Germany’s Merck fully prepped for a ‘worst-case scenario’ Brexit

Merck Life Science says it has undergone Brexit preparations to limit supply chain issues if the UK leaves the European Union without a deal in place.

In 2016, a referendum in the UK resulted in a slight majority of an ill-informed electorate to vote to leave the European Union (EU). Three years on and with no agreement in place as it stands, the UK is set to leave the bloc and the single-market economy on October 31 without any arrangements or trade deals in place.

Such a situation is unprecedented and likely to change but has already led to the stockpiling of medicines by every member of the Association of British Pharmaceutical Industry (ABPI). Meanwhile, bioprocessing and life sciences services firms are battling uncertainty and putting contingency plans in place if the UK does crash out.

As it stands, the UK will leave the EU on October 31 without a deal. Image: iStock/Rawf8

Frithjof Holtz, an expert in advocacy and surveillance within Life Science and Regulatory Management at Merck Life Science, told Bioprocess Insider that his firm views the “UK as a beacon for the life sciences industry and a great deal of work has taken place over many years to develop and promote innovative technologies.”

Post-Brexit, he said industry needs to continue to build on the thriving science and research base in the UK, whatever the outcome.

“To this end, the government’s UK life sciences industrial strategy and the subsequent life sciences sector deal are critical to maintaining growth for the sector, by accelerating access to innovative medical technologies, investing in R&D and advanced manufacturing, and boosting support for UK SMEs.”

Brexit prep

Merck has been planning for Brexit since 2017. Holtz, who serves as head of Merck Life Science’s Brexit preparedness project, said the firm established a cross-sector task force to oversee developing a plan across all three of Merck’s businesses: Life Science, Healthcare and Performance Materials.

“We established a robust governance around risk management and partnered with a ‘Big 4’ consulting firm to monitor the political, regulatory and any other aspect which might affect our commercial commitments ensuring our preparation is best in class,” he told us.

This led to the identification of four major challenges across functions for each business sector: Trade & supply chain, regulatory, innovation and people.

“These challenges will also affect, to a varying degree, Merck operations in other countries in the EU as well the rest of the world, in their relationships with the UK. This entails that we are mitigating risks associated with any possible scenarios and extending our work beyond the UK as we recognize that these challenges require a regional/global approach.”

No-deal Brexit

But with a ‘no-deal’ situation increasingly likely, Holtz said a key concern among Merck’s life science customers relates to movement of products across a possible future UK/EU customs border.

“We have reviewed the key risks and developed plans to mitigate risks of delays and license issues because of a future border as a result of a ‘No-Deal Brexit’. Whilst this would be a worst-case scenario, we believe it is prudent in the context of our risk planning.”

Specifically, Holtz identified five categories of risk in the event of a ‘No-Deal Brexit’ on October 31, 2019, and told us the associated actions Merck has taken:

Supply chain & planning

“We will increase our internal lead times to factor in potential delays at Customs. Where products move across a border directly to end customers, we will also inform our customers if a lead time is increasing when the order is placed. As the risk of port disruption is unknown, there may still be delays that are unforeseen and there will always be unmitigated risk related to factors outside our control.

“We have already started increasing buffer inventory in our UK and EU27 warehouses to reduce the impact of any delays. For most stocked and forecastable products, we will increase our buffer inventory by approximately one month and, for some specific, higher risk products by up to four months. We ask that customers work with us if their normal ordering patterns are subject to change, in order to avoid unforeseen inventory restrictions.

“We are also working with our freight forwarders to ensure their planning reflects the detail and robustness that we expect and are reassured by their responses.

“In addition, we have already made some Supply Chain changes (for example, by splitting UK and EU supplies for certain products) where doing so reduces overall risk.

“In March 2018, unrelated to Brexit, we announced that we would be investing over €8 million [$10 million] into an expanded UK distribution center. This is currently under construction and will ensure that we are well placed for any challenges after the first Brexit phase, as well as being a best in class distribution center for our UK market.

Cross-border direct shipments

“There are many EU27 or UK situated customers who receive our products directly from a warehouse across a UK/EU border.

“These cross-border shipments will pose challenges in case of a ‘No-Deal Brexit’. We now have arrangements in place with our freight partners and any associated IT changes to ensure smooth shipments. Where appropriate, customers should factor in a possible increase in lead time due to Customs delays for these shipments.”

Customs & freight

“Our global business has a large Customs infrastructure with deep expertise.

“In the UK, we have a large network of freight forwarders and customs agents to cope with the increased administrative work for new cross-border movements. We have been working closely with these partners, helping them drive their Brexit preparations where needed, and ensuring our goods movements will suffer the minimum of delays.

“We are increasing our customs resourcing in the UK, both through our partners and with our own employees.”

Regulatory & license risks

“We are continuously evaluating our Supply Chain and the related obligation according REACH to be best prepared. Therefore, we already started in 2018 to prepare for a high number of additional EU REACH registrations as well as for the direct transfer of our existing UK REACH registrations and authorizations to the new UK chemicals regulation.

“There are also some products (e.g. animal by-products) for which the licensing regime is particularly complex. We have identified these products and have contingency plans in place to manage these across a possible future UK/EU border. There may be some products for which the license obligation may be placed on the customer and this will be communicated to the customer upon ordering.”

Manufacturing sites

“Our LS business has more than 20 manufacturing sites in EU27 and five in the UK. The manufacturing Supply Chain has been mapped and reviewed for risks. We have placed POs early on our suppliers to ensure forward visibility, have moved delivery dates in order to build buffer inventory, have increased delivery lead times for products that cross a UK/EU border, and have understood any additional licensing complexity for our raw materials.”

While Holtz would not disclose how much Merck has spent on its Brexit preparations, he did say “significant activities have been put in place to mitigate risk and numerous employees have dedicated an important portion of their work time to prepare for Brexit.”