The leave outcome will be concerning many heads of procurement right now, especially those whose supply chains have for years taken advantage of beneficial EU trading agreements. There now starts a long period of uncertainty while decisions are made about the UK’s future relationship with Europe, whether it will engage in free trade agreements and so on.
Those supplier relationships are likely to be impacted but how exactly is unknown; and as the Government embarks on what is expected to be a protracted period of negotiation we may have to wait a while before individual organisations can make decisions on their future supply management strategy.
Whilst we wait to see what happens Procurement professionals can in the meantime start preparing the ground for the potential impacts, should decisions need to be made. Procurement in multi-nationals headquartered in the UK may need to consider the potential implications of using local subsidiaries on the continent to easily access suppliers in price favourable EU member states. These relationships could be impacted should the UK fail to agree a free trading agreement with EU states.
Procurement professionals should also see Brexit as an opportunity for a wider review, getting to grips with supplier information and relationships, so that they have clear visibility of which suppliers could be affected, and the scale of the potential financial exposure, should import duties or other trading levies be imposed. As a safeguard, now is also the time to start looking at supply partners to identify at what threshold any cost increase would trigger contract re-negotiations or the need to cast the net wider in search of fresh supplier options.
Five things procurement should be doing following the leave vote:
1 Reviewing its EU supplier base to gain an understanding of which of its supplier relationships could be affected.
2 Working with the business to advise on the potential commercial implications across affected suppliers
3 Considering the potential for EU based suppliers using the referendum outcome as a bargaining position or negotiation opportunity.
4 Starting to explore other supply options, such as local supply or rest of world, and identifying key strategic supply partners that could be affected.
5 Agree spend increase thresholds to trigger supplier renegotiations or new contract sourcing events.