4 Ways Brexit Will Impact Your Procurement and Sourcing Practices
Brexit. That’s a fun topic, isn’t it?! Regardless of what you may think about it, you cannot but notice the impacts it is already having on businesses across Europe. The indecision of the United Kingdom (UK) to approve a plan is holding back investment and decision making. The markets and currencies are fluctuating and will continue to do so until a decision is finally made.
Procurement and supply chain are central to minimising the impact on both the UK and European Union (EU). The key areas professionals need to be aware of can be conveniently grouped into four buckets:
1.) Brexit requires a deeper understanding of your entire supply chain to control costs and ensure supply
Depending on what happens, tariffs may be applied between countries that were not previously there. New trade deals will mean that the UK cannot look at Europe as one anymore and sourcing products from France or the Netherlands may be more or less logical in the future due to those trade deals. Currency fluctuations are certainly a short-term concern and if Article 50 is extended, currency could continue to swing for a longer period before settling back into a more macro-economic pattern. Until then, procurement professionals need to be agile with their global sourcing decisions and ensure currency arbitrage is accounted for.
2.) Availability of resource
Different sectors of the UK economy, in particular, rely on freedom of movement of EU citizens more than others. Construction is one such industry and hospitality is another. When resources become scarce, wage costs will increase. It is simple supply and demand. This will eventually flow through to the end customer, or worse force UK companies out of business. Procurement professionals need to understand their supply chains to ensure that resource availability will not become a concern for their security of supply or critical sourcing requirements.
3.) Lead times
This is one that the press has been more vocal about. No deal really raises the risk of delays at UK/EU entry points purely because no one knows how customs will work in that event. It won’t last forever, but how long this uncertainty does last is important as many supply chains are very lean and there is no slack for delay. Take fresh fruit. A lot comes from Europe, or even via Europe, and most of our politicians have now realised that we are an island. Anything that sets foot on EU soil on its way to the UK will likely have a delay, and if it is long enough to cause degradation of the stock, retailers may need to write it off. Procurement professionals need to look at how they buy and who takes the risk in these circumstances as someone will be paying for this, at some point.
4.) Public sector procurement will change
The Official Journal of the European Union (OJEU) process will end in name for the UK, however the principles of the approach will likely be replicated in the UK. The issue here is for public sector buyers and suppliers to make sure they are aware of how their market/supply base will change as this could cause a reduction in competitive tension/requirements for the period until everything settles down.
These issues, while not new, are magnified and the political uncertainty makes it hard to plan effectively, but procurement professionals need to have agility in their strategies and relationships to ensure that impacts are reduced.