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Brexit and What it means for Procurement Professionals

Updated: Sep 30, 2019

It is much too early to be definitive about what Brexit will mean for our Procurement Professionals. Some hard work is on the cards for most in the Procurement field! We can, however, make some early predictions and suggestions:

It is much too early to be definitive about what Brexit will mean for our Procurement Professionals. Some hard work is on the cards for most in the Procurement field! We would suggest a greater need and willingness to travel will also be a feature of the new paradigm which we are entering. We can, however, make some early predictions and suggestions:

The first point to note is that existing long-term supply arrangements from (?) July 2018 may be subject to different tariffs. What, in turn, might this mean? For buyers a close watching-brief on the progress of Brexit negotiations and a good grasp of the technical detail emerging will be required. Renegotiation of existing supply arrangements may need to follow and CPOs and Procurement Professionals should now be considering negotiation strategies and objectives.

EU Tariffs

Additional tariffs, or raised tariffs, might be offset against lower acquisition cost. This possibility will depend on relative bargaining strength of suppliers and buyers.

Negotiating position for buyers: help us to stay with you as a supplier, if you can reduce supply cost.

Porter’s 5 Forces will suggest in which industries and sectors the customer’s bargaining strength is strong versus weak.

It may well be that long term tariffs will settle at EU plus [n] per cent. Some have suggested one per cent. Politically, the UK cannot be seen to get the same trading terms “outside the club”. On the other hand, raising tariffs necessarily makes EU exports to UK (remember – the World’s fifth economy) more expensive and could damage suppliers. Logically, once the dust has settled, there should be good incentive on both sides to do a deal as quickly as possible. Britain’s fallback position will be tp trade under WTO rules.

Some research by CPOs will be required on this – if they are heavily dependent on EU imports.

Depending on the new/revised UK import regime, importing to the UK might become easier, in the sense of reduced administrative/bureaucracy requirements. The UK Govt will have to make some early decisions on import arrangements, especially in terms of documentation. This will for many firms place greater reliance on their export/import agents. (We may see a growth in this specialism!).

Non-EU suppliers that supply largely to UK, if they subsequently lose their UK business, may simultaneously lose certain economies of scale and so find it necessary to raise prices for their other EU customers (or lose that business). Keep Calm and Carry On!

Remember! There is rarely only one source of supply!

There is likely to be a short term hiatus but things are likely to move back to some sort of equilibrium within (?) perhaps months. Many pundits (early in the Brexit debate) posited a 1% + or 1% – long term direct impact on the broader UK economy. The political fallout is perhaps the more uncertain upshot of the Brexit decision.

Will UK businesses feel “over a barrel” in terms of negotiations? What should you be doing to ‘recalibrate’ your own bargaining position? – review Porter’s 5 Forces (you should be doing this routinely, anyway!) – shift focus from tactical to strategic. – lock-in support arrangements ahead of (or in concert with) supply contracts.

Energy

If the long term value of Sterling remains depressed then energy imports will become relatively more expensive. The fact that oil prices are low is helpful. Economic and political uncertainty is likely to keep oil prices depressed for the foreseeable future (over-capacity), which ironically will continue to help the global economy.

The UK is likely to require a more interventionist energy policy (some would say the UK needs an energy policy!) especially in terms of electricity generating capacity. Major energy users should be lobbying for a Policy that supports investment. Freed from EU rules it is possible that quicker energy capacity decisions can be made. It is presumed that Renewables will continue to feature in the UK’s energy mix at the current proportion, but base-load capacity remains a problem – which needs to be resolved.

Category Specialists

All category managers and other Procurement Professionals should be reviewing tax and import arrangements. As we observed earlier, the Porter’s Five Forces approach will help us to make sense of where our industry/sector offers most opportunities.

An early discussion with suppliers, especially EU-based suppliers, to allay concerns, would be helpful. Decide what messages you want to give and, as far as possible, assure suppliers of your continued interest (and where necessary, your continued commitment). Beware of crying over spilt-milk! Recognise the new paradigm – and encourage your suppliers to do so.

What was not adequately explored during the referendum debate were the opportunities within UK for product and supplier displacement. Could this new paradigm lead to a minor resurgence of the UK manufacturing base? Again Porter’s Five Forces is a useful technique to help us consider this in-depth, but the simple underlying question becomes – if tariffs are increased, does UK/domestic supply suddenly become relatively more attractive? That is a very basic question for buyers!

In terms of an over-arching appreciation of what the new supply paradigm may mean, an obvious place to start would be our trusty Kraljic Supplier Portfolio mindset.

As things become clearer we will start to understand more the opportunities and the challenges for us.

It looks like it will be an interesting journey on the road ahead…

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