Procurement Problems and Possibilities: What the Greece Debt Crisis Means for the Supply Chain

World transportation

Greece’s trade partners are no doubt worrying what the country’s debt crisis will mean for them in the coming days, weeks and beyond. Imports and exports in and out of Greece will likely be impacted immediately this week (if not already) and those that do business with Greek companies may have to look elsewhere for supplies and for selling their goods.

The Spend Matters Network analyst team has offered their expert opinions on what this situation means for procurement:

What if Greece Exits the Euro?

As Peter Smith, chief research officer and managing director for Spend Matters UK/Europe and Public Spend Matters Europe, points out, so many questions remain. Some suppliers for the Greek government may have already been going without payment for months at this point. Yet he still wonders how these suppliers will be paid in the future, especially if Greece exits the Euro. Peter asks, “Will they then get paid in ‘New Drachmas?’” (Drachmas being the former Greek currency.) And, if this occurs, what conversion rate is used to determine payment?

Gert van der Heijden, editor for Spend Matters Netherlands, also said that what happens next and how much it impacts the procurement world is dependent on whether Greece leaves the Euro. If it does, there will no doubt be consequences for supplier contracts and payment. Like Peter, Gert wonders if past-due payments will be fulfilled in Euros or Drachmas. If he had to guess, though, Gert is leaning toward the Euro. Another side effect of Greece leaving the Euro: letters of credit and other guarantees of Greek banks may no longer be valid.

Will Suppliers Keep Doing Business with Greece?

Would you continue supplying goods to a government that’s broke? Due to the uncertainty that companies that work with Greece will be paid, some suppliers are likely to cease working with the country.

Over on Public Spend Matters Europe, Peter explored in more depth what the Greece crisis means for procurement and how public procurement can help the country at this point:

“...[I]f you are a small local supplier in some of the most indebted countries, you may not have much choice in terms of doing business with your local public sector. But for larger firms, there is a choice. They don’t have to do business in Greece (or Italy, or Portugal) and they may increasingly decide that the risk is too great, in some circumstances anyway...

… [public procurement] might not be the No. 1 priority or mechanism for recovery, but making public procurement as efficient, fair and effective as possible would be one indicator to the external world and to the Greek citizen that things are changing. If that can also help to support real innovation (not just politician’s pet projects), then so much the better. How about the Greek government (whatever government that may be) making that a key plank in whatever recovery strategy gets puts in place in the coming months?"

Some domestic food companies have already refused to make deliveries unless they receive payment up front.

Greek hospitals and the country’s state-run health insurer reportedly owe pharmaceutical companies more than $1.2 billion. These drug suppliers haven’t seen a payment from their Greek partners since December. Yet the 40 drug companies that are part of the European Federation of Pharmaceutical Industries and Associations said it would continue to supply the country with medicine.

What About Greek Exports?

No, Greece is not a huge exporter of goods, Gert said, but he did point out it is home to the largest Coca-Cola bottler (Coca-Cola Hellenic is located in Athens). As Bloomberg reported, Greece accounts for just 5% of the company’s sales volumes. Other countries like Russia, Italy and Nigeria make up 58% of that volume, which means it has to ship the product out of the country.

Consumers may be seeing less of Greece's other major export products like olive oil, olives and wine, as well. A lack of inventory and/or a severe price increase as supplies run short is possible as well.

Stay tuned to the Spend Matters Network as we continue to analyze the news on the Greek debt crisis throughout the week.

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