Preparing Supply Chains for Brexit

As if UK Modern Slavery Act (MSA) compliance and the Falsified Medicines Directive (FMD) were not enough, Brexit carries enough uncertainty to keep even the most intrepid supply chain executives up at night. With the terms of a final trade deal still unclear it is easy to become paralysed by the lack of clarity on what the future trading environment in Europe will look like. However, there will be precious little time to enact meaningful change once this clarity is provided. However, there is action that can be taken now to reduce risk and prepare organisations to be agile in the face of this uncertainty.

Review your supply routes

After Brexit, EU Marketing Authorizations will no longer be able to be held by UK-entities. Therefore, companies should be transferring these to other EU entities or seeking Authorized Representatives in Europe to manage these. Additionally, UK entities will no longer be able to act as the point of import into the European market without registering for an EU importer of record registration (EORI) and similarly, will not be able to operate many customs duty relief schemes in Europe without having an EU establishment. Therefore, companies will need to determine which is the most appropriate entity within their group or supply chain to act as the EU point of import if this role is currently fulfilled by a UK entity. This may lead to fundamental changes to supply chains and at the very least will require a review of the licences held such that appropriate Manufacturer’s / Importers Authorizations and Wholesale Dealers licences are in place

Review your supply risk

The movement of specific products are likely to be further impacted by Brexit where special agreements and measures are in place to control their movement or where the nature of the product requires reliable and time sensitive movement (e.g. cell and gene therapies). In particular, movement of radioisotopes will be threatened if the UK no longer participates in the Euratom agreement and controlled substances may be subject to more onerous customs processes. Companies working with special classes of products should identify how to respond to such circumstances.

Companies at highest risk of Brexit impact are smaller organizations that can’t afford contingency measures and those involved with innovative medicines who require certainty in border timelines. Pharma companies should review the Brexit preparedness of their customers and suppliers (both direct and indirect) and develop plans to either support or change high risk suppliers (ensuring the onboarding of new suppliers meet your organizations requirements in respect of MSA and other financial crime compliance). Additionally, companies should be reviewing their contract risk; identifying any contracts that should be renegotiated and any safeguards that can be put in place to protect against uncertainty in the final Brexit outcome.

Under any scenario, Brexit is going to be disruptive across the supply chain which will have knock-on effects downstream. A robust communication strategy will need to be implemented to keep customers, clinicians and their patients informed of changes and the impact these will have. This will help to reduce the impact on reputation when delays inevitably occur.

Update processes and systems for data capture

One thing that is clear based on the UK Government’s current commitment to leave the Single Market and the Customs Union, is that Brexit will establish a customs border between the UK and the EU which will mean new customs processes, tariffs and import taxes will be required. Though the detail of these is unclear, we can expect that new data will need to be captured, and communicated through different systems. In preparation for this, companies can be cleaning their current data and preparing their systems to collect new data fields (an export declaration contains over forty data elements which may need to be completed compared to up to eight fields of data that are needed to complete an invoice or an Intrastat declaration to effect and report the movement for VAT purposes). In parallel, companies should review options for data storage outside of the UK in case geographical restrictions emerge.

Relocate or appoint new staff into EU-based entities

Key supply chain roles mandated by EU regulation (e.g. Qualified Persons and Responsible Persons) require that the person fulfilling the role is resident in an EU member state. Where these roles are currently held by UK residents, companies should explore options for either relocating existing persons or appointing EU-residents into the roles. In addition, where substantial changes are planned for supply routes or the companies’ business structure, it may be prudent to assess shifting further roles from the UK to EU-based entities. Operations executives should be working closely with Human Capital departments to understand the options and manage subsequent changes.

Secure Authorized Economic Operator (AEO) status

In cases where speed of supply is a commercial imperative, companies should consider obtaining AEO Status for UK-based entities in order to expedite the movement of goods across the UK/EU border. The process to obtain this authorisation is complex and involves an audit of the applicant which includes identification of suitably qualified persons in customs and duty procedures. Given this, it would be prudent for companies seeking to operate under this authorisation to begin the process as soon as possible.

In summary, despite the uncertainty, there is plenty of work to be done to reduce risk in supply chains ahead of the UK’s exit from the European Union. The transition deal has bought some much needed time. However, time is of the essence, as complex and interrelated change programmes are required to provide Brexit agility which will need careful engagement of internal and external stakeholders to get across the line. This exercise can be undertaken as part of a wider supply chain analysis (for example as part of the MSA compliance) but it is important this process is started soon to mitigate the impact of Brexit and the changing supply chain landscape.

Johnathon Marshall and Chris Cartmell are Partners at PwC.

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