Increasing costs

The University’s use of frameworks and purchasing practices, designed to ensure best value for money, mean we are in a good position to manage costs to the best of our abilities, but there will almost certainly be an impact from tariffs. Initial reports of the Government’s strategy under WTO rules is to pursue 'targeted tariff liberalisation', which involves using tariffs to protect some sectors where required while applying small or zero tariffs to keep consumer costs low in other sectors. Whichever approach is followed, it’s likely some goods bought from the EU will have tariffs applied where none exist at present.

Exchange rate fluctuations are highly likely but the impact is unpredictable. Fluctuating costs will be managed by suppliers and framework terms to an extent, but cost increases over time will happen if sterling remains weak, particularly compared to the euro. One-off purchases or those directly from foreign manufacturers will likely be hit more quickly by higher prices.

Products bought from our key framework suppliers are unlikely to see an immediate impact due to increased stock holding by those suppliers, typically providing a buffer of between one and six months.

Delays and stock outs

Bespoke or highly specialist purchases or those that come directly from EU-based manufacturers are most likely to suffer delays at the border. There are limited resolutions to this, and inevitably we will need to accept longer lead times in some cases.

Where tendering we can ensure suppliers provide a detailed shipping plan with realistic lead times and, where necessary, provide a strong weighting for this. The same could be sought with quotes, but for lower value purchases this may only be relevant for particularly time-sensitive purchases. And there is a side effect to increasing the weighting on lead time, in that we may end up buying something that costs more or provides lower quality. Overall, the severity of the issue will not be fully realised until such time as Brexit comes to pass.

Our main suppliers in the UK are increasing stock levels to mitigate the risk of delays or stock outs:

BOC

  • Most gases are produced domestically with the notable exception of He, which is mainly sourced from non-EU countries not subject to EU trade agreements. Requested clarification on whether they import raw materials, but if they don’t then most of their goods will be unaffected by delays or price increases due to Brexit.

Fisher

  • Have obtained a new warehouse and are holding six months’ worth of stock. This provides a considerable amount of protection from delays, and an initial protection from price increases
  • Working to reduce the potential impacts of regulatory controls
  • Developed a staffing plan to support customs clearance
  • Upgraded IT systems to ensure they can process an increased volume of orders
  • Engaging with their suppliers to ensure suitable Brexit plans are in place and kept under close review

RS Components

  • They say they are investing £30 million to increase stock on fast moving lines, but awaiting further clarification on this
  • Applied for Authorised Economic Operator status to reduce the risk of customs delays
  • Announced they may need to change product sourcing and supply routes to deal with additional Brexit-related tariff and duty costs, but not clear what actual plans they have in place or what cost impact would come from this

Sigma

  • Increasing buffer inventory by one month, and up to four months for higher risk lines. Requested info on the baseline from which inventories are being increased
  • Have planned arrangements with freight partners including IT changes to help reduce timescales for cross-border shipments, though presumably there will be some implementation time for this, and they have said customers should factor in longer lead times
  • Applied for Authorised Economic Operator status to reduce the risk of customs delays
  • Have prepared for additional regulatory requirements (e.g. REACH) for chemicals and other applicable goods, but acknowledge there could be yet further regulatory requirements that are harder to predict, that could for example delay the supply of Invitro Diagnostic Medical Devices
  • Stated that their costs may increase for distribution as well as other supply chain price rises, and they may need to renegotiate customer contracts to account for this

VWR

  • Created buffer stock of one month
  • Discussed backup options with logistics partners and identified alternative shipping routes with plans to switch routes with minimal notice if and when required

Regulatory procedures

Additional procedures required to get goods cleared through customs for direct purchases from the EU could cause further delays and costs, especially if not undertaken correctly.

In the 2018 calendar year, the University bought nearly £1.4 million of goods across 272 transactions directly from EU-based suppliers. The process for how these will be managed in the event of No Deal will need to be understood. A number of colleagues are investigating this.

Labour market

Some suppliers are recognising that there may be challenges recruiting staff but so far no clear solutions have been provided. This is a particularly pertinent question as this could still be an issue in the event of other forms of Brexit due to the impact on EU immigration that is already occurring. I will continue to seek information from suppliers on this.

Market demand

It’s likely that fewer EU students will apply in the event of No Deal, which would impact total student numbers across the UK unless this is offset by other factors such as an increase in students from non-EU countries. Further limitations may come from loss of funding, e.g. Horizon2020, which would reduce spending on research and post-grad positions.

These factors will affect HEIs across the UK and may further tighten profits for suppliers in Science and Engineering sectors. Overall, this means it’s more likely that price rises resulting from No Deal will simply be pushed onto consumers rather than be absorbed by the supply chain.

Summary

Our most common supplies, generally obtained from framework suppliers, should continue on a business as usual basis on day one of Brexit, as the preparation those suppliers have made should ensure that goods continue to be supplied at the same prices and with the same lead times that we are used to.

After a short time, typically one to six months depending on the supplier, the impact of new tariffs being applied will come into play and we will likely see cost increases regardless of contracted arrangements. Their increased inventories should continue to offset the impact of border delays.

For goods bought directly from EU suppliers, or for bespoke purchases or anything highly specialist or bought from smaller suppliers that have less capacity to increase stock levels, the impact of tariffs will come more quickly. This latter group are also more likely to suffer longer lead times while goods wait to get through customs.