Brexit – Risk and Opportunity for Procurement and Organisations
Procurement is, when it comes down to it, all about risk and opportunity. As a function and as practitioners, we manage the interface between the world of external providers and our internal organisations.
We aim do that in a manner that identifies and exploits opportunities (to create value and competitive advantage) and to best manage the inevitable risks that are associated with supply.
So as we now look at the UK’s forthcoming exit from the European Union, assuming those pesky Scots don’t stop the whole thing, we need to start thinking about those opportunities and risks. We’ll have more detail on these topics to come, but here is an initial check list to consider.
Note that we have focused here in the main on some of the more immediate areas of interest. In the longer term, other areas may come to prominence – such as changes in regulations (everything from climate change to equalities), or labour shortages in supply markets such as social care or logistics if immigration is restrained. But we’re talking years in cases like that, whereas there are some issues that are much more immediate. Like these.
The risk of suppliers pushing for price increases is obviously high on the list. Whether that is driven by currency movements (see below), by general uncertainty, or perceived changes in market structures, some suppliers may well be approaching procurement for higher prices. Be prepared.
Paralysis is a real risk – in terms of the inevitable uncertainty affecting firms making investment decisions, not wanting to commit to contracts and so on. Whilst that may seem to be more of a risk to the sell side, buyers may also be vulnerable to suppliers not wanting to commit to deals, particularly if they might involve major investment.
Tariffs, export / import issues; this will not be a super-immediate issue but in the medium and long term this will be one of the most serious consequences. The trade deals that the UK may strike might improve the situation for buyers in some areas but will almost certainly lead to some challenges elsewhere. So it would be wise to start considering the potential issues here as soon as possible.
Procurement may be able to exploit uncertainty – depending on the balance of power in relationships, can we look to gain from providing suppliers with more certainty in return for commercial advantage given their concerns? A longer contract in return for a price reduction perhaps?
This is a longer-term issue perhaps, but are there spend areas where supply from non-EU countries might be more attractive depending on new trade deals and the like? It might be a few years before anything much happens, but we need to be aware of the possibilities and in some cases make an early start at least considering the possibilities.
Most immediately, we see the opportunity for procurement leaders to become the experts and the key source of information about Brexit within their organisations. This will be a Board-level issue for years to come, in all probability. So CPOs should quickly position themselves as the “go-to” experts on all issues Brexit related – a reasonable goal given many of the implications will be around trade, buying (and selling).
Currency – there are risks and opportunities in all directions, on the buy and sell side. There are currency issues within the procurement portfolio, and different ways these can be addressed, but remember, hedging and not hedging are both strategies that carry risk. There are no magic solutions but we can at least look to understand the options.
It goes without saying – more to come here on Spend Matters on these and other Brexit issues in coming weeks and months!