sized businesses (MSBs) in the UK have already begun their preparations, with many factoring in a ‘no deal’ scenario.  Grant Thornton’s International Business Report recently found that only around a fifth (22%) have done no planning, being either unsure of whether they need one or believing they don’t. However, these businesses are at various stages in their Brexit planning.

  1. Unconcerned – No plan needed (9%)

Organisations in this group tend to have minimal interaction with the EU and few, if any, European workers, so they feel well insulated. But we have yet to meet a UK manufacturer without some supply chain, employees or customers who will be affected.  Every businesses should think about the potential economic impacts of Brexit, along with engaging their supply chain to assess any vulnerabilities.

Whilst each of the manufacturers in the room faced different challenges, it was heartening to hear that none of them underestimated the potential impacts of Brexit on their businesses.

  1. Unprepared – No planning yet (10%)

Uncertainty can make it difficult to begin or prioritise but the key is to start planning as soon as possible.

First, you need to identify the risks and opportunities to measure your exposure. We work with clients to map ‘Brexit hotspots’.  Often this identifies fewer risks than they expected or different risks to those facing their competitors. We always find opportunities too.

Whilst many manufacturers have identified risks around logistics disruption and tariff costs, we’re increasingly spending more time assessing whether current product standards and conformity testing will be recognised in the EU after no deal, as well as the cost impact of customs administration, which is often greater than just the tariffs.

  1. Aware – Undertaken a risk assessment (25%)

For many the first step is assessing the possible risks and opportunities created by different scenarios, providing clarity on where they will, and won’t, be impacted. We suggest these should include: No deal; a free-trade-agreement post transition and a ‘Norway Plus’ outcome where the UK remains in the Single Market and Customs Union.

Scenario planning has helped people to work through the uncertainty and identify top priorities and ‘no regret’ actions, which will stand them in good stead in all scenarios. No deal plans will all have elements that can be applied with a deal. This is increasingly important as investors and customers expect you to be able to report on your Brexit impact and action plan. It is therefore important to factor Brexit into financial reporting.

  1. Preparing – Built detailed contingency plans (36%)

Contingency plans need to develop over time and be reviewed to reflect the latest developments. As we get nearer to 29 March, detail should be increased, with thorough checks to ensure everything is covered. Often people develop a Brexit plan that applies to their organisation but don’t anticipate what their customers may be doing, such as panic buying or reducing spend. In some cases, we have seen specific plans for stockpiling, but these do not join up with the plans of their hauliers, suppliers and customers. So, consider how your plan fits with others in your ecosystem; stress test your plan; and develop the details. Seek specific expertise if required.

  1. Implementing– Executing contingency plans (17%)

Those firms with the lowest risk-appetite tend to be in the most heavily regulated sectors, such as financial services and pharmaceuticals. Many of the larger players made decisions to ensure business continuity soon after the triggering of Article 50. In recent months we’ve seen smaller companies, especially in manufacturing and distribution, execute contingency plans, including re-routing supply chains, establishing operations in the EU and stockpiling.  These plans should often be seen in a similar light to foreign currency hedging, in that they can provide a period of certainty in an uncertain future, rather than a gain or loss.  The threat of incurring extra cost that ultimately proves unnecessary might therefore be very palatable versus the risk of not being able to supply or operate.

 

Once you start executing plans, you need to assess the follow-on consequences. This may include tax implications if plans include relocating activities to other countries. It also means tightening project management to ensure you track interdependences between different workstreams, and that you have agile governance that enables quick decisions if you encounter internal obstacles or new external factors. So, it’s time to step up project management and regular progress meetings, to track interdependences and critical milestone, and ensure tax implications of decisions have been considered.

Read more from Grant Thornton on Brexit planning and preparedness here.

Five steps on Brexit planning

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