Comments on Brexit From Wax Digital and 4C Associates

We've started getting some comments in from our friends in the procurement industry. No doubt more will follow, but here are the first couple. Firstly, Daniel Ball from Wax Digital.

“The leave outcome will be concerning many heads of procurement right now, especially those whose supply chains have for years taken advantage of beneficial EU trading agreements. There now starts a long period of uncertainty while decisions are made about the UK’s future relationship with Europe, whether it will engage in free trade agreements and so on. Those supplier relationships are likely to be impacted but how exactly is unknown, and as the Government embarks on what is expected to be a protracted period of negotiation we may have to wait a while before individual organisations can make decisions on their future supply management strategy.

Whilst we wait to see what happens Procurement professionals can in the meantime start preparing the ground for the potential impacts, should decisions need to be made. Procurement in multi-nationals headquartered in the UK may need to consider the potential implications of using local subsidiaries on the continent to easily access suppliers in price favourable EU member states. These relationships could be impacted should the UK fail to agree a free trading agreement with EU states.

Procurement professionals should also see Brexit as an opportunity for a wider review, getting to grips with supplier information and relationships, so that they have clear visibility of which suppliers could be affected, and the scale of the potential financial exposure, should import duties or other trading levies be imposed. As a safeguard, now is also the time to start looking at supply partners to identify at what threshold any cost increase would trigger contract re-negotiations or the need to cast the net wider in search of fresh supplier options.”

 CHECKLIST

Five things procurement should be doing following the leave vote.

  1. Reviewing its EU supplier base to gain an understanding of which of its supplier relationships could be affected.
  2. Working with the business to advise on the potential commercial implications across affected suppliers
  3. Considering the potential for EU based suppliers using the referendum outcome as a bargaining position or negotiation opportunity.
  4. Starting to explore other supply options, such as local supply or rest of world, and identifying key strategic supply partners that could be affected.
  5. Agree spend increase thresholds to trigger supplier renegotiations or new contract sourcing events.

 

And here is Milan Panchmatia from 4C Associates.

"Today’s announcement that Britain will be leaving the EU is a shock and at the very least, surprise to many. It will have huge implications for the country, its people and its business community.

Leave campaigners claimed that import costs will be significantly reduced (by as much as 8%) as we move to being a zero tariff regime. Possible. However, import costs are equally likely to rise or stay the same.  Much of our imports come from the EU and these are unlikely to change.  It’s unlikely that the UK will immediately move away from the international agreements that the EU has.  It’s also likely that the administration of imports (everything from VAT to duty deferment) will become much more complex.

What is certain to add more costs to business following this decision today, will be the associated decrease in migration and the increase in administration and regulation associated with business travel. There will be a clear increase in costs for products and services that depends on low skilled migrant labour (everything from contract cleaning to logistics and construction).

This is also a decision that goes against the views of a large percentage of the procurement industry. Our recent monthly poll of 500 global procurement professionals, found that three quarters (79.5%) said they'd rather stay part of the European Union, 78.6% said they thought the procurement industry would be a harder sector to work in, 98% felt that leaving the EU would have a negative impact on procurement career opportunities in the UK.

What was clear both from our poll and from conversations we have been having on a daily basis with clients and other procurement professionals is that leaving the EU presents new and very unknown changes to business matters and it is likely that procurement functions within business will certainly see differences. Brexit will be the beginning of a long and unclear process and certainly not the end. It provides the possibility for the UK to run its own economy more closely in line with its own national interest. But it does not guarantee success".

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