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How Offsite Construction can Mitigate the Effects of Brexit
In this article, Richard Tonkinson, Executive Director of Offsite Solutions, the UK’s leading bathroom pod manufacturer, looks at how taking an offsite approach to the construction of bathrooms can mitigate the impact of Brexit.
The Importance of a Thorough Supply Chain Review
Long-term relationships with suppliers are even more important in these times of uncertainty.
We strongly recommend contractors and subcontractors undertake an extensive supply chain review if they haven’t already, to ascertain the security of supply of components and materials, and the certainty of prices. Assess distributors’ stockholdings in the UK and where key products originate from.
We have now undertaken three extensive reviews with our supply chain and have a clear understanding of the volume of products from Europe that are ringfenced in the UK for our clients’ orders. This will mitigate any potential impact of Brexit and in particular any disruption at the ports in the event of no deal.
We have also assessed every customer project that will fall over the Brexit transition period and looked at what products are required for each order. This includes pods that are in manufacture over the Brexit period, and orders received before the year end where we will be manufacturing from January 2021 onwards.
We work to a fixed price contract for the duration of each project and place orders with our suppliers for the products required for those pods as early as possible. This fixes the prices of components and materials and gives our suppliers clear visibility of what we will require and when.
The Cost Benefits of Early Engagement
Early engagement with a pod manufacture at the initial design stages of a project is critical to optimising the benefits of offsite construction. This also gives us a unique ability to forward plan which allows prices to be agreed with our supply chain. We can give our suppliers greater visibility of the order pipeline and the precise volume of products and materials we will need.
In return, we have stability of supply, and our clients benefit from fixed pricing, mitigating the concern of any potential tariffs or currency fluctuations. This certainty is one of the key advantages of the offsite manufacture of bathrooms – in addition to the speed and quality benefits.
What is the impact of Brexit on the pod sector?
There is genuine concern that there could be severe disruption at the ports early in 2021 if the UK leaves the EU without a trade deal. Contractors need pods to be delivered to tight construction schedules – and there is clearly much greater certainty of delivery on programme if the pods are manufactured here in the UK.
In the event of no deal at the end of this year, tariffs would apply to products imported from Europe from 1st January 2021. We have very limited direct supply of pod components from Europe and we have already fixed many prices contractually so are much less exposed to this risk.
However, from January 2021, tariffs could well be imposed on completed pods manufactured outside the UK. Material costs only represent around 50 per cent of the cost of a pod. The other 50 per cent is the cost of labour and the manufacturer’s overhead and profit margin. The imposition of tariffs on the full cost of pods from outside the UK would make these pods significantly more expensive. This situation will clearly favour pods from UK manufacturers.
An important point to note is that if our clients place orders before 31st December 2020, prices are then fixed for the duration of that project. That avoids any potential tariffs, currency fluctuations and gives much greater certainty of supply to developers and contractors.