What Procurement Needs To Think About for Life after Brexit by Scenario

Jeremy Smith Managing Partner at 4C Associates spoke at eWorld recently, taking a look at some of the ways Procurement can help the organisation prepare for Brexit – in whichever form it comes. He looked at some of the challenges procurement can start to think about, their more global implications for the UK and some of the more localised effects on procurement.

We expected to see more people in the room for this – but it was maybe a third full. Perhaps because it was towards the end of the day, or because people think they’ve heard it all before, or are just plain fed up thinking about it – but the message was - don’t be - preparation is needed now. The point was reinforced by the lack of hands that went up when the audience was asked if they had, or knew of, plans in place in their organisations.

The session went down well - it laid out squarely what procurement must think about for each exit scenario. Jeremy believes that businesses need to understand the level of impact that Brexit will have on them, in order that they are ready for change, and, importantly, that Procurement is well placed to provide help, especiall as it influences spend and has visibility across contracts and commercial agreements.

He talked about the impact by scenario and by sector. He began with a rundown of the three scenarios of soft, hard and no deal Brexit – which we’ll skip as we all know what they are – and move on to the areas that will impact Procurement the most.

While none of us know what’s going to happen, we can get transparency in some areas:

Soft Brexit will mean restriction of freedom of movement, even if we stay in the single market, and there will be some currency fluctuations. Workers can be replaced from outside the EU, but numbers will reduce; construction in particular is an industry with concerns, and retail is worried about warehouses and slow down in terms of stocks.

Hard means tariffs will come in and higher costs for consumers, so we must think about non EU sources and inbound logistics, especially the soft food market like fruit, veg, bakery. If your industry is dependent on ingredients, you will be impacted. If you source a lot from the UK, like the Coop, you may well hedge your bets, but if you’re sourcing from the EU, you’ll need to think about agility in the supply chain.

No deal means the pound will fall, and borders will seize up due to changes in rules. But people still have to go to work and do their jobs. We will still need people to come here and work but immigration will slow; with a downturn in people wanting to come here, there will be competition over resources, putting up labour costs. EU grants will stop.

So procurement has a checklist if it is to help with – not solve – these scenarios. Procurement has knowledge and visibility it can tap into. So, he says, think about:

Workforce – within your supply chain where are the workers coming from? Lack of free access and residency rights means finding workers from abroad for unskilled and low-skilled manual jobs will become more difficult. Restriction on this source will drive an increase in the cost of labour, we need to think how much that will impact the organisation and where alternative supply might realistically come from.

Currency volatility will go on for 36 months regardless, so we need transparency on price fluctuations. What is your sensitivity to currency market vulnerability?

Tariffs – what is your supply chain footprint and how might new tariffs apply? The Fashion industry for example sources a lot from Thailand, Asia and Turkey, but it still has to come through the EU, which will mean tariffs. So it’s imperative to think about the route your goods will take before they reach the UK.

Contracts – all contracts do need to be reviewed, to understand the impact of regulation changes. But contracts are not the biggest worry if you are faced with admin and delays at every port. The clauses will remain similar to before, but there will always be suppliers who become contractually opportunistic.

Supply chain – think about whether you have mapped your supply chain as you will need to think about new sources of supply. Most firms haven’t really done this as it’s a high-resource activity. Take stationery – there’s the likes of Office Depot and Staples -- but where does it all come from? You can be certain it’s not all UK-based. Think about the whole supply chain – is it manufactured in the UK – maybe – but do the components come from Europe. It’s important to find the root. Amazon can get items straight to customer, so understanding flow is vital for raw materials to the manufacturer.

Lead times – what impact will the scenario have on your supplier lead times. The effect will be significant on perishable goods and medicines. Understanding how many of your deliveries need to cross borders, where stock is likely to be held and what costs are likely to be incurred is essential before Brexit happens. Thinking about whether they need to hold higher stock levels now (in the UK or other locations) will be of great importance.

Grants – will stop and that’s difficult to mitigate against, but think about what opportunities might be coming your way from UK government.

Regulation – is more of a drama, it will have an effect. It’s important to think about your contracts and check against changes.

Working through these scenarios and getting more transparency on your infrastructure, your supply chain, and contracts gives you an opportunity to be prepared – and maybe even secure favourable terms with new suppliers.

One thing is for sure, it's complex, and uncertain, but if you wait for the outcome, you may not be in a position to trade either effectively or cost efficiently.

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Voices (2)

  1. Nancy Clinton:

    Thanks Don – yes you are right – there are positives to be considered too. So thank you for your comment. This presentation particularly covered “some of the challenges procurement can start to think about.” We do also have a webinar coming soon which you might be interested in – it asks what are both the pros and cons for procurement. We’ll be writing about what comes up during that discussion too. This is the link – we’d love to have you join us.

  2. Don Johnson:

    Sounds like this was a largely negative assessment of what may happen post Brexit, with every element painted as problems rather than opportunities. For example, tariffs may be an issue but at the same time may reduce if goods are shipped directly to the UK from countries outside the EU and avoid the EU standard external tariffs. Grants from the EU will dry up but these are generally funded out of the money the UK pays to the EU anyway and many of these may be replicated domestically. Regulation changes are more likely to be positive than negative as most businesses do not trade with the EU but are subject to all their regulation which could be slimmed down. On workforce, access to cheap unskilled labour from the EU may stop or be restricted, but the race to the bottom on wages for unskilled and low skilled workers has not been great for the UK domestic workforce. And at the same time, there will be hopefully a level playing field for companies to access skilled workers from the rest of the world – India, China, Australia – rather than having to give preference to the EU.

    There are often two sides to things and it may well be that post Brexit there are a number of areas that become a lot harder, but an honest appraisal would also allow for the potential that in some areas things could become better.

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