With the UK formally leaving the European Union (EU) over the course of the next year, there’s been a lot of uncertainty around the future of trade and cross-border relationships. And, in the manufacturing sector specifically, the UK has remained heavily reliant on its relationship with the EU for exports.
But, as of last week, that relationship appears to be changing faster than British manufacturers anticipated. According to Sky News, European governments are advising businesses not to use British parts in goods for export ahead of Brexit. In its release, the Dutch government told its exporters that “if a large part of your product consists of parts from the UK,” domestic exporters may lose free trade access under existing deals. And, additionally, the release stated that “Brexit will have consequences for exports outside the EU. After Brexit, parts made in the UK no longer count towards this minimum production in the European Union.”
This news has come as a major hit to staunch Brexiteers, who were already prepping for supply chain uncertainties in the wake of shifting trade agreements. The release’s reference to what are known as “rules of origin” and “local content” fall under international trade rules, where a certain proportion (typically around 55% of a product’s parts) need to come from the EU to qualify for EU free trade deals. And now, when it comes to UK parts, the Dutch government is saying, “doesn’t count.” This Brexit impact scan is a warning that has been underpinned by the EU’s own technical notice on this issue, stating that “As of withdrawal date, the UK becomes a third country,” and, in this case, that makes them non-EU originating.
An industry that’s particularly impacted by this shift is automotive manufacturing. Each car can contain around 30,000 individual parts. And, with Brexit complicating the cross-border supply chain, a leading automotive exec told Sky News that not using UK parts for EU exports would be catastrophic for the British industry. It’s even being reported that major UK automotive suppliers are now ceasing UK supply of major components to cars for export to countries currently covered by EU Free Trade Areas, like South Korea, South Africa and Canada.
But Brexit supporters have been saying, “we got this,” as a survey conducted late last year by the Chartered Institute of Procurement and Supply found that 63% of EU27 supply chain managers who work with UK suppliers said they expect to move some of their supply chain out of Britain. And while this splitting of existing supply chains on both sides is likely to raise costs and reduce efficiency, British manufacturers can brace for these impacts by optimizing their end-to-end supply chain, especially their service parts supply chain, which can help them dramatically increase both margins and revenue.
Ultimately, automotive manufacturers need to combat this change by looking at other ways to increase margins and revenue. Most execs are aware that pricing is a powerful revenue and profit lever, but they often overlook the opportunities associated with pairing optimized pricing and inventory management. Dynamic pricing offers a data-driven approach, using customer value-based algorithms, IoT data and competitor monitoring services, while agile inventory optimization keeps service parts management synchronized at a global level. Combining those two optimization strategies with the power of maximized product uptime, the preventative maintenance of equipment before failure, will be what keeps companies competitive – regardless of the Brexit circumstances. Ultimately, nimble, data-driven service supply chains will give British manufacturers the ability to react more quickly to changes outside of their control.
So, despite the current relationship status between the UK and EU, manufacturers shouldn’t hang up their toolbelts, just yet. Instead, they should pay attention to market shifts and realize the profits that can be gained by embracing and maximizing the potential in the after-sales service space. Now’s the time for British manufacturers to beat the status quo and respond to theses challenges of Brexit by investing in smart ways to increase efficiency and benefits across all borders.