Procurement professionals should have room to act tactically in order to deal with post-Brexit currency instability, an economist has said.
Dr John Glen, CIPS economist, told buyers to think about how they might localise their EU supply chains and said they should work strategically within their companies to increase brand value.
“We’ve got to be tactical; if we do have to pay our suppliers ahead of time to mitigate the risk then that’s what we need to do,” Glen said at this year’s CIPS Annual Conference.
He said one company he had worked with was losing £600,000 a month through currency devaluation, and its procurement department was not being given the leeway to hedge the risk. “Their finance department wouldn’t allow them to pay their suppliers ahead of time,” said Glen.
Glen, who is also director for the Centre for Customised Executive Development at Cranfield School of Management, sought to dispel the myth that currency devaluation was necessarily good for trade, particularly in the short term. He said trade deficits tend to increase in the first instance and said: “Frankly, the [procurement] people in this room are going to be critically important in mitigating that aspect.”
He said procurement would play an important role in ensuring the UK made the most of a weaker pound, in terms of its ability to substitute local goods and services for more expensive European counterparts and drive cost effectiveness into products.
“There is an enormous opportunity for local suppliers to replace EU suppliers and overseas suppliers,” said Glen. Buyers need to ask themselves: “What are we doing strategically to build that supply base, how long will it take to put that supply base in place, [and] is that actually something that we want to do?”
He told buyers to start looking now at what products they may need to on-shore “in the expectations that there may be a hard, soft, medium, what ever Brexit, and the implications in terms of a future tariff regime,” he said.
Glen added that the brand value of UK companies was also crucial in ensuring they stay competitive in European markets. If the country suffers cost disadvantages after Brexit, brand value would help in preventing consumers in export markets from substituting to other products.
“You have to understand the nature of that substitute relationship between you and goods that you compete with,” Glen told buyers.
“Now [we’re talking] about strategic procurement,” he said. “What role do you guys actually have to play, not only in that cost equation, but in helping your product win that branding game that’s going to allow you to reduce the nature of substitution should you come under price pressure?”
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