Time for procurement to lead the way

Much of the immediate aftermath of the UK Brexit decision remains clouded in uncertainty. David Noble, chief executive of the Chartered Institute of Procurement and Supply, believes that procurement professionals have an important role to play in dictating future commercial success

As shockwaves continue to reverberate around the world following the UK’s decision to leave the EU, organisations are beginning to understand the possible impacts on their sourcing strategies and ultimately on the future of their products and services. Whatever happens in the end, there will inevitably be changes to labour markets, regulations, monetary strategies and potentially protectionist policies which all have to be understood and managed.

Procurement professionals have a crucial role to play during this period of great uncertainty, and though the pathway is not clear yet, they can be the guardians and protectors of their enterprise in the months and years ahead. Procurement must act as the suppressors of panic, as the outward-facing relationship managers with suppliers and stakeholders. Panic is dangerous because it can be magnified all the way down the supply chain with devastating results, such as key suppliers withdrawing crucial supplies. Procurement will face long-term changes in how business is conducted, as supply bases develop and contracts are re-drawn.

In the short-term, anyone relying on EU suppliers could face problems, such as a reluctance to continue to trade, where they are no longer the ‘customer of choice’, or on commercial agreements or even on the price of goods and services. Those reliant on free movement of labour, such as the NHS, may also face some difficulties, where key workforces look to other countries which are perceived as more welcoming.

Whatever the current situation and no matter how things develop, there are some actions procurement and the departments they represent can take immediately, regardless of uncertainty.

This is a good time, where best practice, and the value of trained professionals can show their true value. Showing a clear structure of which suppliers are being used, where spend is generated and where risks are, could be a good start. During periods of risk, procurement can support the public sector by focussing more closely on the supply chain and currency fluctuations for instance. Those that understand the supply chain in detail and where costs can build up can navigate their departments through these choppy waters.

Business as usual
The reality is, there is no change to the current reality. It is important that customers, whether internal colleagues, or external suppliers, are reassured that there is a two-year window once Article 50 is invoked, where re-negotiation can begin based on the platform presented by government and exit rules. In fact, this time can be seen as a period of opportunity where contracts can be started from scratch and better deals can be made.

Working together
Building on established internal and external relationships will be important. It is time to work more closely together to monitor current agreements and look at possible new landscapes, and drawing on colleagues in risk management, business continuity, compliance, finance, operations, marketing.

Risk mitigation
Develop a risk management plan, or alter your current one, and re-prioritise your risk. Where are the high-impact risk contracts and how can this risk be reduced?

Contract review
Gaining an overview of current contracts and the likelihood of impact will place you in a much better situation should the landscape change. At least it will give you the confidence that all bases are covered.

Develop a monitoring mind-set
Don’t just pull together some plans and file them in a drawer. Keep reviewing, changing, monitoring developments as they happen. Now the Summer season is at an end, decision-making is likely to be ramped up quickly and you need to keep up.

Communication matters
The procurement department will need access to a wide range of relevant and timely documentation and to keep their stakeholders informed. Regular communication will keep stakeholders on board and confident that the right decisions are made at the right time.

Accessing impact – strategy and tactics
This is a difficult task and not often one to be relished, but the value of the results can’t be underestimated. But, this post-Brexit world is a good opportunity to re-evaluate current need, identify new needs and re-consider spend. Perhaps some of the outsourced activities could be managed in-house for example?

Procurement teams should be looking at whether they are sourcing directly from EU suppliers, or are whether they are present in other tiers of the supply chain and so influenced. Mapping the supply chain, where suppliers’ suppliers are identified is an important step in taking responsibility for sourcing decisions of the future and forging a way ahead. By identifying the suppliers and looking at different scenarios, possible outcomes start to appear, to be then developed into a concrete plan of action. For instance, if a tariff of ‘x’ per cent was imposed on some of your key supplies, how would that affect budgets? Are any maintenance or operations-based activities sourced from the EU?

For key suppliers or large volume or value contracts, are they the only supplier you have on board? A monopolistic situation is likely to be more risky and if your EU supplier is feeling a little belligerent about the Brexit situation, could they try and exploit the situation? This may seem far-fetched but emotions still run high. Opting for a multiple-sourcing approach will mitigate the risk and could even enhance the operation. Is there a local source available?

With a re-drawing of borders and discussions around duties and tariffs, could this affect the transportation of goods? All scenarios are possible.

Budgetary concerns
Procurement professionals are best placed to advise heads of department on the possible financial implications and risk to continuing business. They need to monitor currency fluctuations with a watchful eye as even small changes could have a big impact if the volumes of supplies are high. Bearing in mind developments in interest rate announcement can also help build a picture of liquidity that will keep budgets and spending in check. Highlighting which contracts are most at risk of price fluctuations can be developed into a RAG rating and identify those in most need of attention.

Understanding suppliers and nurturing a close relationship will unearth some financial constraints you may not initially be aware of. For instance, are any of your suppliers in receipt of EU funding? Any grants in place could be at risk and would that mean your key suppliers could potentially go out of business and how would that affect you?

The free movement of people
This is probably one of the biggest concerns. Which contracts, which suppliers are most reliant on the EU labour force? The NHS is one example, but what about in sectors such as education and research where the UK tries to attract the best minds and the greatest problem-solvers?

On a micro-level, is there someone in your team that could be affected by restriction in movement? Could an important, talented employee be lost if any of these possible scenarios become the new reality? If that affects you, where would you look to find replacements or would you have to develop a programme of upskilling the current workforce?

The compliance debate
Another big unknown is the impact of possible tariffs or additional taxes. And what about compliance with new regulations should they come into force. Working with in-house legal teams can be invaluable in the development of these scenarios and what they can mean for public sector buying. Keeping up-to-date with changes day by day will ensure that the public purse is protected as much as possible and that money continues to be used wisely.

Looking at each agreement at a contract-by-contract basis, understanding the legal jurisdiction of the contract may prevent nasty surprises later on. But, as well as threats, there are always opportunities, so should things change, could de-regulation make trading easier. The SME market certainty thinks so, and with UK government targets aiming to use SMEs for at least 25 per cent of its supplies, this could be an opportunity to get more SMEs trading with government.

Another ‘by-product’ of de-regulation which can be forgotten is in the realm of IP ownership. Are any of your single-sourced or critical products tangled up in EU regulations on IP? Handing over intelligence because of a lack of understanding of the implications would be a bitter pill to swallow further down the line. There are also digital and data considerations. Could you be walking away from your EU suppliers and leaving them with your precious data?

Don’t be overwhelmed, prioritise
It’s a useful exercise to understand the impact of all your possible scenarios, but what is the likelihood of them actually coming to fruition? Prioritise the possible scenario and focus on those resources most needed. A simple risk grid is a useful tool.

Though there are still too many unknowns until Article 50 is invoked, the next phase of discussions will seek to understand what the new world will look like. Look to your procurement teams to offer support and use the negotiation skills of trained and qualified supply chain professionals to navigate your buying to a new level.

Further Information: 

www.cips.org

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