Front End I Electronic Components Supply Network Legislation and the “B” Word

Most organisations in the UK electronic components industry have struggled to manage their operations through the COVID-19 Pandemic. It’s perhaps understandable that they have adopted a “wait and see” attitude towards the impact that changes occasioned by the concluding phase of Brexit will have on their business. But 1st January ’21 is looming and the outcome of the current UK / EU negotiations will inevitably result in change – be it small or dramatic – to their business. In this article Adam Fletcher, Chairman of the Electronic Components Supply Network (ecsn) provides his thoughts on some of the key problems that may occur

Inventory: A necessary evil One of the primary roles of manufacturer authorised distributors of electronic components - who serve the vast majority of customers in the UK - is to effectively manage their inventory profile on behalf of both the manufacturers they represent and the many customers they serve. Inventory is a necessary evil but it’s financially much better than the alternative, which is an inability to ship products and generate revenue, especially when customer relationships are put at risk. That said, getting the inventory holding and profile right in the face of the many competing priorities for the financial investment that it consumes is always a difficult balancing act. Excessive and/or poorly profiled inventory holding increases cost and depletes working capital for all organisations across the electronic components supply network. Getting it wrong is effectively a lost investment opportunity which results in the inability to invest elsewhere in the organisation. UK customers are currently finding it very difficult to forecast their monthly material demand for the electronic components needed within their assembly process. And unlike in the run up to previous ‘key’ Brexit dates there has been little opportunity for dialogue with their partners both up and down the electronic components supply network about their requirements to in advance of 1st January ‘21. Authorised distributors have had to contend with a number of Brexit false starts: Over the last year they have chosen to significantly increased their inventory in the run up to numerous ‘key’ Brexit dates to ensure they are able to meet their customers’ demand despite any possible interruptions or delays in shipment across national borders, only to find at the eleventh hour that the ‘key’ date has

10 October 2020

been postponed to an unknown point in the future. ecsn members have continued to ‘keep the faith’ and reported that they have again increased their inventory investment to ensure they are able to meet their best estimate of their UK customer demand. Although it seems highly unlikely that the transition date of will change they have also confirmed their intention to maintain the new stock levels well into Q1’21.

Authorised economic operators ecsn members and their customers are highly dependent on the fast, reliable import and export of goods and take all necessary steps to ensure they are compliant with current and looming legislation requirements. For many years most electronic components manufacturers and their authorised distributors have held ‘Authorised Economic Operator’ status with HM Customs and Revenue and therefore as things stand today, with EU wide tax authorities. They’re very adapt in quickly modifying their IT/ERP systems, documentation and record keeping to meet any the changing requirements of the international tax authorities. There are currently no tariffs (import duties) imposed on 99.9% of the electronic components that come into the UK, which makes the import process a little simpler. Most of the effort is focused around the task of accounting for the various forms of VAT that exist across the Europe. I cannot envisage that import duties will change within the EU once Brexit is concluded but the UK and EU may get caught up in the crossfire created by the US / China Trade war. Both countries are using tariffs as a trade weapons and this could necessitate significant changes to the IT/ERP systems for ecsn members and increases in electronic component pricing.

I suspect there may well be some disruption and delays to the shipments of all

Components in Electronics

goods across UK / EU borders in Q1’21 and these may impact the electronic components supply network if only because of the additional logistical problems occasioned by delays and backlogs in inspecting goods through other channels. However, the increase in inventory that ecsn authorised distributor members have put in place is equal to approximately 10 to 12 weeks average customer demand, so in the short- term shipment delays are unlikely to cause any serious disruption.

UK Government guidance The UK’s Department for Business, Energy and Industrial Strategy (BEIS) has published guidance to help domestic organisations placing goods on the EU market after the transition. Changes to conformity assessment are proposed, with different rules suggested for the UK and Northern Ireland placing-manufactured-goods-on-the-market- in-great-britain-from-1-january-2021 BEIS however, stresses that this information is tentative and subject to change in the outcome of the Brexit negotiation process. UK based manufacturers of goods and authorised distributors placing goods on the UK market will potentially need to comply with new UKCA marking and conformity assessment requirements, especially if there is a future divergence between UKCA marking and evolving EU CE marking specifications. This would be a major change, which hopefully will not happen. The uncertainty surrounding the final Brexit outcome is why many organisations have reviewed the BEIS guidance, considered its impact on their organisation and how they may need to adapt their operations. This is potentially a complex problem, and few have so far implemented any changes, hence the “wait and see” approach. But 1st January ’21 is looming, and changes may

need to be acted upon quickly once the outcome is known.

Concluding thoughts

There will no doubt be a flurry of activity in the final quarter of 2020 as all organisations scramble to ensure their compliance with the definitive Brexit agreement terms. Your organisations competitive edge will be best maintained in the face of this upheaval by engaging and collaborating both up and down your organisations supply network. It costs little and will go a long way to ensuring we all keep the show on the road.

For information

Adam Fletcher is Chairman of the Electronic Components Supply Network (ecsn), a business association established in 1970 that today offers support to all organisations with an interest in electronic components throughout their entire lifecycle. He is also Chairman of the International Distribution of Electronics Association (IDEA), an association of individual country electronic components associations whose objective is to share best industry practice.

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