The EU-UK Trade and Cooperation Agreement, now in place, means change. It will require adapting to new trading arrangements, rules and regulations. This information will introduce important information if you need to change supplier.
The EU Exit process has reshaped the way many firms across Ireland are looking at their supply chains, with all firms who trade with GB now requiring to complete customs declarations on imports. With many firms not having the capacity or skills to undertake this additional administration, this blog takes a look at the key considerations for those who are considering changing suppliers and importing in a more cost and time efficient manner.
The first step when considering the impact of the end of the transition period on your supply chain is to map it out.
It is essential that businesses identify:
· Where am I getting my goods from?
· What is the ‘Origin’ of the goods?
· What route do the goods take during transportation to my premises?
· Am I using the goods to manufacture something else, or will I simply be selling them on?
Once your business supply chain has been accurately mapped out and these questions have been answered, then it will be much easier to identify international trade routes which will incur greater levels of administration and/or costs than others. Having this knowledge first-hand will be of benefit for both your business and for your overseas customers.
Once your supply chain has been mapped, it is important to use this information to consider if there is an alternative transport route which may be availed of in order to minimise the level additional administration and costs.
For businesses operating across the island of Ireland, there will be no customs requirements on any goods which travel cross border. There will also be no customs requirements on goods travelling directly between Northern Ireland, Ireland and the rest of the EU.
This may impact on your business planning considerations given that that customs declarations (and in some instances additional tariffs) on goods being imported from GB. Goods moving from Ireland to the EU via GB now require transit declarations.
If it is has been determined that Brexit has had an adverse administrative or financial impact on a particular trade flow, it may be worth engaging with your suppliers to determine if a collaborative approach could be undertaken in order to overcome any new obstacles to frictionless trade so that the commercial relationship may continue. Any agreements made in terms of setting out the roles and responsibilities of each party can be formalised through the use of Incoterms. Incoterms set down by the International Chamber of Commerce (ICC) are the terms and conditions of trade between a buyer and seller, and set out the key responsibilities around areas such as delivery of goods and customs clearance. By choosing a different Incoterm a business may be able to significantly reduce the level of administration that they will face.
If a business were to agree a Delivered Duty Paid or DDP incoterm with suppliers, then they would be able to pass all responsibility for customs declarations back onto their suppliers allowing them to continue to use existing suppliers with a minimal increase in administration. Even if a business is unable to agree a DDP incoterm it is important that they utilise Incoterms to their full effect and ensure that suppliers provide them with all required information to help make the process of customs declarations less time consuming. Delivered at Place (DAP) also requires the seller to help support the buyer by providing information required to help ensure Import customs clearance. Click here for more information on Incoterms.
Strategic sourcing is a process that creates efficiencies across the purchasing function within a business by minimsing risks when selecting suppliers and also by increasing transparency in terms of pricing and forecasting. These efficiencies involve the increased collection and analysis of data, increased use of business networks to access suppliers, automating processes and embedding processes of continual review and process optimisation.
The impact on your business operations will be dependent on whether or not a new supplier is being sought for a single material or component part or if an entirely restructured supply chain is being devised. However, before committing to changing suppliers on any level, it is important to undertake a cost-benefit analysis of all the benefits and drawbacks of changing supplier. This includes looking at the level of administration involved, costs and the time it will take to receive goods from suppliers. For instance, whilst there may be no customs requirements bringing goods direct from Mainland Europe to Northern Ireland/Ireland it may take significantly longer than importing goods from GB. This is particularly important if your business operates a ‘Just-in-Time’ model, or is involved in an industry (such as food) where product life spans are shorter and therefore maintaining quality and freshness is paramount.
Trade routes are an important aspect in determining the most appropriate supplier of a product or component part. However, there are other factors that should have a significant influence on this decision, including:
· Ensuring that the product being imported meets your needs and complies with all of the necessary standards frameworks.
· Ethical and environmental record of manufacturer/supplier.
· Capacity of suppliers to meet your bespoke needs, specifications and timeframes for delivery.
It is likely that it will take some time to identify and develop relationships with new suppliers. It is therefore important that appropriate arrangements are implemented in the Interim to ensure that the supply of essential materials continues. This could mean:
· Developing an awareness of customs processes so that declarations may be completed and compliance can be continued in the short run until a supply chain solution that requires less administration can be found; and/or
· Increasing the levels of stock held from current suppliers to ensure that production can continue as the new supplier relationships are developed.
If a decision has been made to change suppliers, it is of vital importance that a trading contract is drawn up. This should include a set out of the expectations of each party from the offset. A well thought through initial contract could lay the foundation for a long term commercial relationship to be developed, and will also set out the responsibilities for transporting products as well as clearly defining liability for any unforeseen issues that may occur during the production, transport or delivery of the goods.
Lastly, it is important to ensure that there are contingency plans in place in the event of supply chain disruption, or in the instance whereby the initial terms of the commercial contact have not been met or honoured. This will help to ensure that your supply chain is both flexible and resilient which can in turn a source of competitive advantage for your firm.
When changing supplier, it is important that businesses do not sacrifice quality. Prior to agreement with any new supplier, it is imperative that a business ensures that the alternative supplier’s products are of sufficient quality to replace those provided by your previous supplier. In addition, it is also important to ensure that all industry specific regulations continue to be complied with.